September 15, 2014 / 7:08 AM / in 3 years

Netflix will focus on ramping up in Europe over next year

PARIS (Reuters) - Netflix will focus on ramping up in six new European markets in the next year, including France and Germany, before taking the video streaming service to additional countries, its chief executive said in an interview.

Reed Hastings, founder and CEO of Netflix, attends a red carpet as Netflix launches its video streaming service in France in Paris September 15, 2014. REUTERS/Gonzalo Fuentes

Reed Hastings, who heads the California-based company that has become emblematic of the changes the Internet has wrought on television, listed Spain, Korea and Japan as promising markets. But he emphasized that getting the new European countries right was his priority.

“After launch is when the real work begins: improving the content being offered and getting on set-top boxes,” he said. That means deals with broadband and cable groups that allow people to subscribe to Netflix on their TVs instead of over the Internet.

Netflix said on Monday that its French service would cost from 7.99 euros to 11.99 a month and give access to films, series and documentaries on television, computers, tablets, smartphones and game consoles. Prices will be the same elsewhere in Europe, the company added.

Netflix’s future growth and profitability hinges on the next chapter of its four-year-old international expansion in which it is set to enter the six European countries. Besides France and Germany, those markets are Switzerland, Austria, Belgium and Luxembourg.

The company walks a tightrope when it enters new countries, said analyst Toby Syfret of Enders Analysis. It need to absorb significant content and other investment costs to build up in each market before it starts making a profit.

The company appears to be getting off to a faster start in France and Germany than in other areas where it has expanded, such as Latin America.

It has built a massive data center in eastern Paris to improve the service offered to French consumers by housing a copy of the catalogue there and allowing broadband and cable companies to connect directly. “We have provisioned capacity for many months of growth and reached for the high end of what we think is possible,” said Chief Product Officer Neil Hunt.

Netflix also signed a distribution deal with the third-largest telecom operator, Bouygues Telecom, which includes interconnection fees to carry its traffic to customers. In Germany, press reports said it would sign with Vodafone and Deutsche Telekom at launch on Tuesday.

The company has already backed the creation of an original series called “Marseille”, a political thriller set in the southern port city, to attract French customers, something it did much later in its U.S. with exclusive shows like the prison comedy “Orange is the New Black”.

Ted Sarandos, chief content officer, said Netflix was exploring creating new shows in Germany but had not made a decision yet. “Our original shows are not supposed to be a one-off in Europe,” he said.

In both France and Germany, Netflix will have to contend with local rivals that have offer similar services and have stronger brands, including pay-TV operators Sky Deutschland and Canal Plus.

The French and Germans also prefer content dubbed in their local language. Hunt said about 90 percent of the content in France and Germany would be dubbed and subtitled. Netflix’s methods can speed up dubbing so it takes as little as a week, compared with six weeks for most TV shows.

Another feature that drove Netflix’s success in the U.S. that will have to be adapted to new territories is the analytical software that examines viewing habits and suggests movies and series to users.

Netflix has roughly 250 people on its 800-strong product team working on the algorithm that powers the recommendation engine. Through their efforts, the service becomes more tailored as the users log on to watch. “We want to figure out what French people want to watch most and then tweak the catalogue to fit that,” Sarandos said.

With Netflix’s expansion in Europe, the debate around “net neutrality”, or the practice of treating all traffic flowing over broadband networks equally regardless of its sources, will get a powerful new lobbyist.

The European Union is now debating a package of telecom reforms that would embed net neutrality into law, barring cable and telecom groups from charging web companies like Netflix and Google for carrying their traffic.

Hastings, who has long fought with U.S. telco and cable companies over such fees, said he planned to speak about the issue in a upcoming speech in Brussels. “The advantage of net neutrality is that it allows new Internet services to grow without needing the permission of network operators,” said Hastings. “I think it needs to be inscribed in European law.”

(1 US dollar = 0.7720 euro)

Additional reporting by Natalie Huet; Editing by Andrew Callus, Larry King

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