Netflix Inc.’s plans to ramp up its European content next year should help it secure further inroads in the region’s fragmented markets, but competitive and regulatory challenges remain.
The streaming giant plans to spend about $8 billion on content in 2018, including nearly $1 billion on original programming in Europe, where it is on course to meet a target of 141 projects this year, according to a recent report by the Financial Times (London). The entrance of Netflix and other deep-pocketed streaming giants across Europe has already put pressure on local broadcasters’ content strategies. But regulatory and competitive dynamics are driving the two sides to form new — if somewhat uneasy — partnerships.
“Netflix has the cash to hire the best local commissioners and to buy the best local content,” said Katharine Lewis, CEO of media consultancy FutureSmartMedia. Incumbent broadcasters who fail to offer on-demand content that resonates with younger audiences will lose out to Netflix’s superior buying power and its cross-platform nonschedule programming strategy, she said.
At the same time, Netflix has been a big buyer of local content such as “The Bodyguard,” which was produced by ITV Studios’ World Productions Ltd. and aired in the U.K. on BBC One. For Europe’s broadcasters, this makes Netflix a “frenemy,” said Andreas Rudas, president of consulting firm Arthur D. Little.
One option for local providers is for public service and commercial broadcasters to form European Netflix rivals, such as France’s TF1, France Télévisions SA and Groupe M6, which this year announced a joint subscription video-on-demand platform known as Salto. Similar discussions are underway in Germany and the U.K.
Partnerships between broadcasters are necessary to compete with the Hollywood-style quality and credentials of Netflix’s original content, Rudas said. “I do not believe a single broadcaster can deliver the quality of productions by the [over-the-top] players,” he added.
The top 10 programs consumed across the continent year to date are all American imports, with “The Walking Dead,” “Game of Thrones” and “Vikings” at the top, according to data provided by Parrot Analytics. Only one Netflix original series made the list, “Stranger Things,” which Netflix hopes to change as it rolls out more locally focused content.
Subscription video-on-demand penetration rates in Europe are still relatively low, at about 20%, said independent media analyst Alex DeGroote. “This is minuscule compared to the U.S., where cord cutting is well advanced,” he said.
However, the competitive dynamics for Netflix’s launch into Europe are different than they were in the U.S., where Netflix launched its streaming product just as viewers were starting to consume more content online. Europe already has several incumbents and some international companies vying for streaming dominance, noted Bruce Tuchman, global streaming media investor and adviser.
European regulators also have shown a willingness to support local content. Europe’s parliament this year voted in favor of new legislation requiring Netflix and other video-on-demand platforms to include a minimum of 30% of European content in their catalogs. At the same time, acquiring local content is becoming increasingly difficult for Netflix as local broadcasters — who are heavily financing these productions — do not always wish to sell, preferring to hold the rights for their own platforms, said Florence Le Borgne, an analyst at think tank IDATE DigiWorld.
“While Netflix has deeper pockets than even the major European broadcasters, the company will have to spread its investment across a lot of countries, without any real guarantee that its local content will achieve international success,” she said.
Striking deals with local European mobile operators who already have relationships with subscribers will continue to form a key pillar of Netflix’s distribution strategy, said Paolo Pescatore, senior vice president of consumer services at MIDiA Research, a firm that focuses on media and technology. This is especially true for European markets with low pay TV penetration but high fiber broadband rates, such as Spain, where Netflix has struck deals with Vodafone Group PLC and Orange SA.
“We shouldn’t underestimate the value of local [expertise] given the regional differences, the different cultures, different languages and different attitudes,” Pescatore said. “While it is a sensible move for Netflix to invest in locally produced content … competing head-on [with local providers] is only going to result in casualties on both sides.”
Source:S&P Global