Netflix, Inc. NFLX recently declared that it would begin streaming services in Japan from Sep 2. In Feb 2015, Netflix had unveiled its plans to expand its operations to the country while in June, media reports stated that the company was collaborating with various content creators in Japan.
Japan can be an important growth driver for Netflix as the adoption of Internet and mobile services in the region remains robust. Netflix stands to benefit from the huge untapped potential of the nascent pay TV market in the country, with only 38% of the population adopting the service, as per latest data.
Moreover, given the growing mobile user base in Japan, Netflix will have an opportunity to target on-the-go streaming services. In fact, the country has the third largest broadband market in the world, only behind the U.S. and China. Another major positive for the market is the availability of high speed Internet (84% of households have Internet speeds of over 4 mbps).
However, starting operations in a new country is likely to hurt financials in the near term as it requires huge investments (for both marketing and content acquisition). Nevertheless, the company has, historically, benefited from a fast-growing subscriber base.
While the market is no doubt attractive for the company, it is not free of competition given that Japanese player Hulu (which has been taken over by Nippon Television Network Corp. in 2014) is already popular and Japan Contents Group is set to launch its own service this year. Japan Contents Group even formed a consortium of 29 Japanese content providers, including major TV networks and film studios.
Netflix has been rapidly expanding its operations across the globe. The company has a presence in over 50 countries with approximately 65 million subscribers. By 2016, the company intends to reach 200 countries. We believe that international expansion, though weighing on its financials, will eventually strengthen the company amid competition from the likes of Time Warner Inc.’s TWX HBO, Amazon.com Inc. AMZN and Yahoo! Inc. YHOO.
Netflix currently has a Zacks Rank #3 (Hold).
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