Netflix Faces Uphill Battle in Germany

Netflix CEO Reed Hastings

The online streaming giant will enter Europe's number one TV market in fourth place behind Amazon and local competitors, a study finds.

BERLIN -- Netflix could face its toughest international challenge yet as the online streaming giant prepares to roll out in Germany, Europe's largest TV market, later this year.

On the face of it, Germany seems ripe for the plucking. Despite boasting the world's fourth-largest number of broadband users, subscription VOD is still in its infancy here. But it's growing fast. According to the German audiovisual association, revenue from the five leading SVOD operators was up an impressive 44 percent in the first quarter of this year, though total revenue was a rather modest $18 million (€13 million).

It might still be small, but the German online video market is already crowded with deep-pocketed players:; France's Vivendi, which operates local service Watchever; 21st Century Fox's Sky Deutschland, which recently launched on-demand service Snap; and Maxdome, a subsidiary of German TV giant ProSiebenSat.1. All offer low-cost VOD services broadly similar to Netflix.

Veed Analytics, an analysis firm specializing in the international video market, is skeptical Netflix will be able to replicate its U.S. success in Germany. In a recent study looking at local conditions, Veed estimated that, assuming Netflix Germany launches here with a similar slate of films and TV series as in the U.S., its offering would rank only fourth in the market, behind Amazon's Prime Video service, Maxdome and Watchever.

Veed compared Amazon and other providers and found that Amazon's Prime Instant Video service had by far the most attractive slate. Amazon's German VOD service offers 14 percent of the top 400 movies, by German box-office revenue, of the last three years, significantly more than any other service in the territory. Amazon was also stellar when it came to its selection of the top 100 TV shows, as measured by DVD box sales in Germany between 2010 and 2013.

"Assuming Netflix Germany launches a similar TV-show offering to Netflix U.S., they would only rank fourth in Germany," said Bernd Riefler, chief marketing officer at Veed Analytics. "This raises the question of whether Netflix is entering the German market too late."

In anticipation of Netflix's German entry, the established players have also sweetened their deals by lowering prices and boosting their marketing push. The price point for most German SVOD services is below $11 a month, with Amazon offering a yearly subscription to its Prime Video offering for just $67 (€49), or a mere $5.50 per month.

Thies Haase, vp product at Veed, told The Hollywood Reporter that Netflix may have a superior SVOD product in terms of technology and user interface, but that the German consumer typically decides based on price and content.

Another issue that could hamper Netflix's German rollout is the rights situation in the territory. Many of the established players here have locked up key VOD rights. Sky Deutschland, for example, has exclusive rights for Netflix's House of Cards in the territory.

Netflix's approach to dubbing could also be key. Unlike the other European territories where Netflix is active – including the U.K., Holland and Scandinavia – where foreign films and series are subtitled, German viewers are accustomed to dubbed product. But dubbing is expensive and could mean a major additional expense for Netflix's German operations.

Maxdome, which draws on ProSiebenSat.1's massive library of (dubbed) TV series and films, is market leader in the territory with an estimated 35 percent market share.

Maxdome head Andreas Heyden has said publicly he is ready for Netlix and expects to stay on top in Germany. Instead of cannibalizing the German market, Heyden said he actually expects Netflix's entry to increase the pie for everyone. He points to the media hype surrounding Netflix's launch, which, he says, has increased interest in premium VOD product across the board.