Netflix to Launch French Service From Neighboring Luxembourg (Report)

DOWN: Reed Hastings

Netflix posts a $5 million quarterly loss -- its first since 2005 -- even as the company's subscriber base grows to 26 million and CEO Hastings' pay jumps 68 percent to $9.3 million for 2011.

The decision is said to be due to French regulations requiring the promotion of French and European films.

PARIS – Netflix’s expected fall launch in France will see the online streaming company operate from Luxembourg where its European operations are headquartered, according to a report from French business newspaper Les Echos on Wednesday.

The decision to operate from the tiny principality will allow Netflix to bypass French regulations that require participation in the French film funding system and the promotion of French and European films.

The specific promotion of French films was said to be the sticking point for Netflix, which does not want to be required to favor or promote certain films at the expense of its algorithms, according to the report.

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Netflix executives have held a series of top political meetings at the Elysee Palace here in recent months, including discussions with culture minister Aurelie Filippetti, as well as Audiovisial Council (CSA) president Olivier Schrameck and representatives from the Society of Dramatic Authors and Composers (SACD).

Netflix CEO Reed Hastings also met with enterprise and technology minister Fleur Pellerin at the Consumer Electronics Show in Las Vegas in January.

Filippetti has consistently maintained that Netflix would be required to follow French regulations and participate in the tax and financing system that supports the film industry to operate within the country.

Headquartering its French operations in Luxembourg not only bypasses the regulations, but gives it advantages in terms of avoiding the country’s taxes, according to Les Echos. Operational teams will be based in Amsterdam, it said.

The French service is expected to launch in the fall, and estimates predict the firm could reach 5 million customers by 2020.

A spokesman for Netflix could not immediately be reached for comment.