James R | On 26, Aug 2014

1 in 5 Netflix subscribers will eventually be from Europe, according to one new report.

Netflix accounted this year that it would be focusing attention on expanding into more countries this year – specifically, Belgium, France, Luxembourg, Austria, Switzerland and Germany. The European drive for new members is the natural step for the Internet TV giant, which requires more subscribers to generate higher income, offsetting the cost of its original content.

Indeed, alongside the streaming infrastructure it needs to set up in each new territory, content acquisition is Netflix’s major outgoing, with expenses totally $267 million in Q2 2014 – an average of $6.71 paid per month for each subscriber (both paid and free).

With more markets lined up, those costs will increase in the short-term – the firm’s costs increased by roughly $30 million to $35 million over background cost growth in the quarter in which it launched in the UK and Ireland, says IHS, before hitting up to $80 million per quarter by the end of Q1 2014.

That investment, though, will theoretically be recouped in the long-term by acquiring a larger volume of subscribers.

“Between the expansion of Netflix and its growing popularity in markets such as the UK, Ireland, Netherlands and Scandinavia, we anticipate that the company will add a total of eight million new subscribers to its European tally by the end of 2018,” comments the report’s author, Richard Broughton, director of broadband analysis at IHS Technology.

As that rapid growth continues, the company will see its international subscriptions jump from one-tenth to one-fifth of total subscriptions, suggests the report.

“Individually, the new markets have a lower-potential than the UK, in subscriber terms. But in aggregate, due to their sheer combined size, we are likely to see another $80 million to $90 million in international costs in the first quarter post-launch. This addition will represent an increase of roughly one-third over the cost of the entire region,” continues Broughton.

With marketing costs – the other key to Netflix’s success – hitting its peak in Q4 2013 of $57 million, IHS’s figures suggest that such costs can be covered in a little over half a year of a paid streaming subscription.

“Global peak search volumes for the latest season of Orange is the New Black were roughly four times higher than those for the first season, with a similar uplift for the second season of House of Cards,” notes Broughton, showing that the marketing has also boosted Netflix’s international awareness – preparing a path for its expansion.

Germany is the toughest market on Netflix’s target list – the second largest online video market in Europe, behind the UK. Indeed, Amazon, Vivendi and Sky Deutschland are established competitors in the subscription field and German consumers are relatively low-spenders compared to their UK and North American counterparts. However, Netflix has seen success in Scandinavia, which also featured high cable TV penetration and online competition, so Broughton argues that making ground is possible.

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