Netflix May Strain European Networks on Video Demand

(Corrects story published Sept. 3 to specify nature of the agreement with U.S. operators in eighth paragraph.)

The surge in data flowing through video-streaming services such as Netflix Inc. (NFLX) could be more than Europe’s networks can handle, consultant Deloitte LLP said.

“Our networks could be forced to their knees,” said Klaus Boehm, Deloitte’s head of media in Germany, at the IFA electronics show in Berlin today.

Netflix, based in Los Gatos, California, is expanding its reach further into Europe and will expand to Germany, France and four other countries on the continent this month. In July, the company set up one of the most powerful data delivery centers in Europe, adding 1 terabit of server capacity in Paris to cope with user demand.

In Germany, Europe’s largest market for video content, revenue from on-demand services will grow an average of 21 percent a year to reach 385 million euros ($506 million) by 2020 as more customers adopt the technology, Deloitte said.

“We always work with Internet service providers to offer the best experience to our joint customers,” said Joris Evers, a spokesman for Netflix in Europe.

The company will add capacity to networks to improve the flow of content, such as the added server capacity in Paris, he said. Netflix’s traffic has never caused noticeable impact on Internet performance in any of the 41 countries in which it operates, he said.

Upgrading Networks

Telecommunications providers are spending to upgrade their networks, investing in high-capacity fiber broadband and faster and more efficient fourth-generation wireless networks. Carriers are pursuing ways to get content providers to share the financial burden of carrying the traffic.

In the U.S., Netflix agreed to pay cable company Comcast Corp. (CMCSA) and phone company Verizon Communications Inc. (VZ) for more direct connections to their networks, so viewers can get faster and more reliable access to their content. Still, Netflix displayed on-screen messages blaming broadband providers for slow-loading videos, prompting Verizon to threaten legal action in a June letter.

Comcast has said in response to Netflix that its service wasn’t a factor in viewing problems for the service’s customers. Spokeswoman Jennifer Khoury declined to comment further. Verizon spokesman Bob Varettoni also declined to comment.

Providers of video and music streaming are working to offset the network congestion with files that are better compressed and therefore smaller, said Timm Hoffmann, who heads consumer electronics and digital media at Germany’s Bitkom technology industry group.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Mark Beech

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