Netflix's European Expansion Raises The Investment Bar

BMI View: Netflix's long-anticipated expansion into Europe's largest broadband and pay-TV markets will force its competitors and partners to innovate on pricing and services, provide new content creation opportunities for local producers and drive sales of higher-end connected devices such as smart TVs and games consoles. While many incumbents will now ramp-up competition-based strategies, we believe there is substantial upside potential to be exploited through collaboration.

The US-based video streaming service provider is to launch services in Austria, Belgium, France, Germany, Luxembourg and Switzerland in 2014. Prospective customers are invited to sign up to receive more information regarding launch dates and pricing plans. Netflix already operates in Denmark, Finland, Ireland, the Netherlands, Norway, Sweden and the United Kingdom, all of which have contributed handsomely to the 1mn-plus quarterly net additions averaged by the international streaming unit over the last two years.

Netflix has said that this expansion will be accompanied by a USD3.2bn investment in its global content portfolio to help broaden its appeal in its target markets. Details are scant, but BMI believes that a considerable sum will be invested in the creation of original local-interest content and that Netflix will reach out to local media companies to achieve this goal. Netflix's expansion will therefore provide a welcome boost to the global profiles of Europe's media production industry as well as the regional economy. Original series premiered in the Norwegian and Swedish markets have received considerable international acclaim, for example. Meanwhile, Sky Deutschland - which is in acquisition talks with its UK sibling BSkyB - has said that increased investment in locally-produced content would be essential to its expansion strategy.

Coming To A Multiscreen Home Soon
Netflix International Streaming Subscribers Net Adds

Netflix's European Expansion Raises The Investment Bar

BMI View: Netflix's long-anticipated expansion into Europe's largest broadband and pay-TV markets will force its competitors and partners to innovate on pricing and services, provide new content creation opportunities for local producers and drive sales of higher-end connected devices such as smart TVs and games consoles. While many incumbents will now ramp-up competition-based strategies, we believe there is substantial upside potential to be exploited through collaboration.

The US-based video streaming service provider is to launch services in Austria, Belgium, France, Germany, Luxembourg and Switzerland in 2014. Prospective customers are invited to sign up to receive more information regarding launch dates and pricing plans. Netflix already operates in Denmark, Finland, Ireland, the Netherlands, Norway, Sweden and the United Kingdom, all of which have contributed handsomely to the 1mn-plus quarterly net additions averaged by the international streaming unit over the last two years.

Coming To A Multiscreen Home Soon
Netflix International Streaming Subscribers Net Adds

Netflix has said that this expansion will be accompanied by a USD3.2bn investment in its global content portfolio to help broaden its appeal in its target markets. Details are scant, but BMI believes that a considerable sum will be invested in the creation of original local-interest content and that Netflix will reach out to local media companies to achieve this goal. Netflix's expansion will therefore provide a welcome boost to the global profiles of Europe's media production industry as well as the regional economy. Original series premiered in the Norwegian and Swedish markets have received considerable international acclaim, for example. Meanwhile, Sky Deutschland - which is in acquisition talks with its UK sibling BSkyB - has said that increased investment in locally-produced content would be essential to its expansion strategy.

The Sky group is forced to compete with Netflix because it has little fixed infrastructure to speak of and is, therefore, primarily a service provider. We do not expect Sky companies in Europe to acquire fixed-line infrastructure in order to become 'TV Everywhere' players, but greater collaboration with network-based companies will become more attractive in time.

Cable companies have typically responded by acquiring rivals in order to achieve the scale needed to stave off the threat posed by OTT services and, increasingly, we are seeing major broadband infrastructure owners acquire pay-TV players to protect their investments (for example, Vodafone Germany's acquisition of Kabel Deutschland or AT&T's proposed acquisition of DirecTV). However, we also expect cable and telecoms operators to become more receptive to collaborating with Netflix and its ilk as they recognise the potential to use OTT streaming as a value-added supplement to their core services and enhance their 'TV Everywhere' portfolios.

Global and local OTT platforms are also gaining traction in the smart devices space, with Netflix apps becoming more ubiquitous on smart TVs, set top boxes and games consoles, among other devices. As such, we also believe the expansion of Netflix into Europe will boost sales in key consumer electronics products segments and our forecasts for sales of TVs, tablet computers and consoles will be adjusted to take the Netflix effect into account. We also expect Europe's broadband infrastructure owners to increase the capacity of their networks to ensure trouble-free viewing of high-definition content and forecast significant increases in operator capex over the next five years. This will not necessarily translate into increased broadband subscription growth, but there will certainly be an improvement in broadband ARPUs, currently in the doldrums due to increased price competition and the dilutive effects of bundling.

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