A Media Giant Crosses the Pond
The company just announced streaming services for the U.K. and Ireland in "early 2012." It's a cost center at first, because Netflix never plans to make money right away in virgin territories abroad. Besides setting up the infrastructure necessary to serve up digital movies in a timely and reliable manner, Netflix also has to secure content licenses for the new market.
This looks like a very soft launch. Netflix isn't ready to tantalize the Brits with hints of the content to come. We might hear a detail or two tonight as Netflix reports earnings, but I'd be surprised if there's much time left over for questions like that after discussing a summer's worth of mistakes -- some real problems, some PR blunders.
For the first time, Netflix is going up against incumbent streaming services in the U.K. Amazon.com (NAS: AMZN) has some territory to defend here since it bought local movie service Lovefilm back in January. It's not a deeply entrenched market leader, and Amazon isn't exactly pouring resources into Lovefilm. So far, the company has chosen to lump Lovefilm's results together with baby-goods store Quidsi, which Amazon acquired around the same time. Taken together, the two contribute about $140 million of quarterly revenue and lose money overall.
So the Canadian service rolled out about a year ago, followed by 43 recently launched territories in the Caribbean and Latin America. Spain was supposed to come next, but maybe that troubled market needs some more TLC to get ready, so the Brits jumped ahead. And then there's the rest of Western Europe, the suddenly burgeoning Eastern European bloc, and of course the densely populated, technologically sophisticated nations of Southeast Asia. That leaves Netflix with a lot of worthwhile real estate to cover.
If Netflix still negotiates licenses one territory at a time, this global conquest might take a while. But if Walt Disney (NYS: DIS) , Sony (NYS: SNE) , and DreamWorks Animation SKG (NYS: DWA) , among other large studios, start signing worldwide rights deals instead of single-market deals, then it's in Netflix's best interest to move ahead as quickly as possible. Expanding too slowly would be a waste of high-dollar resources. Kind of like buying a gift card and letting it expire unused.
So how Netflix moves ahead from this point will tell us something about the nature of those content deals. This particular expansion is different because the expiring Starz deal gives Netflix some spare cash to reallocate.
Whether you love Netflix or hate it, the company's ever-shifting strategy never leaves you yawning. What will CEO Reed Hastings think of next? Our watchlist feature will help you stay on top of it all. Add Netflix to your own watchlist by clicking here, and don't dawdle -- you wouldn't want to miss tonight's earnings news, now would you?
At the time this article was published Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. Motley Fool newsletter services have recommended buying shares of Amazon.com, Walt Disney, Netflix, and DreamWorks Animation SKG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can go over Anders' holdings and a concise bio, follow him on Twitter or Google+, or check out ourFoolish disclosure policy.
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