Reportedly, Netflix (NFLX - Free Report) is doubling its investments in France and will now produce 14 local shows, twice than originally planned. Per CEO Reed Hastings, the investment will be “many millions of euros.”
According to Reuters, Netflix is also planning to set up an office in Paris. The company’s focus on France reflects a rapidly-growing subscriber base, which now stands at almost 3.5 million, per business newspaper Les Echos.
The figure is impressive, considering content related regulations in the country. Per eMarketer, films cannot appear on pay TV movie channels for 10-12 months after their theatrical release, whereas subscription based Over-The-Top (OTT) platforms must wait 36 months past theatrical release. Further, French authorities require broadcasters to pay taxes to finance local content.
In fact, Netflix and other streaming providers like Amazon (AMZN - Free Report) are now expected to adhere to quotas set by European Union (EU) regulators. Per Variety, new rules that are set to get approval by December will force these content producers to “dedicate at least 30% of their on-demand catalogs to local content.”
Expanding Local Content Aids Netflix
Netflix’s unwavering focus on augmenting local content not only provides it with the impetus to meet the 30% (which might increase to 40%) target but also strengthens its competitive position.
In Europe, the company produced and streamed original content from Germany, Spain, Italy and Belgium over the last couple of years. Apart from Europe, Netflix invested in local content from Brazil, Japan and India.
In the last reported quarter, Netflix streamed second season of the Brazilian show named 3%. The company also launched the Danish thriller, The Rain and Lust Stories, a new Indian original film.
The investments in local content have been a key catalyst behind the surge in international revenues that soared 63.2% year over year to $1.92 billion.
Netflix plans to add more regional languages to make the service more appealing. As of now, it offers content in more than 24 languages and created 80 shows in 30 international markets.
Notably, OTT markets in Germany, Spain, France and India have ample room for growth compared with the maturing U.S. and U.K. markets. We believe increasing investments in local content will continue to attract new users in these regions.
Netflix expects to add 4.35 million subscribers in the international segment for the current quarter.
Aggressive Spending to Steer Away Competition
Moreover, Netflix’s aggressive spending on content acquiring is expected to help it steer away competition. The company has roped in some big names to produce new content for the platform and is set to release 470 original shows in 2018. Netflix is set to spend $8 billion on new content production, this year alone.
Furthermore, speculations are rife that Netflix might eventually expand beyond its current on-demand TV and movie model to offer live news or sports, with the likes of Facebook (FB - Free Report) , Twitter (TWTR - Free Report) , and Amazon joining the live content bandwagon.
Moreover, the streaming market is expected to become more competitive, thanks to the upcoming services from Apple and Disney.
Nevertheless, enormous spending can dent Netflix’s profitability in the near term, unless subscriber addition rebounds. Notably, subscriber additions in the last reported quarter missed management’s expectations.
Moreover, huge debt levels and expected negative free cash flow for years to come doesn’t bode well for investors.
Currently, Netflix has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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