Europe to Represent One-Fifth of Netflix Subs by 2015

LONDON: As Netflix continues its expansion across Europe, the service is expected to see its international subscriptions jump from one-tenth to one-fifth of its total base, according to new analysis from IHS.

By the end of this year, Netflix is set to launch in Belgium, France, Luxembourg, Austria, Switzerland and Germany, which adds around 5 million to 6 million new subscribers. “Between the expansion of Netflix and its growing popularity in markets such as the U.K., Ireland, Netherlands and Scandinavia, we anticipate that the company will add a total of 8 million new subscribers to its European tally by the end of 2018,” said Richard Broughton, director of broadband analysis at IHS Technology.

IHS expects significant additional costs to be incurred from the six new markets. Netflix’s costs increased by approximately $30 million to $35 million over background cost growth in the quarter in which it launched in the U.K. and Ireland, expanding to as much as $80 million per quarter by the end of Q1 2014, by IHS estimates.

“Individually, the new markets have a lower potential than the U.K., 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,” Broughton said.

Broughton noted how content is the keystone of Netflix’s business, but part of the company’s success to date can be attributed to extensive marketing, particularly around its original show brands such as House of Cards and Orange Is the New Black. Marketing spend internationally hit its to-date peak in Q4 2013, when it reached a quarterly high of more than $57 million, dipping only marginally in Q1 2014.

“Taking the likely churn rate into account, this cost is paid off in a little over half a year of a paid streaming subscription,” Broughton said. ”Furthermore, 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.”