Netflix Headed to South America?

15 Feb, 2011 By: Erik Gruenwedel

Netflix is apparently testing its streaming service in South America and could formally launch a platform in a country or two in the region by the end of March, an analyst said.

In a blog post, Frost & Sullivan analyst Dan Rayburn, who is editor of , cited sources familiar with the proposed launch of a streaming service in a region of the world with 156 million Internet users, or 39% of the population.

Separately, Akamai, which provides backend technology support to Netflix (along with Level 3 Communications), said it had signed an expanded agreement with the Los Gatos, Calif.-based online disc rental pioneer, adding that it expected “to work closely with them to leverage our globally distributed network to their market expansion.”

Netflix last summer launched a streaming-only service in Canada, followed by a similar service in the United States. It has been widely speculated that the next streaming service launch would be in the United Kingdom.

Then last month, Amazon acquired the remaining stake in London-based Lovefilm.com, which operates a streaming option in addition to Europe’s largest by-mail disc rental service. The move was largely seen as an attempt to thwart Netflix and allow Amazon to launch its own streaming service.

Depending in which South American countries Netflix launches, Rayburn said the company has the opportunity of expanding into a new market with a combined population of more than 500 million users, with just under 200 million of them online, with a combined average broadband speed of 3.2Mbps.

Rayburn said Netflix entering Europe is challenged by uneven broadband adoption, in addition to geographic and language issues. He said it makes little sense to enter tech-savvy Asia or India — the latter heavily influenced by its native “Bollywood” movie industry.

“South America has a really high penetration rate of broadband users and it has more potential customers than in the U.S., so it’s a good spot,” Rayburn told Home Media Magazine.

Eric Wold, analyst with Merriman Capital in New York, concurred, adding that Amazon’s acquisition of Lovefilm successfully pre-empted Netflix’s expansion in Europe.

“A streaming announcement for South America would be received well by investors given the lack of competition and positive demographic trends (internet penetration rates and average broadband speeds),” Wold said. He said Netflix remains his top 2011 pick in media and entertainment due to its potential for international expansion and strong relationships with CE device manufacturers worldwide.