Europe's VOD Market Set for Massive Growth

Reed Hastings

Ahead of Netflix's six-nation European expansion, a European Commission report shows a crowded market but one ready to boom.

Netflix's planned expansion this fall into Germany, France and four other European countries has established European media companies scrambling to shore up their own video-on-demand offerings in preparation for the arrival of the U.S. giant.

A study of Europe's digital video services published Thursday by the European Commission shows Netflix will face plenty of competition as it rolls out across Western Europe. Figures from the U.K. and Scandinavia, however, where Netflix already operates, suggest Reed Hastings' SVOD service could quickly make inroads on the continent.

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The report, by the European Audiovisual Observatory, lists more than 3,000 VOD services across Europe, including 241 offerings in France and 171 in Germany.

The vast majority of those, however, are catch-up TV services and VOD platforms run by local television channels, not true SVOD services that would be direct Netflix competitors. The list of true competitors is much smaller and includes Amazon's Instant Video operations in Europe, the Japanese-owned, Spanish-based Wuaki.TV, HBO's HBO Go service and SVoD operations run by local media companies, including ProSiebenSat.1's Maxdome, CanalPlus' Canal Play Infinity, Vivendi's Watchever and BSkyB's Sky Go.

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The European Commission report shows a continental SVOD market still in its infancy compared with the U.S. Big Internet service providers, such as Deutsche Telekom in Germany and Orange in France, act as gatekeepers for the VOD market, with digital TV platforms run by Internet and cable companies dominating the market in most territories. This contrasts with the U.S., where over-the-top (OTT) VOD services are king. In 2012, total spending on OTT digital video services in Europe was $916 million (€673 million), while spending on digital video services via cable, satellite and IPTV was $1.2 billion (€884.5 million).

But OTT video consumption is growing fast in Europe, recording 97 percent year-on-year growth compared to just under 27 percent for VOD services in general.

"With the increasing broadband speeds and number of services, it is only a matter of time before Europe follows the American situation, where on-demand services delivered over the open Internet are more popular than closed and controlled platforms,” the report concludes.

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German research group Goldmedia, whose economic forecast is quoted in the European Commission report, suggests the SVOD market in Germany is about to explode. While VOD revenue last year was just $222 million (€163 million) in Germany, Goldmedia predicts it will soar to $611 million (€449 million) annually by 2018, with the strongest growth coming in SVOD services. The arrival of a big SVOD player (read Netflix) could see the German market expand from an annual turnover of €33 million last year to more than $476 million (€350 million) by 2018, the group said.

The European Commission report agrees that Netflix's entry, particularly if backed by a major investment in content rights, could prove decisive. 

"As with other Internet based businesses, size matters (as does) the first-mover advantage,” the report said.

Netflix's experience in the U.K. market may bode well for its continental expansion. In its first year of operation in Britain, in 2012, Netflix quickly seized nearly half of the SVOD market, accounting for 42.6 percent of total SVOD traffic, the report finds. Netflix now has an SVOD duopoly in the U.K. with Amazon's Instant Video, accounting for nearly 98 percent of the market by volume. Well behind is BT Vision, operated by British Telekom, with just 1.1 percent.


Twitter: @sroxborough