Netflix Expands into Cuba

Netflix Inc., an American provider of on-demand Internet media streaming, recently opened their online video streaming service to Cuba. This move made Netflix one of the pioneer American companies to expand in to Cuba, following the loosening of regulations early in 2015.

This expansion is much more significant symbolically than it is strictly from a business viewpoint. Realistically, this expansion will not have a major impact on Netflix’s bottom line, considering the cost of the service and the scope of internet access in Cuba. With only 5,360 fixed broadband connections on the island, only 5% of the population has access to the internet, and even then speed is a major issue. On top of a problem of access, cost is another major obstacle. The cost of residential broadband access is approximately $40 a month, and the streaming service alone will cost an additional $8 a month. When these prices are compared to the average Cuban monthly salary of $20, it is doubtful that there will be a large number of subscribers initially to the service.

Despite this underwhelming business outlook for Netflix in Cuba, the move is of great symbolic importance, and is a sign of positive things to come for the island nation of 11 million. In the words of Jack Nadeler, a partner at Squire Patton Boggs, this move by Netflix “Opens up the full gamut of e-commerce”. Other e-commerce businesses will follow Netflix into Cuba, due to the fact that running an e-commerce business, especially a service based one, requires little to no infrastructure setup. This means that the company is not taking a significant risk.

An increase in these aforementioned e-commerce businesses will grow demand for internet access, which in turn will lead to more fixed broadband connections, lower prices, and ultimately greater access to the internet. In addition to this growing demand, MasterCard and American Express, two major American credit card corporations, unveiled plans in January to begin handling U.S. credit card transactions in Cuba, starting in the next few months. This will greatly increase the ease of doing business in Cuba, creating a more advantageous business environment for global e-commerce in Cuba.

In summary, this move by Netflix signals the beginning of the global e-commerce industry in Cuba. Due to the low amount of risk, it is likely that many other e-commerce businesses will follow Netflix’s lead, and set up virtual shop in Cuba. This proliferation of e-commerce will lead to development and improvement of Cuba’s internet network, which in turn would place Cuba on the right path to becoming an emerging market in the future.