The Netflix Boost

Don’t fear the market competition and cultural hegemony of Netflix’s exported content.

Movie posters for Ip Man 2, My Little Pony: Equestria Girls, A Royal Affair, and Samurai Gourmet.
Photo illustration by Slate. Images by Netflix.

Excerpted from Digital Renaissance: What Data and Economics Tell Us About the Future of Popular Culture by Joel Waldfogel. Copyright © 2018 by Princeton University Press. Reprinted by permission. 

I enjoy Mads Mikkelsen movies. But because I live in the United States, and because many of his movies are in Danish, I don’t have the opportunity to watch them at my local cinema. Nordic global reach wasn’t always so negligible: Viking explorers from present-day Norway, Sweden, and Denmark once enjoyed 300 years of trade and plunder around much of Europe—and remained a powerful international presence until the Norman Conquest of 1066 and the widespread embrace of Christianity in Scandinavia. With the exceptions of Volvo, Saab, North Sea oil, and ABBA, the export of culture from Scandinavia, which makes up less than 3 percent of Europe’s population, has been mostly quiet for a millennium. Americans might know Mikkelsen from the TV show Hannibal and as the bad guy Le Chiffre in the first James Bond reboot starring Daniel Craig, Casino Royale (2006). But Mikkelsen is a more nuanced actor than his American credits showcase and has starred in numerous Danish-language films, including Flame and Citron (2008), The Hunt (2012), and A Royal Affair (2012), which was nominated for the 2013 Best Foreign Language Film Oscar. Fortunately, all of these films have at times been available on Netflix’s streaming service in the United States. And when they haven’t been on Netflix, they’ve been available on one of the other few dozen U.S. streaming services. For me at least, digitization has changed patterns of world trade: I am able to import from Denmark.

International trade is widely understood, among economists at least, to be a beneficial force. Consumers get access to a wider variety of products, and producers gain the opportunity to sell not only to their home-country customers but also to those in other countries. For the most part, the world has moved toward free trade over the past few generations. Cultural products are an exception.

To many policymakers, changes that make the cultural products of other countries more readily available are a threat to domestic sellers and to domestic culture, rather than an opportunity to sell domestic products to consumers abroad. Hence the French support for a “cultural exception” to free trade in 1993 General Agreement on Tariffs and Trade negotiations. Long before digitization made foreign products ubiquitously available, French President François Mitterrand put it this way:

Let us be on guard. If the spirit of Europe is no longer menaced by the great totalitarian machines that we have known how to resist, it may be more insidiously threatened by new masters—economisme, mercantilism, the power of money, and to some extent, technology. … What is at issue is the cultural identity of nations, the right of each people to its own culture, the freedom to create and choose one’s images.

The question of whether free global exchange of cultural products threatens local markets and culture has been a perennial concern for European policymakers, who in 2015–16 entertained the possibility of creating a “digital single market” in Europe that would have allowed digital products like movies and music to be sold by vendors in one European country to consumers in another. Representatives of various European national movie industries scuttled the commission’s proposal, fearing competition from foreign products and loss of control over marketing. Netflix, which operates throughout the world, except in China, Syria, and North Korea, poses a new potential threat in the eyes of European regulators. But their fears might be misplaced.

On its face, Netflix appears to offer worldwide distribution for a lot of movies and television shows. And it does, but there is a catch. Netflix is a highly curated subscription service. Except for “Netflix original” content it produces or commissions, it must purchase country-specific distribution rights. Moreover, because Netflix seeks to attract subscribers with its content, it would generally prefer exclusive distribution rights, meaning that it would be the only distributor of a movie or series in a country. But rights holders require substantial compensation in exchange for exclusive distribution rights. So Netflix tailors its catalog to each market.

As of early 2016, Netflix distributed 14,250 movies and 2,200 television series in various and differing numbers of countries around the world. For example, the Norwegian film Headhunters was available in 160 Netflix markets, while the Canadian My Little Pony: Equestria Girls was available in 243. Hong Kong’s Ip Man 2 was distributed into 103 markets. But most movies and series were available in fewer than 10 territories. As a result, the Netflix country catalogs included different titles and came in different sizes, depending on the market. In early 2016, Netflix carried 4,827 movies in the United States but fewer elsewhere: 3,025 in Canada, 1,758 in France, 1,171 in Spain, and 604 in India.

Netflix is of course a U.S. company, so European regulators’ first reaction was to view Netflix as an American assault on European culture and to propose domestic content rules. The European Commission initially proposed a rule requiring European Netflix to carry at least 20 percent European Union content. Then, in May 2017, the European Parliament set a 30 percent target.

Are European filmmakers’ worries that Netflix disproportionately promotes U.S. content justified? Luis Aguiar, an economist at the European Commission’s Institute for Prospective Technological Studies, and I set about finding this information in 2016. We collected data on all the movies and television series on Netflix, along with information on where Netflix distributes them and where the content was created. Of the movies and shows available anywhere on Netflix in early 2016, just over half (52 percent) were of U.S. origin, 9.9 percent were from the United Kingdom, 5.5 percent were from France, 4.3 percent were from Canada, 4.2 percent were from Japan, and the remainder were mainly from 29 other countries.

But while our tally suggests a strong U.S. content presence among properties distributed by Netflix, the data are potentially misleading in two ways. First, while more than half of the movies and shows on Netflix in at least one destination are from the United States, most movies and shows on Netflix are distributed in few countries. The median number of destination markets for a U.S.-origin movie is five. So the fact that just over half of the movies on Netflix are American does not mean that half of what’s available everywhere is American. Second, not all movies are equally important. Suppose Netflix carried 1,000 U.S. movies everywhere, but these were particularly unpopular movies that no one watched. That scenario would do a lot less to promote U.S. culture than if Netflix carried 1,000 popular U.S. movies.

To figure out which origin countries’ movies gain favor from Netflix distribution requires a somewhat sophisticated measure that reflects both the importance of particular movies (are they popular or obscure?) as well as demographic reach (what share of the total population of the territories where Netflix distributes content lives in a country where Netflix carries the movie?). Finally, to say something about which repertoires Netflix promotes, it’s useful to compare any measure of repertoire reach on Netflix with an analogous measure for the repertoire’s reach via theatrical distribution.

Data on theatrical distribution put a constraint on what we can do. But we collected those data for 23 countries that cover more than three-quarters of the world’s population for the period from 2008 to 2014. And because the goal was to compare which repertoires Netflix advantages relative to theatrical distribution, we included only countries that are in the Netflix distribution area, so we excluded China.

Each movie has two relevant measures. First, each movie has a relative economic importance among the movies from its origin country. I measured this importance weight as the number of Internet Movie Database ratings the movie received, divided by the sum of all importance weights for all movies from its origin country. Second, each movie has a demographic reach, which is the share of world population living in a country where the movie is distributed. I call this variable the population coverage share for the movie. We obtained a country repertoire’s overall reach measure by multiplying the importance weight for each movie times its population coverage share via the distribution channel. We then add these products across all movies from the origin country.

We could then assess which countries’ movies get a boost from Netflix relative to theaters by calculating this reach measure for each repertoire via each distribution channel. The graph below reports the repertoire reach measures for theatrical distribution. Perhaps not surprisingly, the United States is in the lead, at 0.48. The United Kingdom is second, at 0.36. Germany, France, Spain, and Australia are all at roughly 0.30, and Mexico is just over 0.20.

Chart of the reach measure in theaters for various countries.
Joel Waldfogel/Princeton University Press

Doing the same exercise for the same population of movies and the same countries for Netflix distribution, we see that the reach is far lower on Netflix compared with theatrical release. Given how few movies are on Netflix, it is not surprising that the reach measures are uniformly lower via Netflix than via theaters. The fact that Netflix tends not to carry the most popular movies—with the highest importance weights—also makes the Netflix reach measure lower. Still, the United States is in the lead (0.175), followed closely by Australia (0.164), then Hong Kong (0.161), then Mexico (0.125), and the United Kingdom (0.116):

Chart of the reach measure on Netflix of various countries.
Joel Waldfogel/Princeton University Press

But what’s interesting is which countries are relatively advantaged by Netflix. The following graph shows the ratio of the Netflix reach to the theatrical reach, normalizing the U.S. ratio to zero. Netflix distribution confers advantage on the repertoires of more than half of the countries, relative to the United States, among those with at least seven movies in Netflix. The areas that are relatively advantaged by Netflix the most are Hong Kong, Norway, Chile, Colombia, Brazil, Thailand, Switzerland, the Netherlands, Sweden, China, South Korea, Denmark, Mexico, and Australia.

Chart comparing Netflix vs. theater reach for various countries relative to the U.S.
Joel Waldfogel/Princeton University Press

If you’re also a big Mads Mikkelsen fan, you might be slightly less surprised to find that major Scandinavian countries are prominent among the relatively advantaged. Netflix promotes David (and Sven) over Goliath in the movie market.

While Netflix provides a boost, at least relatively, to smaller-market repertoires, its role as a facilitator of frictionless trade is inherently limited by its nature as a curated subscription service. Netflix simply does not carry a large amount of content, in comparison with à la carte services like Amazon Instant, which provides more U.S. availability of larger global repertoires than Netflix and may hold more promise of facilitating future global trade in movies and TV.

But Netflix’s approach is still crystalizing. Companies traditionally operate internationally using one of two approaches. One approach is to be global, like Coca-Cola or Ikea, offering the same products everywhere. The other is to be multidomestic, like McDonald’s, adapting offerings to local preferences. McDonald’s is famous for selling all-beef hamburgers in the United States, but it also operates with a tailored menu in India, where beef consumption is anathema to most consumers.

In one sense, Netflix is clearly multidomestic—it tailors its catalog to different countries. But with the development of Netflix original programming that it owns outright and can distribute everywhere it operates, Netflix is becoming more global, investing heavily in original programming since 2013. This creeping global strategy might threaten the possibility of ramming outsider products down the throats of people around the world and arousing the ire of cultural protectionists. But while much of this content is U.S.-based and U.S.-oriented, not all of it is. Netflix has produced 11 foreign-language shows and six co-productions not chiefly in English. In addition to Narcos, which takes place in Colombia and is mostly in Spanish, Netflix has produced two shows in Mexican Spanish: comedy-drama Club de Cuervos (2015) and political drama Ingobernable (2017). In addition to producing Japanese-language co-productions, Netflix has produced four shows in Japanese: Hibana (Spark) (2016), Midnight Diner: Tokyo Stories (2016), Samurai Gourmet (2017), and Kantaro: The Sweet Tooth Salaryman (2017). Other Netflix originals include Marseille (2016), a political drama in French; 3% (2017), a science-fiction show in Brazilian Portuguese; Las Chicas del Cable (2017), a Spanish-language period drama; and My Only Love Song (2017), a Korean-language comedy.

Of course, different tastes across the globe impose a limit on consumers’ appetites for trade—and Netflix’s ability to create a truly global repertoire. But digitization has surely made cultural trade easier and the relative effects of an international streaming service like Netflix suggest that it is highly possible, perhaps even likely, that digitization will present more opportunities than threats for the smaller repertoires that could not effectively travel in the theatrical era.

Implicitly, the regulatory worrywarts have assumed that small countries’ products would wither in the face of global competition. Though it’s too soon to draw any firm conclusions, digitization does not seem to be confirming this fear. While digitization does make trade easier, eroding artists’ home-market positions, additional sales abroad for the smaller countries tend to more than make up for lost sales at home.

If these patterns hold more broadly, it is entirely possible that countries need neither subsidies to promote local production nor protection for their domestic products. It is possible that thanks to digitization, cultural protectionists in France will fear the United States less and obscure Nordic Vikings more.

Book cover of Digital Renaissance: What Data and Economics Tell Us About the Future of Popular Culture.

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