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Netflix Launching Service in Scandinavia

15 Aug, 2012 By: Erik Gruenwedel

Netflix Aug. 15 said it will bow streaming service in Norway, Sweden, Finland and Denmark by the end of the year.

Netflix foreshadowed the expansion during its most recent fiscal results when it said it would incur losses rolling out service in additional countries in the fourth quarter. The service, which created the by-mail disc rental market, established the subscription video-on-demand market beginning domestically in 2007, adding Canada in 2010, Latin America in 2011 and the United Kingdom and Ireland earlier this year.

Netflix's international streaming business has 3.6 million subscribers and posted an operating loss of $89 million during the most recent fiscal quarter.

Upon launch, broadband Internet users in the Nordic countries will have access to Netflix’s subscription video-on-demand service, which includes Hollywood, local and global TV shows and movies. Los Gatos, Calif.-based Netflix did not disclose pricing or an exact start date for the service, which will be its fourth international rollout.

The region has more than 25 million people when including Iceland, Greenland and the Faroe Islands. It was one of the first areas to feature broadband in Europe. Netflix currently has 27 million streaming subscribers.

Netflix earlier this year used Scandinavia as a backdrop to its first original series. The dark comedy "Lillyhammer" is centered on a New York mobster (played by “Sopranos” vet Steven Van Zandt) who enters the witness protection program and is sent to Lillehammer, Norway, after hearing about it during the 1994 Winter Olympics.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, said with a high education rate and high household incomes in the Nordic countries, Netflix should be able to avoid many of the challenges that it has experienced in Latin America, including low device penetration, weak Internet infrastructure, and consumer payment challenges. In addition, Nordic viewers will likely have a higher level of proficiency in the English language, potentially limiting dependence on subtitles, and they endure long winters, increasing the need for in-home entertainment. 

Pachter said Netflix's emphasis in marketing offering TV programming over movies underscores a hardline stance toward Hollywood regarding the licensing of feature films, including premium channel Epix, whose agreement with Netflix ends next year. Epix is co-owned by Lionsgate, Paramount and MGM.

"We think that this is a subtle acknowledgment that Netflix will offer an increasing mix of lower-cost television programming, and will continue to play hardball with movie studios on constantly increasing rights fees for Hollywood movie content," Pachter wrote in a note.

The analyst belives Netflix will operate at break-even over the next decade as its completes its international expansion. Pachter reiterated doubt Netflix will reach its year-end goal of 7 million net new subscribers. He said the service has gained little more than 2.2 million subs this year — a tally Pachter doubts Netflix can double in the second half.

"This implies a 32%/68% subscriber gorwth split between the first half and the seocnd half, which is even more aggressive than its historical 41/59 split," he wrote.

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