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The most important Netflix series right now may not be in English

Key Points
  • The Netflix series "La Casa De Papel," known as "Money Heist" in English, was watched by 44 million households in its first four weeks across non-English-language territories.
  • Netflix Chief Content Officer Ted Sarandos called that a "phenomenal success."
  • As price increases, market saturation and new streaming competition in the U.S. pressure domestic growth, Netflix and Wall Street are expecting more from international markets.
Atmosphere at the Netflix "La Casa Di Carta" Special Fan Screening at Piazza Affari on July 18, 2019 in Milan, Italy. “La Casa Di Carta” (aka La Casa De Papel or Money Heist) is a Spanish television series edited and re-released worldwide by Netflix.
Emanuele Cremaschi | Getty Images Entertainment | Getty Images

Netflix shares rose after its third-quarter earnings, and as domestic growth for the streaming giant has slowed, more of the growth is coming from abroad.

Netflix has had success with original local language content in 17 different countries and chief among the big international push is "La Casa de Papel," known as "Money Heist" in English.

The third season of the Spanish show was the most watched Netflix series across non-English-language territories with 44 million households watching the show in its first four weeks, the company reported in its Q3 shareholder letter and post-earnings video interview.

The show, which follows a group of bank robbers carrying out bigtime heists in Spain, saw the group coming back together to steal gold from the Bank of Spain in its most recent season. The Álex Pina written show has quickly become Netflix's biggest success outside of the U.S.

Guggenheim analyst Mike Morris, who conducted a video interview with Netflix management on Wednesday, noted that Google search activity for series including "La Casa de Papel" increased "by multiples or at least doubling what their prior levels were."

Breaking out beyond local borders

The key to success of "La Casa de Papel" is its popularity breaking out beyond local borders.

"A lot of these titles that are hugely impactful in the country where they're produced also tend to travel throughout the region, sometimes around the world. ... Casa De Papel, the success of that show, was basically in almost every non-English-speaking territory. It was a phenomenal success," Sarandos said. "The way that they travel and the way they make a big splash around the world is to be super authentically local and really satisfying for the viewers, starting in the home country and then expanding around the world," he said later on the call.

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Netflix chief product officer Gregory Peters said another part of the thinking is that audiences around the world "feel like we'd have never actually watched a show in that language or from that country before."

The technology now allows that global desire to be met. "It's connecting that show, having it be localized, in language with subtitles or dubbing, whatever is appropriate for that market, and then also explaining to users, to members why they're going to want to watch this amazing heist series from Spain and why that's going to be a totally compelling watch for them based on the other kind of content that they're enjoying."

Netflix also had its biggest success in Japan with "The Naked Director," though in keeping with the long-time caginess of Netflix when it comes to revealing too much about viewership, it claimed the drama series was successful throughout Asia without providing numbers.

Sarandos cited a new German show called "The Wave" as a series that could make a big splash around the world for Netflix in the future. The company expects to grow their original local language content to 30 countries, and has over 130 planned local language series in 2020.

While there is significant focus in the market on the bidding competition for rerun rights like "Friends" and "The Office," success or failure will be driven more by Netflix's ability to delight its members in foreign markets.
Morgan Stanley

Netflix needs a stronger international story as headwinds grow in the U.S. market. Its shares rose as much as 9% after its earnings report on Wednesday afternoon, but those gains narrowed on Thursday.

Netflix added 517,000 domestic subscribers versus an expectation of 802,000. Needham analysts projected the company could lose up to 10 million of its roughly 60 million U.S. subscribers in 2020 if it doesn't lower monthly subscription prices. Netflix price increases — it now charges $12.99 for its popular HD streaming plan — have made the service more expensive than new services from Apple and Disney are expected to be, and these services will put continued growth in the U.S. under pressure.

Netflix is also slated to lose several popular shows, including "The Office" and "Friends" in the next two years, though it recently bought the rights to "Seinfeld."

Netflix has faced customer churn, but the company noted the price increases resulted in average revenue per user in the U.S. has increased 16.5% year over year. Netflix's international paid net additions totaled 6.3 million in the third quarter, a 23% increase from 5.1 million in Q3 of 2018.

Macquarie wrote in its earnings wrap that the international numbers are a reason for optimism for Netflix.

"We still think it's opportunity is excellent," Macquarie analysts wrote. "Especially internationally, where sub adds should continue to step up."

Morgan Stanley analysts wrote that "while there is significant focus in the market on the bidding competition for rerun rights like "Friends" and "The Office," success or failure will be driven more by Netflix's ability to delight its members in foreign markets."

Morgan Stanley analysts noted that international subscriber growth came in "a touch ahead despite fairly healthy price increases for over 50% of the international footprint in 2019."

Evercore cited Netflix's new low-price mobile-only tier subscription in India as a reason for Netflix's strong numbers abroad. The new tier outperformed company expectations in the third quarter, and Evercore noted that "management disclosed that similar products are being tested in other markets."

Netflix executives noted on the call that there are about 2 billion active users of Facebook and 2 billion active users of YouTube. "We're obviously a fraction of that. And those numbers are continuing to grow. There are 6 billion active mobile phones in the world."

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Key Points
  • Streaming video competition is intensifying with new offerings from Apple and Disney hitting an already crowded market dominated by Netflix.
  • The threat to the movie theater business has led AMC Theaters to launch its own on-demand film streaming service for the home.