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Netflix, Inc. (NFLX): Don’t Count on Overnight Success in Asia: Analyst

Netflix NASDAQ:NFLX

Netflix, Inc. is facing problems in Asia, where the online streaming company wants to replicate its success in the United States, Western Europe and Australia. According to reports, the U.S. online streaming giant is struggling in several Asian markets as a result of local competition and regulatory hurdles. There is growing competition in Asia from local streaming sites as well as global providers such as Amazon, Hulu, HBO and BBC iPlayer. In addition to satisfying local authorities, the streaming giant should focus on providing strong content to attract consumers.

Netflix had 34.5 million international subscribers and 47 million U.S. subscribers at the end of the quarter. The online streaming service expanded to more than more than 130 new countries including India early this year. It has 81 million customers across 190 countries.

Netflix NASDAQ:NFLX

Still Early in Asia For Netflix

Vivek Couto, executive director of Media Partners Asia, believes that Netflix will be able penetrate in Asia in the coming years. But in the short-term, it is difficult for the company to find success here. Media Partners Asia is a media consulting and research firm with offices in Hong Kong, Singapore and Mumbai.

“Netflix switched on the lights in Asia,” Couto told Forbes. “It’s a challenging game for them but they are very cognizant of the challenges and very aware of the dynamics of the various Asian markets and the fact that you need localization.”

Couto believes that Netflix will invest in local co-productions in Japan, India, Korea and China over the next 3-5 years. He also predicts that the company will get a “reasonable” penetration in South East Asia. The company’s services aren’t being subject to the normally strict censorship regimes in Singapore and Hong Kong, which gives it an advantage. However, piracy is “massive” in both Singapore and Hong Kong, according to Couto.

“I don’t think they will replicate their success in the U.S. but it’s a long-term horizon; there will be no overnight success in these markets as they had in Australia,” Couto said. “The scale of competition in Asia is really ratcheting up. This is a tipping point to what might happen in Asia over the next few years as streaming allows (content) companies to go to market more quickly as long as they  have the right technology and user interface. You will see a lot more players entering the SVOD market and you might see players in China expanding across South East Asia.”

The company has yet to get permission to enter the highly restricted China market.

Original Content For India

Netflix, Inc. recently announced that it will produce an original content for the Indian market. The streaming service’s first production, a crime drama series, is adaptation of the 2006 best-seller “Sacred Games” by Vikram Chandra. It will shot on location in India and produced by Phantom Films, a local production company.

Mr. Chandra’s novel, a sprawling thriller set in Mumbai’s criminal underworld, focuses on a Sikh police detective’s pursuit of India’s “most wanted gangster.”

“Over the last few years, I’ve watched with great excitement and pleasure as Netflix has transformed narrative television with its ground-breaking, genre-bending shows,” Chandra said in a statement. “I’m confident that all the color and vitality and music of the fictional world I’ve lived with for so long will come fully alive on the large-scale canvas provided by Netflix.”

Shares of Netflix, Inc. have dropped by 19.59% year-to-date.

John Griffin’s Blue Ridge Capital, Steve Cohen’s Point72 Asset Management, Palestra Capital Management, PEAK6 Capital Management, and Jericho Capital Asset Managementare betting big on Netflix. The hedge funds started new positions in the online streaming service during the first quarter of 2016, according to latest 13F filings.

As we reported earlier, Netflix is getting ready to unveil its latest original series “Stranger Things” this summer. Stranger Things, from newcomer writer/director brothers Matt and Ross Duffer, will have eight episodes.

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