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The International Expansion Trend for Online Video Streaming

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International expansion

Currently, Alphabet’s (GOOG) YouTube Red subscription streaming service is only available in the United States. It’s not clear when the service will expand to international markets. However, YouTube’s free ad-supported service has around 1 billion users globally.

Other online video streaming companies such as Netflix (NFLX) have already started expanding globally. Netflix plans to have a global footprint in around 200 countries by the end of 2016. Netflix’s 3Q15 results for its international streaming segment showed revenues of $0.5 billion, up by 49.4% from last year’s quarter.

The company’s international average selling price rose by 6% over the previous year’s quarter, excluding the impact of foreign currency exchange rate fluctuations. In August 2015, Netflix raised the price of its popular standard plan in Europe by 1 euro (or $1.14).

It appears that this didn’t impact Netflix’s international streaming memberships. As the graph below shows, it had ~26 million total international memberships in 3Q15. Its total international net additions of 2.7 million subscribers exceeded its internal forecast of 2.4 million for the quarter.

After its launch in Japan earlier this year, Netflix plans to expand into South Korea, Singapore, Hong Kong (EWH), and Taiwan by 2016. Netflix has stated that its international streaming segment is expected to break even in 2016 and turn profitable after 2016.

Netflix makes up only 0.29% of the SPDR S&P 500 ETF (SPY). But if an investor wants exposure to the drugs and pharmaceutical sector, SPY ETF has an exposure of 8.5% to the sector.

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Amazon Prime Instant Video

Amazon (AMZN) has followed in Netflix’s footsteps and launched in Japan (EWJ) in September 2015. Amazon’s online video service already has a presence in the United States, the United Kingdom, Germany, and Austria.

Hulu

Hulu is shying away from international markets. Lack of original content could be the reason Hulu is hesitant to expand. It wouldn’t be able to gain international subscribers rapidly if its content wasn’t popular among those users.

Another reason Hulu isn’t looking at international markets might be a pricing issue. Hulu entered Japan a few years ago, but it later had to sell off its Japanese service. Its pricing was considered too high in the Japanese market.

Why expand to international markets?

Pure-play OTT (over-the-top) operators in the United States such as Netflix are increasingly looking at international markets for subscribers. The reason is that as the popularity of English language content rises globally, it’s much easier for OTT players such as Netflix to grab international subscribers.

As pay-TV operators in the United States such as Dish Network (DISH) also enter the OTT market, competition is increasing for companies such as Netflix. Sooner or later, pure-play OTT players will have to look at international markets for expansion.

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