Netflix in Talks With Deutsche Telekom Ahead of German Launch (Report)

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Less than a year ago, the Netflix chief's stock was at $285 a share. On July 30, it closed at just $57.75 thanks to slowing domestic growth and the high cost of expanding overseas.

The VOD giant is believed to be close to a marketing tie-in with Germany's leading Internet service provider as it prepares to roll out in Germany this fall.

Netflix is in advanced talks with German giant Deutsche Telekom over a possible marketing alliance ahead of Netflix's launch in Germany this fall, according to a report in German magazine Manager.

Sources close to Telekom confirmed that the company is negotiating with Netflix but refused to give details. Both companies declined to comment Friday.

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The report cites unnamed sources saying Telekom was open to cooperating with Netflix as it begins its German roll out even though the VOD service would be a direct competitor with Telekom's similar on-demand service, Entertain.

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No deal has yet been signed, but the talks are a positive indication for Netflix as it moves into Europe's biggest television and broadband market. Deutsche Telekom is Germany's leading Internet service provider and a cable and mobile phone giant in the territory. A tie-in with Telekom would give Netflix instant access to tens of millions of potential German subscribers. Telekom has around 12 million broadband customers in Germany, a 40 percent share of the market, and some 2 million IPTV subscribers, a 10 percent share.

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"As Netflix enters new markets — particularly challenging markets such as Germany — leveraging existing broadband and video distributors may help drive higher subscriber adoption," said Benjamin Swinburne, a London-based analyst with Morgan Stanley. "[It's] a smart way to approach competitive markets, assuming [Netflix] can do so without onerous revenue share terms."

Swinburne points to Netflix's agreement with Britain's Virgin Media as an example of how the VOD group can effectively join forces with local players to gain scale in international markets.