Netflix Brazil

Contributed by Courtney Brannon Donoghue

May 2017

Key Takeaways

• Brazil is one of the largest and most productive media markets in Latin America. As the population grows and more households have access to faster internet and the latest connected or “smart” consumer electronics, Netflix is strategically working to expand subscribers and adapt its business model to exploit the Brazilian market. Since 2013, the company has invested in expanding local programming through local-language production, distribution, and other partnerships. Through targeted localization efforts, Brazil continues to be a testing ground for Netflix adopting a broad approach into a specific industry model.

• National economic and regulatory changes as well as political uncertainty paralleled Netflix’s entrance and current operation in Brazil. When Netflix launched its local service, the country was at the tail end of an economic boom with a growing middle class population. Stricter regulations, such as the recent “Netflix tax,” were introduced to protect local content production and distribution will no doubt impact the company’s position as the leading streaming service in Brazil.

Market

Netflix entered the Brazilian market in September 2011 as part of its first phase of global expansion. Additional Latin American markets followed within a week of the Brazil launch including Argentina, Colombia, and Mexico. Significantly, Brazil was the first international territory outside of North America and continues to be one of the fastest growing. Significant growth in agricultural, mining, and oil exports pushed the country into becoming the sixth largest economy in the world by the 2010s. Brazil had experienced close to a decade of economic development, rising incomes, lower unemployment, expanding middle class population, and increasing foreign investment by 2011. With political, economic, and public health crises since 2011, the growth of these industries has fluctuated widely in the years preceding Netflix’s launch. However, Brazilian audiovisual market continues to grow and is seen as one of the most robust and productive in Latin America. Netflix’s initial international strategy signaled a strategic prioritization of the region and an effort to reach a growing consumer class.

The highly publicized “economic boom” included a local audiovisual market characterized by steady growth in commercial film and television production and distribution. After a restructuring of state supported film agencies and financing policies towards a tax incentive and subsidy model in the 1990s, the Brazilian film industry witnessed a production boom with over 100 local feature films produced and released each year. Significantly, the Brazilian theatrical box office grew from R$529 million in 2002 to R$1.44 billion in 2011 signaling higher attendance for both Portuguese-language and international titles. Many industry professionals characterize the film market as historically under screened with most theaters in affluent urban and suburban communities. Part of this rapid growth is due to wide scale investment in theatrical infrastructure with an overall increase from 1,635 screens in 2002 to 2,352 in 2011. At the same time, DVD releases peaked in 2011 and then began to plummet with sales falling by more than 50 percent in three years. The DVD market declined drastically in this period due in part to disc and digital piracy as well as changing audience habits.

Television remains the predominant screen for the majority of Brazilian audiences. In 2011, close to 60 million households owned a television. TV Globo, the fourth-largest commercial network in the world, has dominated the commercial television market with audience share and programming power since launching its network in 1965. The network built a sizable domestic audience on prime-time telenovelas, variety shows, and news programming and expanded production and distribution globally. Despite the emergence of successful competitor networks—Record and SBT—in recent decades, TV Globo still can capture between a 60 to 80 percent local market share in major Brazilian cities (Straubharr, 2007). Parent company Grupo Globo, the most powerful Brazilian media conglomerate, maintains divisions spanning radio, print, broadcast, and online news, magazines, streaming platforms, free TV, pay TV, and film. Globo’s holdings also include several pay TV networks available through its Globosat network of channels. Around 26 percent of television households subscribed to cable or satellite at the time Netflix launched in 2011. Globo and competitors expanded subscribers in the past decade. The number of domestic subscribers to Brazil’s pay TV channels increased from 6.3 million in 2008 to over 19 million in 2015. Pay TV subscriptions are split between direct to home satellite (10.9 million), cable (7.7 million), and fiber to the home (more than 219,000). Four major telecommunication companies provide service to over 95 percent of Brazilian subscribers—Claro (52.38%), Sky/AT&T (27.92%), Telefonica/Vivo (9.11%), Oi (6.94%).

The OTT content market in Brazil had only a handful of local competitors when Netflix arrived. One local competitor, NetMovies, worked to compete against Netflix’s model offering similar DVD, and later VOD, services. Initially serving the São Paulo area, NetMovies expanded nationally and acquired smaller VOD competitors such as Pipocaonline and set up lucrative deals with Miramax and Disney to offer streaming content. However, the dual physical and digital services were unsustainable; the company was reorganized and ended the streaming service in 2013. Two years later, Brazil’s Looke acquired NetMovies. Another local VOD competitor, Globo, expanded into streaming with the launch of its GloboPlay service that offers access to older and current programming. Furthermore, Apple launched the Brazilian iTunes store in Brazil and 15 other Latin American markets in 2011, including the company’s cloud service and iTunes Match for US$ 24.99 annual subscription. VOD competitors such as HBO Now and Amazon entered the Brazilian market later in 2016 in order to compete for the growing share of the market.

Netflix entered a vastly different Brazilian market than the one in which it operated in by 2017. The audiovisual market has expanded with streaming options from local and international players as well as broader internet penetration and faster internet service options. Traditional and digital media platforms increased subscribers as the Brazilian population grew from 185 million to 204 million in the decade from 2005 to 2015. In addition to technological and industrial shifts, the Brazilian political and economic climates have changed dramatically due to a complex series of circumstances emerging since in the mid-2010s. At the time of Netflix’s local launch, the economic growth characteristic of the 2000s was reported to be slowing down. Headlines shifted from “Brazil Economy Not What It Once Was” in 2012 to “Brazil’s Economy Shrinks by Most in 25 Years” in 2016. One political corruption case followed another one eventually leading to the impeachment of President Dilma Rousseff in 2016. Amidst a national credit crisis, high unemployment rates, deepening Zika health crisis, and swelling and mismanaged funding for the 2014 World Cup and 2016 Summer Olympics preparation, a portion of the population took nationwide protests and criticism of the Brazilian federal government.

Regulation

On the federal level, a number of government agencies oversee and regulate audiovisual industry activities. The Ministry of Science, Technology, Innovation and Communications develops policy across broadcasting, telecommunication, and digital inclusion. ANATEL (Agência Nacional de Telecomunicações / National Telecommunications Agency) regulates the telecommunications industry, specifically both free over-the-air and pay television. ANCINE (Agência Nacional do Cinema / National Cinema Agency) is the regulatory institution that oversees audiovisual content including film and television.

In 2011, Brazil’s Congress passed Lei 12,485, known as the Pay TV Law, which regulated foreign-owned pay networks. The law introduced a tax incentive to support financing and producing television content similar to the film tax incentives that drive commercial film. Additionally, it created a screen quota requiring pay TV networks to broadcast 3.5 hours minimum of independent Brazilian programming daily. Sky, HBO, and other pay networks criticized the screen quota restricting their programming. Of the 220 pay TV channels available locally in 2015, international companies owned 129 of those channels. President of Brazil’s Independent Producers Association, Marco Altberg, and many independent producers praised the new regulation, which Altberg described as a “mini-revolution” in an interview with The Hollywood Reporter.

The Pay TV Law does not apply to OTT providers like HBO Now, Netflix, Amazon Prime, and so on. Both heads of ANATEL and ANCINE have been openly critical of this exemption and stated their support for future regulation of OTT providers during an annual meeting of Brazilian Association of Television (ABTA). In December 2016, the Brazilian Senate approved a minimum two percent tax on streaming services like Netflix and Spotify that was sanctioned by Brazil’s President that month. The impact of this new regulation is yet to be seen.

Viewing Habits

Specific data for how Brazilian audiences were accessing Netflix in the early 2010s is not available. Historically, imported consumer electronics have been expensive in Brazil with access limited to upper and upper-middle class (Class A and B, typically urban and suburban college educated with higher monthly income who make up less than 15 percent of the population). Netflix streaming via home computers was more common in the early years likely due to low rates of penetration for tablets, smart phones, and smart TVs. Brazilian households owning computers with internet access increased from 36.5 percent in 2011 to 42.1 percent in 2014 as Netflix subscription rates also increased. While the company introduced an app for streaming content on multiple devices shortly after launching its local service, smartphone sales in 2011 only accounted for 5.8 percent of the mobile phone market. The rates of adoption were low for tablets in this period since only 10 percent of domestic households owned tablets. However, studies tracking shifts in increased adoption of smart televisions and connected devices in recent years illustrate how more Brazilians have varied access to streaming television.

Internet Pricing and Availability

Internet availability, pricing, and infrastructure drastically slowed the expansion of Netflix at the time of the Brazilian launch. Socioeconomic stratification continues to serve as a major factor barring internet access, particularly between more affluent urban centers in the Southeast (Rio de Janeiro, São Paulo) and poorer, rural communities in the Northeast. Furthermore, the quality and speed of service varies greatly. In 2011, 45 percent of the Brazilian population had internet in their homes. Over 17.8 million subscribers accessed fixed wired broadband to access the internet when Netflix entered the market. The majority of Brazilians who had internet subscribed to slower services that did not accommodate media streaming platforms and impacted the growth of Netflix subscribers during the first few years.

Content

When Netflix Brazil launched in 2011, subscribers reportedly had access to mostly US English-language titles. Only seven titles were Brazilian films, including a few highly successful blockbusters Elite Squad/Tropa de Elite and City of God/Cidade de Deus. A number of local producers and companies were critical of Netflix’s entrance into the local market and reluctant to make streaming deals during the early stage, most notably media giant Globo. Significantly, one of the biggest criticisms by Brazilian users early on was the lack of Portuguese-language film and television content. In response, Netflix began acquiring more Brazilian content and later original programming. In November 2016, Netflix premiered its first Portuguese-language original series worldwide, a dystopic sci-fi drama called The 3%. Netflix is expanding its Brazilian original content and partnering with local producers for upcoming political and comedy series intended for a broader, global audience. Netflix’s investment in Brazilian original series, along with a strong subscriber base, is a major indicator of the company’s prioritization of this market.

Consumers and Press Reaction

Lack of local content was a major criticism by consumers and acknowledged in media reports. Initially, Netflix’s rollout was met with an array of problems—audio quality of dubbing, streaming quality due to slow internet infrastructure, and online payment problems. Many in the industry criticized Netflix’s difficulty adapting its American model to a completely different communication infrastructure and media culture; a market that one American Netflix executive characterized as “challenging.” In addition to the lack of available Brazilian content at first, the service only allowed users to pay with credit cards. Credits cards as an online payment form is not a preferred nor accessible method of payment for the average Brazilian consumer. In turn, Netflix reportedly worked with local banks to launch debit payment process.

Subscriber Estimates

While I am unable to locate data on the number of subscribers during first few years, accounts suggest that subscriber rates were slow until 2013. In recent years, the company has seen a sharp increase in Brazilian audiences. By the end of 2015, Netflix had over 2.9 million subscribers locally.

Local Netflix offices

There is a Netflix office in São Paulo, the country’s financial and commercial center, run by a local manager and team.

Works Cited
Joseph Straubhaar, World Television: From Global to Local (Los Angeles: Sage, 2007).