Netflix to Enter Nordic Region to Push Deeper Into Europe

Netflix Inc. (NFLX), the world’s largest video-subscription service, will start operating in the Nordic countries, entering a region with about 25 million people and expanding its push outside the U.S.

The online service will start offering movies and TV shows in Norway, Denmark, Sweden and Finland before the end of 2012, according to a statement from the Los Gatos, California-based company today. Netflix will offer local and global content in the region.

Netflix, which has been streaming videos to U.S. customers since 2007, is expanding in Europe as intensifying competition weighs on growth in its home market. The time is right to push deeper in Europe after a successful entry into the U.K. earlier this year, and before Amazon.com Inc. (AMZN)’s Lovefilm and other similar services become more dominant in the Nordic region, said James Cordwell, an analyst at Atlantic Equities LLP in London.

“If you’re serious about international expansion, you probably want to take on your biggest competitor before they get an unassailable lead,” said Cordwell, who rates Netflix shares “neutral” and doesn’t own any. “The presence of a competitor in Scandinavia could help with initial momentum in that they don’t have to explain the concept of streaming.”

Lovefilm, which has more than 2 million customers, already operates in Sweden, Denmark and Norway, as well as the U.K. and Germany. Netflix has more than 27 million streaming customers in the U.S., Canada, Latin America, the U.K. and Ireland. Chief Executive Officer Reed Hastings said Netflix added 1 million subscribers in the U.K. in the first 6-1/2 months.

‘Questionable Return’

Netflix said July 24 it expects a loss in the fourth quarter because of costs to expand into an unnamed European market. Hastings has said Netflix will use profit from existing markets to finance its international expansion. Netflix added 560,000 international subscribers during the second quarter to bring the total to 3.62 million.

“Investors are likely to put a significant discount on the international expansion plans given that there’s a questionable return profile, that they’re going to be losing money for a number of years, and it’s not clear that they’ll be able to establish a market position,” Cordwell said. “Given where the stock is now, it’s become increasingly well understood that reported profits are going to be pretty much zero for the foreseeable future.”

Netflix rose 3.1 percent to $61.76 yesterday and has fallen 11 percent this year. The U.S. Standard and Poor’s 500 Index has risen 12 percent this year.

To contact the reporters on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net

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