European Film

With U.S. Sales Peaking, Netflix Turns to Germany, Europe, for New Streamers

Actors Taylor Schilling and Laura Prepon attend the season two premiere of Netflix's popular "Orange is the New Black" series in New York in May. Photo: Reuters
Actresses Taylor Schilling, Laura Prepon attend a premiere of Netflix's popular "Orange is the New Black" series.
  • Why it matters

    Why it matters

    Netflix’s U.S. growth is slowing amid greater domestic competition from rivals such as Amazon, making it crucial for the company to tap into new markets in Europe.

  • Facts

    Facts

    • Netflix has 50 million subscribers in 40 countries.
    • When Germany, France and other European nations begin service this fall, the company will have access to 60 million households with high-speed Internet.
    • Competitors targeting Netflix include Internet giants Amazon and Yahoo.
  • Audio

    Audio

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Reed Hastings, the co-founder and chief executive officer of Los Gatos, Calif.-based Netflix, is fond of telling jokes. The American entrepreneur has good reason to be in high spirits.

His video service, which delivers compact discs via mail and directly streams films, television series and original programming into the home, just reached a record 50 million subscribers in 40 countries, even after raising prices for many of its customers.

Increasingly, the service is gaining recognition for original series such as “House of Cards,” which is based on a British series and focuses on a devious and amoral American politician, and “Orange is the New Black,” a comedy-drama set in a women’s prison.

Yet growth in the United States is slowing, which is why Mr. Hastings is staking the company’s future on expansion abroad.

Netflix will launch in Germany and France in September. Mr. Hastings makes no secret of his ambitions and promises the creativity in Europe that has defined his company’s TV programming in the United States, including a historical adventure series based on Marco Polo, which is expected to be popular overseas.

“We want to invest in French society and French content,” Mr. Reed said during an earnings conference call a few days ago. “And we want to give an avenue for French culture to get out around the world. We are already joking that instead of ‘House of Cards,’ it might be ‘House of Versailles.’”

In addition to Germany and France, Netflix will add Austria, Belgium, Luxembourg and Switzerland, which taken together will give the company access to a market of 60 million households with high-speed Internet service.

“We really see this as an enormous moment in history as on-demand Internet services are coming to the fore around the world,” Mr. Hastings said. He said Netflix’ performance in soccer-mad Brazil at the World Cup vindicated the international strategy. “What was incredible is just how straight our line of net additions was in Brazil during the World Cup,” he said.

Netflix
Netflix, already a household name in the U.S., will start streaming this fall in continental Europe. Source: AP

 

International expansion will be expensive. Mr. Reed is already preparing investors for hard times ahead as the losses from foreign operations could increase from €11.1 million ($14.9 million) to €31.2 million in the third quarter.

Meanwhile, the ranks of competitors are growing. Internet giant Amazon is already selling TV series and films in direct competition with Netflix and has also said it will eventually produce original programs. The Yahoo chief executive, Marissa Mayer, has said her company is also interested in investing in proprietary content for its streaming TV service.

Netflix would face a major problem should media mogul Rupert Murdoch, chairman and chief executive officer of News Corp., make good on his takeover of Time Warner Inc.

“We really see this as an enormous moment in history as on-demand Internet services are coming to the fore around the world.”

Reed Hastings, Netflix CEO

Both companies have large film studios and a merger would potentially starve Netflix of content. That possibility has fed speculation that Netflix will create a film studio operation of its own, though management has made no comment.

Meanwhile, Netflix hopes to soon sell gift certificates in North America and in Germany similar to Apple’s iTune cards.

Analysts have expressed concerns that the subscription price Netflix is planning will be too expensive in Germany, where households are required to pay €225 per year just to receive free over-the-air programming from Germany’s widely viewed public broadcasters.

Netflix cards would let customers sample Netflix without making a long-term commitment. The Netflix subscription price in Germany, which was recently raised, averages €6.67 per month.

Shareholders have not embraced Mr. Hastings’ expansion plans. Stock that had gained 20 percent this year dropped by more than 4 percent after the announcement.

European viewers in September will have access to “Orange is the New Black,” a women’s prison black comedy that recently became the most popular series on Netflix. Stockholders wary of the global expansion plans are hoping that Mr. Hastings’ strategy is equally successful.

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