CEO Hastings: Profitability in Netflix Latin America at Least Two Years Away

25 Jan, 2012 By: Erik Gruenwedel

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Netflix’s international expansion into Latin America, Mexico and the Caribbean isn’t expected to become profitable for at least two years, CEO Reed Hastings told analysts during a Jan. 25 earnings call.

Hastings and CFO David Wells said that unlike Netflix Canada, which became profitable with more than 1 million subscribers in about a year after its September 2010 launch, forays into Latin America involve dealing with myriad issues such as incorporating Spanish and Portuguese subtitles, a dearth of Netflix-compatible consumer electronics devices, low credit card usage for e-commerce and piracy, among others.

"On balance ... it will take us longer than two years [to be profitable]," Hastings said. 

Netflix international operations, which include the United Kingdom and Ireland launched this month, lost $60 million during the fourth quarter (ended Dec. 31).

Despite four times the penetration of broadband households in Latin America compared with Canada, consumer adoption of Netflix in the region mirrors that of Canada during the first quarter after launch, at about 500,000 subscribers.

To overcome e-commerce challenges, Netflix is working with local payment partners to optimize systems, including adding new payment methods and testing various trial campaigns to improve conversion.

Wells said Netflix Canada benefited from a “halo effect” of the Netflix brand in the United States. Hastings said the two-year time frame to profitability represents an arbitrary internal benchmark, adding that DirecTV took years to establish satellite TV operations. Wells said the fundamentals and possibilities in the region remain strong.

“I think Latin America is good and prospectively great market for us going forward,” Wells told analysts. “We are quickly learning what content works best in the region, and are adjusting our content library accordingly,” Hastings and Wells added in a letter to shareholders.

For example, a steady diet of Hollywood movies and TV shows appear popular in Mexico, according to Hastings.

Meanwhile, consumer adoption of Netflix service in upstart United Kingdom and Ireland (launched earlier this month) remain ahead of Canada during its first weeks. The Canadian service attracted 130,000 subscribers during its first month, according to company records.

Netflix added 380,000 net subscribers internationally in the fourth quarter for an overall tally of 1.86 million subs.

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