The German pay TV market has traditionally lagged behind that in other Western European countries by a couple of years in terms of its development, but it’s slowly catching up.

Last year, GFK estimated the value of the transactional VOD market to be $110 million, and for subscription VOD it was $42.6 million.

These results are particularly disappointing when you consider the huge increase in marketing spend by the top OTT providers, Amazon-owned Lovefilm, Vivendi’s Watchever and ProSiebenSat.1’s Maxdome, all which offer subscription VOD; Maxdome also offers transactional VOD. Last year, their marketing spending increased by about 50% year on year to a gross media value of more than E100 million ($138 million), according to Nielsen.

The SVOD market has been slow to take off, but with the rising number of tablets, smartphones and connected Smart TVs in German homes, it has become much more dynamic in the past year.

Sky Deutschland’s SVOD service Snap joined the fray in December, and Netflix is expected to launch in Germany in September, according to an industry source.

The VOD market in Germany is very fragmented.

In addition to the big three OTT providers there are a further 50 or so players offering TVOD, VOD or SVOD, with sometimes two or all three of these models on the same platform.

“Germany has always proved to be a challenge for media companies attempting to monetize the apparently underpenetrated territory,” says Richard Broughton, director, broadband, IHS Technology. “Widespread availability of multichannel TV and a cultural mindset that means that TV viewing is a less significant part of the average consumer’s day has led to many companies overestimating the opportunity for paid-for video in Germany in the past.”

Amazon is rebranding Lovefilm in Germany as Prime Instant Video, and merging it with its Amazon Prime service (see previous email). The pricing for the new service will be Euros 49 ($67.20) a year.

The hope within the industry is that the arrival of Netflix, and the marketing drive that will accompany the launch, will help the SVOD market grow, rather than cannibalizing the existing players.

Martin Moszkowicz, chairman of the executive board at German media group Constantin Film, welcomes the arrival of Netflix. “Any new service, especially with Netflix’s market power, business acumen and experience is always great as long as it improves competition and is making the marketplace more advanced and more profitable. Our audience should have as many platforms as possible to choose when they consume our pictures,” he says.

Subscriber numbers for these services are hard to come by, but Watchever appears to be the fastest growing, claiming to add 100,000 subscribers a month. It launched at the beginning of last year, and IHS estimates it has around 500,000 subscribers, although Watchever is said to be claiming to have around one million subscribers, according to one industry source. Maxdome has 450,000 subscribers, according to SNL Kagan.

Competition for high-quality content will be fierce. Sky, for example, says at least one new movie is added every day to Snap’s portfolio, and more exclusive programming is being added.

Sky will have exclusivity on the HBO library from the end of this year.

Other key players in the market include Liberty Global, which entered Germany via the acquisition of cablers Unity Media and Kabel BW. Development of its advanced Horizon TV services is likely to add another competitor to the online video landscape over the next few years.