UK, Spain eyed for 1Q bow
Netflix’s global growth strategy is even more ambitious than the company is letting on, with sources indicating the U.K. and Spain will follow its already announced Latin American expansion.
Sources at a few leading European film distributors say Netflix execs informed them of plans to reach those countries in the first quarter of next year. Netflix, which declined to comment, didn’t include the continent in the list of 43 countries it disclosed earlier this month would be getting the service.
The European invasion would come after the blitz scheduled to take place by the end of the year across Latin America and the Caribbean. Netflix surprised many analysts who predicted the U.K. would be one of the first targeted territories only to end up absent from the list released last week.
That could be a reflection of the tougher competition it will find in England, from Amazon-owned Lovefilm to incumbent multichannel services like BSkyB, which may seem newly vulnerable given the turmoil that has engulfed News Corp.’s aborted attempt to grab a bigger stake in the satellite service.
Netflix’s ambitious travel plans could also help explain the stunning decision announced Tuesday to raise the price on subscribers who want to both stream video and receive discs by mail. Many analysts interpreted the price hike as a move meant to help fund Netflix’s skyrocketing content costs, which international territories will undoubtedly compound given the need to secure both local and imported programming to each region.
Wedbush Securities analyst Michael Pachter estimates Netflix’s global content bill could amount to $2 billion by 2012.
U.K. and Spain are likely the countries CEO Reed Hastings referred to back in April when he projected a third wave of international expansion in early 2012. “We’ve also decided to make some early content commitments for a third international market given our high probability of success in our second international market,” he said in a letter to investors.
Netflix’s first international foray began last year in Canada.
Lovefilm has certainly been acting like a company preparing to take on new competition. The service just announced Tuesday that it intends to expand its workforce in London by 20% and cinched a five-year deal with film supplier Entertainment One.
Spain poses a different challenge for Netflix, however. The country is a notorious hotbed of piracy, which may actually represent an opportunity to convert freeloaders who could give up their scofflaw ways if presented with a low-cost digital alternative. And while the U.K. presents Netflix with real competition, Spain provides a lower barrier to market entry given the absence of established service providers.
Why Netflix isn’t being as public about its European invasion as it is with other announced regions is open to interpretation. By working quietly to build the catalog it needs to have in place next year, Netflix may be aiming to hit the ground running on the continent and take competitors by surprise.
The Los Gatos, Calif.-based company may not be able to afford to let too much time go by in hotly contested markets lest they give competitors the chance to play defense before the company can even mount an offense.
What remains to be seen is whether Netflix has even broader goals in mind for 2012 on the continent, with Germany and France seen as markets that like the U.K., present a rich base of potential subs but plenty of competition.