December will be a battleground month in the video streaming wears. As Netflix (NASDAQ: NFLX) beefs up its Marvel content, Amazon.com is using the debut of The Grand Tour, an unofficial spinoff of the BBC hit Top Gear to put Prime streaming in 200 territories, wrote host Jeremy Clarkson in a tweet.
Earlier this year, Netflix announced an expansion into 130 new countries around the world, which put the company almost everywhere except China. In funding a big footprint for The Grand Tour, Amazon is effectively challenging Netflix in every territory that matters. Should investors be concerned? Yes and no.
Let’s start with potential problems. International growth is important to Netflix, and not just because it reduces the per-unit cost of expensive originals such as House of Cards and The Crown. The company is also investing in developing local-language originals in a variety of countries. Current series in production include the Brazilian thriller 3%, which debuts this week. French political drama Marseille reached viewers in May and has since been renewed, while Japanese drama Hibana (Spark) launched in June.
Netflix hasn’t yet ordered a second season of Hibana, but the company’s massive commitment to original content increases the odds in its favor. Nevertheless, investing in foreign-language originals isn’t cheap, and increasing competition won’t make it easier to recoup costs.
So what’s the good news? International growth has been strong. Total streaming revenue from overseas territories jumped 65% in the third quarter. Paid memberships in those countries rose 54% over the same period while monthly revenue per paid member rose from $7.20 to $7.73 in foreign markets, an important wrinkle.
Netflix’s international growth isn’t just the byproduct of being in more places with global content. It’s also a byproduct of having tailored content available for audiences who are willing to pay up to see it. Amazon’s expanding presence could upset that dynamic — but the only way to know will be to keep a close eye on those metrics.
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