CORRECTED - UPDATE 1-Netflix drops a few hints on global expansion

Thu Jan 28, 2010 1:34pm EST

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(Corrects second paragraph to show service starts in second half of 2010)

* Streaming-only operation could target Europe first

* Service to start small so company can learn from it

* Entry into second country unlikely (Adds published report on Movie Gallery preparing to file for bankruptcy)

By Gina Keating

LOS ANGELES, Jan 27 (Reuters) - Six years after pulling the plug on a U.K. rental service to beat back competition at home, Netflix Inc (NFLX.O) offered a few clues on Wednesday about its resurgent ambitions to enter an unnamed international market later this year.

Netflix said last quarter that it would launch a small, streaming-only operation in one country in the second half of 2010, and learn from it before moving into other markets.

"We are focused on entering one country and seeing how we do. Because we are launching in the second half of the year I don't think we could do a second country this year," Chief Executive Reed Hastings told Reuters.

Hastings declined to identify the market but hinted at how a roll-out might happen.

"The big market for Hollywood content (after the U.S.) is Europe...Third is Asia. Fourth is the rest of the world," Hastings told Reuters. "Canada is and was an option. It's sort of international-lite."

Since launching its U.S. streaming service in 2007, Netflix has focused on piggybacking on devices with a large installed bases -- Blu-ray DVD players, gaming consoles, PCs -- and the international service will start the same way, he said.

"The biggest installed base is laptops. They are pretty ubiquitous," Hastings said when asked what user population the new service targets. And video game consoles, if you are talking about the most advanced countries, he said.

Hastings said Netflix content managers are cutting separate deals for the international territory leading up to the launch, which he will talk about publicly in September or October, but gave no word of how large the title selection will be.

Nor would he comment on whether the company faces any major competition in the new market, but indications are that Netflix expects little resistance to its initial foray.

"(The new service) is compatible with our (forecasts for a) global 11 percent operating margin," Hastings said.

BIG DIFFERENCE

Netflix was the pioneer of online movie rental and a fast-growing darling of tech investors when it shuttered its U.K. DVD-by-mail service weeks before its 2004 launch to respond to a challenge by Blockbuster Inc BBI.N and rumors that Amazon.com Inc (AMZN.O) would enter the space.

The company lost about $10 million in the aborted endeavor as well as short-term hopes for easy subscriber growth fueled by access to international markets.

After a grueling, years-long price war that seriously wounded Blockbuster, and claimed Movie Gallery MVGR.PK as collateral damage, Netflix emerged stronger and bigger with a streaming option that is cheaper and easier to deploy abroad.

Movie Gallery, once the second largest store-based rental chain, lost market share to the battling online services and filed for bankruptcy in 2007. Movie Gallery is preparing to file again, according to the Wall Street Journal on Wednesday.

"The big difference is we were entering with DVDs only (in 2004)," Hastings said on Wednesday."It's streaming only (now). That's a big difference -- no warehouses, no integration with the Royal Mail."

Another difference: Netflix has grown four-fold on a revenue basis -- from $501 million in 2004 to a projected $2 billion this year.

"We are a lot bigger when we enter and streaming means less operational complexity -- not having to figure out the mail for each country," he said. (Reporting by Gina Keating; editing by Carol Bishopric)

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Comments (1)
I have been bullish on this stock for a long time, and it amazes me how every quarter right before earnings the market writes them off. In spite of the fact that they’ve beat estimates 5 quarters in a row now.

Doubters keep pointing to streaming video as the potential death of Netflix, but Netflix is *leading the way in streaming. Read here about why I predicted this stock will go to $67.

http://www.prooftrader.com/AnalystCoverage.aspx?ArticleID=146

(ProofTrader is a stock picking website and community blog where contributors are rated with a 1-100 score over time based on their performance. This is in contrast to Wall St. where it seems analysts are never held accountable.)

Jan 28, 2010 10:27am EST  --  Report as abuse
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