Despite Slower-Than-Expected Subscriber Growth, Netflix Pushes Forward With International Plans

Netflix announced that it returned to profitability in the second quarter, after a slight dip into the red during the prior three-month period. But despite slower-than-expected subscriber growth, the company said it is committed to pushing forward into a new market in the fourth quarter.

Netflix added almost 600,000 international streaming customers in the second quarter, ending with 3.6 million outside the U.S. But that’s lower than its forecast from the first quarter. Nevertheless, Netflix remains committed to adding an additional market by year-end, which is expected to push it into the red again.

Nearly two years ago, Netflix streaming launched in Canada, its first international market. It’s already hit 10 percent of Canadian households in that market and it’s already profitable. With a million subscribers in the U.K. and Ireland, Netflix is showing robust growth in its newest market. It entered that geography six months ago, and is already exceeding expectations and beating local European competitor Lovefilm. So in English-speaking markets it’s doing all right.

Where Netflix has had issues is in Latin America. After ten months, it’s gained a million subscribers in that huge market, it’s suffered so far from all the same problems it was expected to face: Low device penetration, slow Internet speeds, and problems with billing. Billing in particular has been an issue, as it put more upfront checks in place, which had an impact on new trials and conversions.

Netflix hasn’t yet named its next market, but it has said that it will be in Europe. That rules out Australia as another potentially attractive English-speaking market. It also suggests that Spain, which was long-rumored to be launching alongside the U.K. as Netflix entered Europe, could be its next target. Given the huge amount of Spanish-language content that it’s licensed to go after Latin America, Netflix could release a similar offering in that market.

Wherever it goes next, Netflix will be looking to fight slowing growth in the U.S. and the loss of subscribers to its profitable DVD-by-mail business. We’ll be listening in on the second-quarter earnings call at 3:00 Pacific, to see if Netflix gives any other color around its international business.