* To launch in France, Germany, Austria, Belgium, Luxembourg
* Netflix international business still loss-making
* U.S. firm faces patchwork of local rules and competitors
(Releads on Netflix strategy, adds analyst quotes, background)
By Georgina Prodhan and Robert-Jan Bartunek
VIENNA/BRUSSELS, May 21 Netflix will
launch in both France and Germany this year, the U.S. video
streaming company said on Wednesday, in the biggest test so far
of its global expansion strategy.
The move will set Netflix back in its goal of breaking even
in its international business, which it would have achieved
later this year, as it bets the time is right to break into
Europe's two biggest markets and four other European countries.
Netflix, whose internet-based delivery of movies and TV
series has disrupted pay-TV markets in the United States and
elsewhere, wants to grow its international business to reach new
customers and increase its buying clout with content providers.
It is already in more than 40 countries, mostly in Latin
America, and has entered Britain, Ireland, the Nordics and the
Netherlands in the past two years.
Netflix has grown its subscriber base fast - more than a
quarter of its 48 million customers are now outside the United
States - but each new country launch entails hefty investments
in marketing and local content rights.
The planned launches in France and Germany - along with
Austria, Belgium, Luxembourg and Switzerland - will raise new
linguistic, cultural and legal challenges.
"You're going for the German- and French-speaking countries,
which is a massive quantum leap," said Toby Syfret, TV analyst
with UK-based media and telecoms research firm Enders Analysis.
France and Germany are some of the world's most advanced
broadband markets. Germany has the highest number of broadband
households in Europe, with 29.1 million in 2013, according to
estimates from SNL Kagan. France is third with 24.7 million.
But neither country has a strong mainstream English-language
culture, unlike the European markets Netflix has entered so far.
France, in addition, has rules that mean films can only
appear on a monthly subscription video service three years after
their debut in movie theatres, although they can be rented via a
set-top box four months after their premiere.
"The content they (Netflix) can offer differs from country
to country and local or exclusive content that (Belgian cable
operator) Telenet offers, for example, can be a
barrier," said Kepler Cheuvreux analyst Mattijs van Leijenhorst.
"But that doesn't mean they can't be a threat in the long
term. In the Netherlands, they have been very successful," he
said, estimating that Netflix had won about 500,000 customers
since launching there in September 2013.
Dutch cable operator Ziggo said it lost 16,000
digital pay-TV subscribers in the first quarter of this year
because of increased competition from providers such as Netflix.
Keen to avoid the fate of a Ziggo, local operators and
international competitors like Amazon's Prime Instant
Video have anticipated Netflix's arrival with a mixture of
aggressive and defensive measures.
In Germany, leading commercial broadcaster ProSiebenSat1
has cut the price of its Maxdome video-on-demand
service by almost half over the past year to 7.99 euros a month.
Belgium's Telenet launched an unlimited video-on-demand
service, dubbed "Rex and Rio", late last year which offers many
hit series such as HBO's Game of Thrones for a monthly fee.
"Obviously, the local people are trying to prepare
themselves for this space invader, as it were, but I think there
are reasons why Netflix will hit them anyway," said Syfret.
He said Netflix's single-minded focus on one line of
business and its superior data analysis and personal
recommendations set it apart from competitors such as pay-TV
broadcasters, with their captive customers and higher prices.
Rupert Murdoch's potential 10 billion-euro ($13.7 billion)
consolidation of his Sky pay-TV operations in Britain, Germany
and Italy into a single European operation
could create a more powerful rival in bidding for content.
But Sky is more focused on recent releases in the first
premium pay TV window, while Netflix has a wide variety of older
titles which are less expensive.
Netflix has not announced details of pricing but said its
monthly price would be "low". In the Netherlands, a subscription
costs 8.99 euros a month, while in Britain Netflix costs 5.99
That compares with bundles that start at 21.50 pounds a
month at Britain's BSkyB, or 12.90 euros a month for a basic
starter pack at Sky Deutschland, not including set-up costs.
($1 = 0.7302 Euros; $1 = 0.5935 British Pounds)
(Reporting by Lisa Richwine in Los Angeles, Robert-Jan Bartunek
in Brussels, Georgina Prodhan in Vienna and Harro Ten Wolde in
Frankfurt; Writing by Georgina Prodhan; Editing by Pravin Char
and Louise Heavens)