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MeneameUS video streaming site Netflix (Nasdaq: NFLX) believes it will take longer than two years to reach profitability in its Latin American operations, launched last year, Netflix CEO Reed Hastings told a conference call with investors.
"It's early to say. But on balance, I guess... it will take us longer than two years. So we're working hard on all of our payment issues and subtitling issues, rapidly improving them, and then we'll be able to see what's the underlying growth trajectory," Hastings said.
The executive pointed out that it took DirecTV a number of years to gain its market position in Latin America.
Hastings said he does not believe that pricing is an issue with most countries charging US$7.99 a month. But Latin American operations, launched in September, are growing slower than Canada had done in its first quarter of launch.
The company ended 2011 with roughly the same number of Latin American members that it had at the end of the first quarter launch in Canada, which is proportionally lower considering that there are four times more broadband households in Latin America than in Canada.
In a letter to shareholders, Netflix said Latin America presents unique challenges relative to its other markets - namely, low device penetration, high piracy, varying preferences for subtitles and relatively low credit card use for e-commerce.
The company said it had already nearly doubled its content library since the launch, adding more US and local movies and TV. Netflix is adding more subtitles in both Spanish and Portuguese (in addition to dubs), as well as expanding the range of Netflix-enabled devices in the region.
The company said it had found processing e-commerce consumer payments more challenging than in North America and Europe.
"To overcome this challenge, we are working with our local payment partners to optimize our systems, exploring adding new payment methods and testing various trial campaigns to improve conversion," the company said.
Netflix posted a US$41mn global net profit in 4Q11, compared to US$47mn in 4Q10. Revenues rose 47% year-on-year in the period, to US$876mn.
The company said a sharp decline in Q4 of domestic subscriptions for its traditional DVD service had impacted revenue and profits.
Netflix said it expects its DVD revenue in 1Q12 to decline by as much as streaming revenue will increase, resulting in flat sequential revenue for the quarter.
But the company came in well above Q4 market expectations, and at time of publishing, its shares were up nearly 22% to US$116.
Use this link to read the earnings release in full.
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