Netflix Storms Europe (Where Will It Launch Next?)

Southern and Eastern Europe, Australia and, one day, Asia may be in the cards — though China and India will be tough — as Reed Hastings sets his sights on 45 million international subscribers by 2018

This story first appeared in the Oct. 3 issue of The Hollywood Reporter magazine.

Netflix's mid-September launch in six European countries, including France and Germany, marked the biggest international expansion to date for the streaming giant, opening a market with 60 million broadband households. But even before the lavish parties in Paris and Berlin, Wall Street was wondering where Netflix will go next.

Netflix has made an international foray about once a year (first in Canada in 2010, followed by Latin America in 2011, the U.K., Ireland and Scandinavia in 2012 and the Netherlands in 2013). Now it seems Australia is CEO Reed Hastings' next target.

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Similar to Canada and Western Europe, Australia has a high percentage of broadband homes (about 6.4 million of a population of 23 million). Its viewers also like U.S. TV shows and films — the bulk of Netflix offerings. Perhaps most important: There's little competition, other than smallish DVD rental and streaming service Quickflix and online offerings from 21st Century Fox's Australian pay TV group Foxtel.

Australia also could provide "a foothold into the broader Asia-Pacific region," where "a significantly bigger opportunity awaits," says analyst Tony Wible. But Asia could be much harder for Netflix to crack. China and India, potentially massive markets, have huge barriers to entry. "We dismiss their potential [for Netflix] given Chinese attitude around U.S. media and India's low purchasing power," adds Wible.

Japan and South Korea, rich territories with high broadband penetration, might seem more welcoming. In an interview, Hastings said "there are great opportunities" in those countries but declined to discuss details. Wible warns "there is more competition in these markets" and that, given their preferences for homegrown film and TV, Netflix would have to spend a lot more on local-language content, cutting into its profit margin.

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In Europe, too, few easy markets remain. Analyst Michael Nathanson, whose firm predicts Netflix will reach 45.8 million international subs by 2018, believes the service likely will launch in Spain and Italy in 2015. But neither has the economic strength of Germany or France, and piracy is a problem. Hastings, speaking in Copenhagen on Sept. 19, would say only that his company will spend the next few months "in France and Germany trying to learn, improve and adjust. We'll decide next year to expand more in Southern Europe [or] Central and Eastern Europe."

Scott Roxborough contributed to this report.

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