Market Insight

Netflix launches in UK and Ireland

January 10, 2012

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US disc-by-mail and online video provider Netflix has launched an online streaming offer in the UK and Ireland. The service, which is now available to consumers for £5.99 per month, contains a selection of library movies and TV content, as well as new release films from a handful of smaller studios. Netflix has yet to confirm the available catalogue size, but claims it is larger than rival Lovefilm's, which currently has a selection of 6,000 movies and shows in its streaming catalogue.

Subscribers will be able to access the UK Netflix service on both PC and a variety of connected devices, including Samsung TVs, Android and Apple devices and games consoles. The service is also likely to be available imminently on the Roku box, which is now making its UK debut. The Roku box was the first connected device on which Netflix's US streaming service was made available.

Despite the year of hype leading up to Netflix's UK debut on 10 January, the launch has revealed a weak content selection that indicates that the service still has some way to go before it can compete on an even footing with incumbent UK providers.

While Netflix has signed a range of content deals with major local and US content owners, including the BBC and ITV, Fox, Paramount and Sony, the majority of titles currently available to consumers are deeper catalogue items - Netflix has first subscription window output deals with only a handful of smaller studios, including Miramax, MGM and Lionsgate.

Furthermore, despite Netflix's claim to have a larger catalogue than Lovefilm, the disc-by-mail and streaming company against which Netflix will find itself in close competition has been actively bolstering its defences in preparation for the launch. Lovefilm has made recent streaming deals with both ITV and BBC for TV shows, as well as expanding its online film selection - with both first subscription window deals with European player Studio Canal and second subscription window deals (after their Sky Movies run) with Warner and Sony.

In the rush to compare and contrast streaming video offers, much recent analysis of the subject has skipped over the core of Lovefilm's business - the disc-by-post service on which it has built a 2m subscriber base in Europe. Netflix, in a bid to accelerate the development of its online streaming service in the US, dramatically underestimated the importance of its own DVD service to disastrous effect in 2011, losing close to a million customers as it restructured its offer in an attempt to encourage subscribers to drop the DVD/Blu-ray element of the service. Roughly 40 per cent of Netflix's customer base were still physical video subscribers at the time of the company's last (Q3 2011) financial filing. Nonetheless, it looks set to similarly underestimate the continuing strength of physical video in the UK - this time by opting to compete only partially with Lovefilm's 75,000-strong DVD/Blu-Ray title base and 6,000 'watch online' titles.

Netflix ultimately intends, once established, to provide competition to subscription market leader Sky - the company that Lovefilm has also long considered to be its primary competitor. However if it is to compete with Sky for premium rights, Netflix will have to stump up sums of money which dwarf its current content expenditure levels. In order to justify and make a reasonable return from this level of expenditure, it will be essential for the company to have an established subscriber base to which it can upsell. At present, Netflix's success in generating this foundation subscriber base in the UK is by no means assured.

Ireland UK
Lovefilm Netflix Roku Sky
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