How Big Can Netflix Get?

It’s been clear for some time that Netflix has broken out of the streaming niche to become a bona-fide TV institution. It’s easily the most recognizable brand of over-the-top service and with a subscriber base of 69.17 million users strong, it towers over its streaming rivals. Indeed, when Netflix goes down, as it did temporarily earlier this month, it’s a crisis.

So just how big can Netflix get? The company frequently benchmarks itself against HBO, which currently stands at roughly 138 million subs, not counting the subscribers to its new HBO NOW streaming service. To narrow the gap, Netflix would just about have to double its subs—difficult, to be sure, but not impossible.

One of the biggest challenges Netflix faces is its quest for international growth. If Netflix is going to double in size, the vast majority of its new customers must come from overseas. Over the last quarter, Netflix added 880,000 U.S. subscribers but over 2.7 million international ones. U.S. subscriber growth for the quarter was less than Netflix had forecast and suggests that the streaming service may be nearing the saturation point (though Netflix also claims that churn driven by the transition to chip-based credit cards unnaturally suppressed subscriber acquisition). Netflix is currently available in 50 countries, including 16 relatively wealthy European nations, but still counts on the domestic U.S. market for most of its revenue.

Convincing global users to embrace the service hasn’t been an easy pitch, as the New York Times documents. In many well-developed markets such as Europe, Netflix isn’t a plucky upstart luring cord cutters with an inexpensive alternative to incumbent pay TV providers. It’s entering a field where OTT competition is already healthy and free-to-air TV is far better entrenched than it is in the U.S. Pay TV providers like Sky have anticipated the arrival of Netflix and have launched their own OTT services to compete.

To win over international audiences, then, it’s not enough to be cheap. You have to have exclusive content, which explains why Netflix has ramped up its investment in original programming. Global audiences are hungry for American fare, but also eat up local language content, an area where Netflix’s international rivals are better stocked.

In its quest to dethrone HBO, Netflix will need content more than ever and it’s pursuing it eagerly. They’re signing pricey distribution deals to bring Hollywood films to global audiences and they’re expanding the types of original programming they offer, to include talk shows and newsy documentaries. They’re pushing 4K and HEVC encoding to appeal to early adopters.

It remains to be seen whether this will be enough to keep up what had, before the third quarter, been a torrid growth rate. But Netflix’s challenges are in no way unique and, if anything, rivals like Hulu and Amazon face a much tougher road. Netflix has scale and revenue, two crucial ingredients to underwrite its original content ambitions. If they can’t unseat HBO, no one in the immediate future can either.