Will Brexit Impact Netflix’s International Streaming Business?



Netflix’s international streaming business

Netflix’s (NFLX) international revenues made up 33% of the company’s total revenues of ~$2 billion in fiscal 1Q16. As Netflix continues to expand rapidly in international markets, it’s exposed to foreign currency risk. Brexit could have a negative impact on Netflix’s international revenues and contribution losses.

Netflix operates in the United Kingdom through its subsidiary, Netflix UK. The company is expecting an improvement in its contribution losses for the international streaming segment. It expects its contribution loss to be $80 million in fiscal 2Q16. However, as Brexit causes the pound to weaken against the US dollar, it could impact Netflix’s international streaming revenues and contribution losses.

It’s important to note that Netflix doesn’t use foreign exchange currency contracts to hedge against currency fluctuations. Other media companies exposed to currency fluctuations include 21st Century Fox (FOXA) and Viacom (VIAB).

As the above chart shows, Netflix had international streaming memberships of 34.5 million in fiscal 1Q16 with net additions of 4.5 million. Currently, 42% of Netflix’s total streaming members are from international markets.

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European Regulations and Netflix

Last month, CNBC reported that in Europe (IEV), streaming service providers such as Netflix and Amazon’s (AMZN) Prime Instant Video Service could be forced to ensure that 20% of their content catalogs consist of European television shows and films. The decision could be just one change required to comply with the European Union’s broadcasting rules.

In Europe, it’s usually mandatory for national broadcasters to keep 20% of their content European. So far, streaming services such as Netflix have been excluded from it. If implemented, this legislation could be a blow for Netflix as it pursues its original programming strategy in Europe.

With the United Kingdom separating from the European Union in due course, Netflix’s operations in the United Kingdom could be impacted by new regulations in the near future.

Netflix makes up 0.2% of the SPDR S&P 500 ETF (SPY). SPY has an exposure of 3.4% to the media sector.


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