In its home country, Netflix has approximately 34 million U.S. subscribers. That’s a lot of streaming viewers, but it isn’t nearly enough to ensure the company’s long-term survival. Accordingly, Netflix has initiated a staged approach to going global, entering one or two international markets at a time, in an attempt to ensure that its positioning and offers align with each market’s demands and regulations.
In 2012, it started with six international markets: Norway, Finland, Sweden, Denmark, the United Kingdom, and Ireland. In 2013, Netflix limited its expansion to just one nation, the Netherlands. Now it is heading further across the Continent, with introductions in Germany and France, which rank fourth and sixth worldwide, respectively, in the sizes of their broadband markets. The promise is seemingly too great for Netflix to ignore: millions of European households that, because of their existing access to broadband services in Europe, already represent a strong potential market.
Yet as its staggered approach reflects, entering the European Union is not a simple matter of one offer for everyone. Instead, each nation has its own rules and regulations regarding streaming content, as well as its own existing competitive market. In France for example, Netflix legally cannot stream any movie until at least three years after its theatrical release. Furthermore, Netflix already sold the rights to some of its most popular original programming, such as House of Cards, to the French pay-television provider Canal Plus, so it cannot air those episodes either. In Germany, the challenge is less legal and more competitive. Previously established services, including the Amazon-owned Lovefilm, a streaming service called Watchever, and the satellite television service Sky Deutschland, already own much of the potential market.
More broadly, with each new entry, Netflix must commit to substantial local investments. Beyond buying the rights to traditional Hollywood blockbusters and independent films, it needs to purchase access to local televised content and national movies to appeal to each country’s viewers. Moreover, it has to gain name recognition through national-level marketing. Due to such investments, its international streaming unit already has been operating at an annual loss of $274 million, according to the most recent figures.
Yet despite these challenges, Netflix exhibits great confidence that it will be able to meet these national-level challenges and emerge victorious. In particular, it notes that the European Union has committed to net neutrality, which is a distinct benefit for the streaming service. Thus, it plans to expand its European presence to Belgium, Austria, Luxembourg, and Switzerland within the next year or so. Furthermore, Netflix CEO Reed Hastings predicts that the company soon will earn 80 percent of its revenue from international units—a massive leap compared with the 27 percent achieved today.
Source: Mark Scott, “Netflix Faces Hurdles, Country by Country, in Bid to Expand in Europe,” The New York Times, May 21, 2014, http://www.nytimes.com; Amol Sharma, “Netflix to Expand to France, Germany Later this Year,” The Wall Street Journal, May 21, 2014, http://online.wsj.com