Why Netflix Subscribers in Europe Won't Get 'House of Cards'
A version of this story first appeared in the July 4 issue of The Hollywood Reporter magazine.
Can Netflix conquer Europe?
Many analysts greeted with skepticism news, finally confirmed by CEO Reed Hastings last month, that Netflix will launch in six new European countries this fall, including the two biggest: Germany and France (along with Austria, Switzerland, Belgium and Luxembourg). While the VOD giant has put down roots in the U.K. and Scandinavia (where it launched in 2012) and in the Netherlands (2013), most saw major obstacles to a broader European rollout.
In addition to fierce competition in much of Europe — from global players like Amazon Prime to local giants including CanalPlus and Orange in France and Germany's Maxdome and 21st Century Fox-owned Sky Deutschland — Netflix in many territories won't have access to the buzz-generating U.S. shows it counts on to drive subscriptions. Sky Deutschland, for example, has exclusive local rights to Netflix's own signature show, House of Cards, as well as binge-watcher favorites like Game of Thrones. In France, CanalPlus has exclusive rights to the first two seasons of House of Cards while Orange has first-run rights to all HBO series.
Bernd Riefler, chief marketing officer at Berlin-based research group Veed Analytics, believes when Netflix launches in Germany, it will start off in fourth place among VOD operations, well behind market leaders Maxdome and Amazon Prime. "This raises the question of whether Netflix is entering the German market too late,” Reifler tells THR.
But instead of fighting the locals, Netflix has decided to join them. In Germany, the company is in advanced talks with Deutsche Telekom, the country's largest Internet service provider, about a marketing tie-in ahead of Netflix's German launch. Similar talks, reportedly, are underway with mobile carrier Vodafone for multiple European territories. (Netflix already works with Vodafone in the U.K.).
And to make up for its lack of exclusive continental content, Netflix has begun plowing money into Euro-friendly productions. These include The Crown, a high-end drama about Queen Elizabeth II (reported budget: $170 million), which Oscar nominees Peter Morgan (The Queen, Rush) and Stephen Daldry (The Reader) are developing; and a big-budget French-language series, still being kept closely under wraps, which reportedly will shoot in Marseille later this year and go out — exclusively to Netflix's European subscribers — in 2015.
Possible French partners include Gaumount International Television, who produce Netflix's horror series Hemlock Grove and upcoming Colombian drug tale Narcos, or Haut et Court TV, the shingle behind French zombie hit The Returned, which has been a popular title on Netflix in the U.S. and U.K.
Speaking to THR, Netflix original content vp Cindy Holland says several of the company's new commissions — including the Wachowskis' sci-fi drama Sense8 and historical epic Marco Polo — were developed with one eye on the international market.
The potential in continental Europe is huge. Western Europe had 134 million broadband homes at the end of 2013, compared with 88 million in the U.S., according to market researcher SNL Kagan. And while the VOD market it still in its infancy here, it is growing fast, with revenues expected to jump two-thirds to $1.1 billion by 2017.
"[Netflix's] willingness and global scale allows it to take on these sizable projects, which a regional or even national player in any given market likely would not,” says Benjamin Swinburne, an analyst with Morgan Stanley Research. In a recent note to investors, Swinburne forecast Netflix's international subscriber base — 12.7 million as of the first quarter this year — could jump to 56 million by 2020. He points to success in Canada, Scandinavia and the U.K., where despite similar obstacles, Netflix has quickly become the leading VOD provider.
Hastings, in a letter to shareholders in April, acknowledged that the European invasion will cost the company in the short term. But the Netflix CEO said he is determined to sacrifice “near-term profits” for the “large global opportunity” Europe represents.