Market Insight

Netflix to launch services in Sweden

May 17, 2012

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US disc-by-post and online video service provider Netflix intends to launch an OTT video service in Sweden later in 2012, according to local players. The company is understood to be in talks with local video content providers, international distributors and broadcasters in Sweden to create an extensive content library prior to launch.

Netflix has yet to confirm the Swedish launch officially but in April 2012 CEO Reed Hastings announced a possible launch in an additional European country. The aim is to speed up Netflix international expansion plans in the fourth quarter 2012.

Having launched in Canada, Latin America, the UK and Ireland, Netflix sees international expansion as a priority for 2012. Previously, Netflix planned to roll out in Spain but due to the expenses growth and a modest revenue increase, the company put the project on hold. So Sweden is looking to become the latest European country to be targeted by the streaming video company.

Although no specific details regarding additional international service launches have been announced, it seems likely that the price for consumers would not be significantly different from other countries. In the US the streaming service costs $7.99 (£5) per month, in Canada, in Brazil BR$14.99 (£4.7), in Mexico MX$99 (£4.5) and in the UK £5.99.

According to the last Netflix financial results (Q1 2012), the company added 1m members to its international streaming services in Canada, Latin America, the Caribbean, the United Kingdom and Ireland, and ended Q1 with 2.41m paid subscribers outside the US. The growth in the number of subscribers was attributed largely to the UK and Irish markets, and its success seems to have stimulated Netflix to consider other Western European countries as potential targets. However, while international subscription online streaming services generated $43m in revenue in the first quarter, they cost the company $103m, with service start-up, marketing and content spend key costs. 

Similarly to the UK, in Sweden Netflix is facing a market with strong existing online video providers. Specifically, the range of competitors includes SVOD providers such as Viaplay, a local branch of Netflix's European counterpart Lovefilm; Bonnier-subsidiary SF Anytime and start-up Voddler with transactional VOD services, and broadcasters with free-to-view on-demand services such as SVT Player.

Competing with an entrenched array of existing incumbent players will generate additional costs for Netflix, particularly if the service provider decides to ink deals for the best movie and international TV rights. In the UK, despite the fact that Netflix has signed a range of content deals with major UK and US content owners, it still has a narrow first subscription window selection from only a few studios, including Miramax, MGM and Lionsgate. In Sweden, Modern Times Group’s

Viaplay has deals with all major international and local distributers. Importantly, many of the incumbent Swedish online video providers already distribute premium video content directly to different connected living room devices (TVs, Blu ray players, game consoles, etc) – traditionally Netflix’s strength.

Overall, Sweden presents an attractive market for Netflix, with high GDP, developed broadband infrastructure and positive consumer attitudes to using legal online video services (compared for example to Latin America countries or Spain - an earlier posited launch).  In addition, it is a market with a significant English-speaking audience ready to consume international, as well as local content. Nevertheless the obstacles of competing with incumbent players, high costs of content deals and investments for a sustainable business development should not be underestimated.

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