The battle for the growing markets of internet TV is far from ended. In this post, Silvia Elaluf-Calderwood analyses the overview and current situation of one of the key players–Netflix–and offers conclusions based on their strategy of expansion in the European market. “Internet TV is replacing linear TV. Apps are replacing channels, remote controls are disappearing, and screens are proliferating. As Internet TV grows from millions to billions, Netflix is leading the way around the world.” Neflix, 201

Elaluf-Calderwood, Silvia

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27/06/2017 Netflix as a player in the digital market | LSE Network Economy Forumhttp://blogs.lse.ac.uk/nef/2014/05/09/netflix-digital-market/ 1/3May 9 2014Netflix as a player in the digital marketBlog EditorThe battle for the growing markets of internet TV is far from ended. In this post, Silvia Elaluf-Calderwoodanalyses the overview and current situation of one of the key players–Netflix–and offers conclusions based ontheir strategy of expansion in the European market.“Internet TV is replacing linear TV. Apps are replacing channels, remote controls are disappearing, and screensare proliferating. As Internet TV grows from millions to billions, Netflix is leading the way around the world.”Neflix, 2013After a period of rapid expansion, Netflix has slowed down its international expansion in recent months, with the Netherlandsmarking the only country that Netflix set up shop in 2013. In 2011, Netflix rolled out its service in almost all of Latin Americaand the Caribbean, and in 2012, it expanded into a total of six European countries.These next destinations for Netflix will differ from its first wave of European markets — the U.K., the Netherlands andScandinavia — in one key regard: Incumbent pay-TV providers and pure-play streaming services from Russia to Spain havebeen anticipating the entry of the U.S. juggernaut.  This has given them ample time to counter with broadband-delivered videoon demand plays of their own. Nevertheless, a complex web of factors will make Netflix’s border crossing either breezy orbrutal, depending on which nation is stamping its passport.  In each case, the mode of entry, and even the business model,has to be reconsidered.Netflix first announced last year that it plans a major expansion into continental Europe in the second half of 2014, but thecompany hasn’t said yet which countries it is targeting for that expansion, or when exactly it wants to launch, the following is aquick overview on some of the major European countries.Netflix strategies in Europe: Overview of current statusUK and IrelandLaunched in January 2012, it faced fierce competition from BBC iPlayer and from Lovefilm. Netflix has gained much territory inthe UK since then partly due to Lovefilm financial issues.Netherlands Launched in September 2013, the choice of the Netherlands points towards a more focused approach, with Netflix looking formarkets that offer the best opportunities for growth. Reed Hastings (CEO) identified perceived market demand for the choice ofthe Netherlands in the company’s launch press release, which quotes him saying: “The Dutch have incredible broadband, butuntil today have not been able to take full advantage of their fast connections.”Scandinavia: Denmark, Sweden, Norway and Finland Launched in April-May 2012, it had direct competition from Lovefilm. Lovefilm operates streaming-only movie subscription inSweden, Denmark and Norway.There has long been social and enterprise debate on the role of content delivery networks as telecommunication networkcomponents. The incumbent in Norway, Telenor, was vocal about the impact on services and business models and mountedcompetition arguments in relation to Netflix (Bakken, 2012; NPT, 2012 and Vigeland, 2012).In Sweden, Netflix faced Viaplay, which has deals with all major international and local distributers. Importantly, many of theincumbent Swedish online video providers already distribute premium video content directly to different connected living roomdevices (TVs, Blu-ray players, game consoles, etc) – traditionally Netflix’s strength.Germany The planned launch date is September 2014. Now the only one of Lovefim’s markets uncontested by Netflix is Germany. Thethree leading over-the-top players, Lovefilm, Vivendi’s Watchever and ProSiebenSat.1’s Maxdome — all SVOD services —were joined by Sky Deutschland’s Snap in December. In addition to the big three OTT providers, there are a further 50 or soplayers offering transactional video on demand [VOD]; free, ad-supported VOD; or SVOD; with sometimes two or all three ofthese models existing on the same platform.  An additional consideration is the strong consumer preference in Germany fordubbing as opposed to subtitling, which introduces some delay and expense.27/06/2017 Netflix as a player in the digital market | LSE Network Economy Forumhttp://blogs.lse.ac.uk/nef/2014/05/09/netflix-digital-market/ 2/3Italy Netflix has been slow to launch due to shortcomings in the infrastructure for broadband. Netflix is not the only company at leastpartially on the sidelines due to the country’s Internet infrastructure problems: streaming services from Amazon and 21Century Fox’s subsidiary, Sky-Italia, have run into similar limits. Their entry is currently scheduled for the end of 2014.Italy lags behind Europe in connectivity. Just 55% of Italian households have a broadband connection, compared with anaverage of 72% across the E.U., according to Eurostat, while average broadband speed is about 4 megabits per second,compared with 7 to 8 Mbps in the U.K. According to industry sources, Netflix has had a preliminary round of early talks for apossible partnership with several Italian Internet service providers.France The No. 1 challenge for any service is Gaul’s 36-month-long theatrical-to-SVOD window — the one in which Netflix typicallygets movies. Moreover, SVOD services that are headquartered in France and have annual revenues exceeding €10 million($13.7 million) and must invest 21% of their annual revenues in local and European films via pre-buys and co-productions.Service is expected in the autumn of 2014. Due to legal restrictions there might be a delay to launch the service. The mainhiccup is that in France, however, broadcasters must also re-invest around a quarter of their revenues in French and Europeanproductions due to cultural protection laws. So they might launch their service from Luxemburg.Spain Spain has piracy problems but the legal video-on-demand market is growing. Netflix is highly unlikely to launch in Spain andPortugal in 2014, according to multiple industry sources, who don’t foresee the service entering any part of the SouthernEuropean market for a few years. Some 87% of Spanish Internet users still access unauthorized content or download filesfrom illegal sites such as Mega and Rapidshare.Austria Big foreign players such as News Corp.’s Sky and German media giant ProSiebenSat.1, which both offer SVOD services, arealready carving up Austria’s modest market. In 2012, the nation’s online movie sector was valued at more than $9.6 million,although more than 99% of digital movie revenues stemmed from transactional, or pay-per-view, services rather thansubscription; in 2013, those revenues hit $15.1 million.Portugal No plans to launchPoland No launch date. Poland is substantially behind Western European markets in terms of OTT usage, largely due to its lowerbroadband penetration. In an audit, the National Broadcasting Council listed 21 companies that provide commercial VODservices nationally. Leading OTT provider, IPLA, a subsidiary of pay TV operator Cyfrowy Polsat, offers VOD and SVODservices, and the country’s biggest Web portal, Onet, offers SVOD as well as transactional VOD and ad-supported VOD.Other Eastern European countries Netfilx is very cautious to enter countries where there is a high use of piracy and tis has hampered strategy. No launch dateshave been announced.Russia No launch date. Russia suffers from rampant piracy and only 11% of its Internet users are willing to pay for online videocontent, according to the Russian Public Opinion Research Center. But there are Russian services with an SVOD businessmodel, including the leading premium SVOD service, Modern Times Group’s Viaplay, and Amedia’s Amediateka.Conclusions1. Netflix is obliged to explore multiple strategies for the highly diversified markets in Europe.2. Early introduction in Scandinavia has not been quickly followed or found the same level of success in more mature marketswhere strong competition has been faced.3. Expansion has been hampered by conflict with powerful incumbents and other players. This situation is similar for Netflix inLatin America (especially in Mexico and Brazil).4. Netflix has been welcomed by countries with a policy of increasing competition in the VOD market, although it is not clearhow it will provide returns in markets that demand financial contributions to the national film industry (e.g. France).Further readingAmaral, Flavio. (2012) Netflix Open Connect Network. PTT Forum, Rio, Brazil.Bakken, J. “Det Er Netflix Som Diskriminerer,” (2012).———. “Dette Er et Pr-triks Fra Netflix,” 2012.Netflix, (2012). Netflix Open Connect Network BR.Netflix (2013) Long Term View. Investor Relations.NPT (2012). Content Delivery Network – Regulatory Assesment. Oslo: NPT, 2012.st27/06/2017 Netflix as a player in the digital market | LSE Network Economy Forumhttp://blogs.lse.ac.uk/nef/2014/05/09/netflix-digital-market/ 3/3Tan, Tom F., and Serguei Netessine. (2009) “Is Tom Cruise threatened? Using Netflix Prize data to examine the long tail ofelectronic commerce.” Wharton Business School, University of Pennsylvania, PhiladelphiaSandvine. (2012) Global Internet Phenomena Report 1H-2012. Waterloo, Ontario, Canada: Sandvine, at: “Special Interest inNetflix Page 21,” n.d.Vigeland, Eirik. (2012) “Control and Innnovation on Digital Platforms – The Case of Netflix and Streaming of Video Control.”University of Oslo, Centre for Technology, Innovation and Culture, 2012. Master Dissertation.This article gives the views of the author and not the position of the London School of Economics.We welcome your comments! Please take a look at our comments policy _________________________________About the authorsSilvia Elaluf-Calderwood – LSE Management Department Dr Silvia Elaluf-Calderwood is a Research Fellow at the LSE Department of Management. She holds wideexperience in the telecommunications industry in the UK and the Netherlands, and has a technical andmanagerial background in the Internet and Telecoms business.This entry was posted in business models, digital economy, Europe, innovation, internet, internet economics, LSE Tech, Silvia Elaluf-Calderwood, Telecoms. Bookmarkthe permalink.

Netflix as a player in the digital market

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