Netflix Enters Germany, France in Biggest Move Since 2011

Netflix Inc. (NFLX) will introduce its online video service this year in Germany, France and four other European countries, the company’s biggest expansion in almost three years.

The world’s largest Internet subscription service, which produces the Emmy-winning political drama “House of Cards,” plans to enter Austria, Belgium, Luxembourg and Switzerland as part of the move, according to a statement today. The exact timing and price in each country will come at a later date.

The expansion into western Europe’s most-populous nations is the most ambitious by Chief Executive Officer Reed Hastings since late 2011, when Netflix began streaming films and TV shows across Latin America and the Caribbean. The company is racing to establish global online dominance ahead of Amazon.com Inc.’s Prime Instant Video service and Time Warner Inc. (TWX)’s HBO.

Together, Germany and France have about 146 million people, according to Eurostat. Netflix already offers service in the U.K., Ireland, the Netherlands, Denmark, Norway, Sweden and Finland.

Netflix rose 5.1 percent to $390.60 at the close in New York. The shares have gained 6.1 percent this year.

The company’s anticipated move has already put pressure on established providers of on-demand TV. Vivendi SA (VIV) said last week it may seek partners for its unprofitable Watchever service in Germany. Sky Deutschland AG, the German pay-TV provider controlled by Rupert Murdoch, began targeting new customers with its Snap streaming service in December.

Photographer: Andrew Harrer/Bloomberg

The Netflix Inc. website is displayed on laptop computers in Washington, D.C. Netflix's expansion into western Europe’s most-populous nations is the most ambitious by Chief Executive Officer Reed Hastings since late 2011, when Netflix began streaming films and TV shows across Latin America and the Caribbean. Close

The Netflix Inc. website is displayed on laptop computers in Washington, D.C. Netflix's... Read More

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Photographer: Andrew Harrer/Bloomberg

The Netflix Inc. website is displayed on laptop computers in Washington, D.C. Netflix's expansion into western Europe’s most-populous nations is the most ambitious by Chief Executive Officer Reed Hastings since late 2011, when Netflix began streaming films and TV shows across Latin America and the Caribbean.

European Rules

Netflix will have to cope with different rules across its new target markets, including some relating to which shows it may offer. France, for instance, bars movies from appearing on subscription video-on-demand services for three years after their theatrical run, and requires providers to offer at least 50 percent European content.

“The content landscape in Europe is much more scattered than it is in the U.S.,” said Gilles Fontaine, an analyst at Montpellier, France-based researcher Digiworld. “It’s difficult to imagine a pan-European strategy for programs -- in most countries the top-10 watch list is still mostly national content, specific to each country.”

Losses associated with the 2011 expansion, which targeted countries with less-developed billing systems than the U.S., caused Hastings to slow his build-out last year to just one new country, the Netherlands.

Over the long term, Netflix seeks at least 120 million signups outside the U.S., excluding China, Chief Financial Officer David Wells said yesterday at a JPMorgan Chase & Co. investor conference. In the U.S., company executives have set a goal of 60 million to 90 million subscribers.

Global Subscribers

The company, based in Los Gatos, California, finished the first quarter with 48.4 million customers, including 35.7 million in the U.S., according to an April 21 statement. Executives predict Netflix will sign up 1.46 million new streaming subscribers this quarter, including 940,000 internationally.

Citing strong subscriber growth in the U.K., the company has become more confident in its “ability to compete in a very competitive marketplace,” Wells said. “There’s plenty of expansion markets that we feel like Netflix would be a viable product in.”

In the U.K. and Ireland, Netflix was the second-largest source of peak broadband traffic in early 2014, accounting for 18 percent, according to Sandvine Inc.’s semi-annual “Global Internet Phenomena Report.”

Hastings has said he expects international markets to generate 70 percent to 80 percent of revenue in the future. The company sees Europe as particularly attractive, with wide broadband penetration, a strong middle-class and efficient billing systems.

Library Budget

Netflix expects to spend $3.2 billion globally this year on its content library, Wells said. When Netflix moves into a new market, typically one in five titles in its streaming library will be locally flavored, non-Hollywood content.

This month, Netflix raised prices for new subscribers by $1, to $8.99 a month, and introduced a $7.99 plan that doesn’t deliver high-definition TV or let subscribers view programs on more than one device at a time. The new, lower priced plan accommodates overseas viewers who are more subject to broadband data caps, said Jonathan Friedland, a Netflix spokesman.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net Rob Golum, Ben Livesey

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