Netflix’s subscriber expansion outside the US is taking up the slack, as new customer growth slows at home.

The company reported 43.4 million paying subs in the US and 27.4 million internationally in its latest earnings.

Asia-Pacific contributed 5% to the ex-US base, based on Media Partners Asia (MPA) estimates.

Last year, Netflix added 5.7 million pay subs in the US, versus ~6 million in 2014. International additions accelerated to 10.7 million, from 7.1 million the year earlier.

Contribution profit margins are robust in the US at 34% but are in negative territory, at -17%, for international.

US$1 BILLION SPEND IN 2016

Netflix is likely to burn through ~US$1 billion in cash this year, mostly to bankroll its own original content. Such spend can still be supported by historical debt, although the company will likely need another tranche in Q4 2016 or 1H 2017.

Chief content officer Ted Sarandos confirmed plans for an additional 600 hours of original content in 2016, including about 30 new dramas, eight movies, 35 new series for kids, a host of documentaries, and nine comedy specials.

Netflix released five new original series and one original feature movie in Q4 2015.

The company is also targeting more non-English productions this year, including shows from France, Italy, India, Japan, Mexico and Brazil.

In terms of licensing content from other players, amidst potential pullbacks from 21st Century Fox and Time Warner, Sarandos said: “As a percentage of our spend, the original spend is growing, but as an absolute, their licensing dollars are continuing to grow as well.”

Sarandos continued: “Fox is an important vendor for us, just like they all are. We're also a very important source of revenue for them.”

Both CEO Reed Hastings and Sarandos highlighted Netflix’s kids content.

“Quietly, we've been amassing a very big selection of original kids programming on Netflix,” Sarandos noted.

“And that's going to continue to grow. We're also looking to grow categories like Fuller House, programming watched as a family... it's a real under-served market.”

INTERNATIONAL GROWTH

Generally, most international markets prove tough in year one but Hastings noted that Netflix is enjoying significant success in previously challenging territories such as Brazil, as the company builds out its product, content and team.

Australia and New Zealand, meanwhile, have produced 1.3 million paying subs about a year after launch, according to MPA estimates.

While churn in these markets is low (despite press reports), growth is tailing off, signalling slower momentum ahead as Netflix looks to build on its gains with new productions.

In Asia, regulatory barriers are forming in Indonesia and Vietnam, while complying with content norms is becoming problematic in Malaysia and Singapore.

Nonetheless, Hastings remained confident that Netflix would sustain its growth.

“What we've seen in market after market like Spain, Italy, France, Germany, is we will build momentum as we do more and more local content,” he said.

“So it's a natural building cycle,” he added. “And I think the way you should model it is pretty consistent growth in all of the territories.”

Netflix is especially keen on balancing investments for large-scale greenfield territories with those for affluent English-speaking demos across Asia, Africa and the Middle East.

“It's similar to how we launched Latin America, where there's a couple of countries that we focused on directly, and there's still some countries that we haven't yet visited four or five years later, but where we have a lot of members,” Hastings remarked.

China will take longer, due to regulatory hurdles and the intensity of domestic competition.

“This could be many years of discussions or it could happen faster than that. We're going to take our time,” Hastings said.

“Most of our time and effort right now is going in, how do we build the Japanese market? How do we build the Philippines market? How do we build the Saudi Arabian market, markets that are open to us and available right now?”

The company is on track to lose US$120 million a quarter driving international growth, although CFO David Wells cautioned that foreign exchange fluctuations could stretch that number by US$10-20 million per quarter.

Total company operating profit will be flat-to-down, as a result of this year’s international investment.

VPNs and technology

Hastings dialed down Netflix’s recently announced clamp-down on access via VPNs (virtual private networks, enabling subscribers to bypass geographical blocks on content), hinting that the move was really aimed at content partners.

"I don't think we'll see any impact,” he said. “We've always enforced proxy blocking with a black list. Now we've got an expanded and enhanced black list.”

Hastings added: “If we license content in Canada, it's not fair for us or our customers to be getting that, if we've only paid for Canada. So we're trying to pay for it all by shifting to global licenses, and we’re working with content providers on that.”

Netflix will also spend more US$700 million on technology and development this year, with one goal to improve video delivery for mobile-first emerging markets.

Key areas for investment include better encoding with smaller bit rates, as well as new algorithms to optimize ranking and targeting.