Is European Expansion a Bad Idea for Netflix?

The video streaming giant Netflix recently expanded its service further into Europe, opening the digital doors to viewers in France, Germany, Austria, Switzerland, Luxembourg and Belgium at midnight on May 28, 2014. Broadband Internet subscribers in those countries can now begin streaming local and American television programs and films using the service. But European Netflix subscribers still won’t get access to the complete catalog of digital content available to viewers in the U.S., and some fear the expansion may cost Netflix more than it’s worth.


Expansion Presents New Challenges for Netflix

By expanding into six new European countries, Netflix will face special regulatory challenges that don’t apply in the United States. In France, Canal Plus already owns the rights to Netflix’s popular original series “House of Cards.” Furthermore, French law requires a lag time of three years between the release of a film in theaters and its release for on-demand streaming. French Netflix users who want digital access to films earlier than that will have to stick to renting them from a set-top box — or use a proxy server to unblock American Netflix.

French law may also require Netflix to contribute financially to the French film industry, due to rules governing the origins of French television and film content. Technology analyst Cesar Bachelet expects the French market to be a particularly difficult nut for Netflix to crack. “The French market is tough because it already has pay-TV providers that offer a lot of content,” he told the New York Times.

The German market also presents challenges. Media conglomerate Sky Deutschland already offers a video streaming service to viewers in that nation, which is priced comparably with Netflix and which offers some of the most popular foreign programming, including programming that isn’t available at all on Netflix, like “Game of Thrones.”

Indeed, Netflix faces stiff competition in each of the recently added countries, in the form of entrenched media giants who already offer digital content streaming to local audiences. As if that weren’t bad enough, Netflix faces competition from Amazon Prime, which is already available throughout Europe.

Costs of Expansion Could Be Too High

Netflix CEO Reed Hastings wants as much as 80 percent of the company’s revenues to come from foreign markets. Currently, only about 27 percent of Netflix’s revenues come from outside the U.S. In 2012, Netflix’s international streaming division lost money to the tune of $274 million, and in 2012, that number climbed to $389 million. Forbes contributor David Trainer expects those losses to continue, and perhaps to jeopardize the company as a whole, especially if Netflix continues to expand.

Not all the news for the Netflix expansion is bad, however. The expansion enables users in six new countries to obtain the login credentials they need to unblock American Netflix. The streaming service also offers a treasure trove of older content, while much of the content already available for streaming from local providers is newer. There is a market for older American content in Europe, and audiences there are wealthy enough to afford Netflix’s admittedly minimal fees. European governments have also taken steps to protect net neutrality, an issue which is threatening the company’s continued success at home.

Streaming content company Netflix recently expanded further into Continental Europe. Though regulatory obstacles in these countries could make the expansion challenging, Netflix is pushing forward with its goal of becoming a global force for entertainment.