Netflix Inc (NASDAQ:NFLX) may be ready to open its service to 80 million extra customers. According to reports emerging on Wednesday afternoon, the media streaming service may launch in Germany as soon as September. The move is a relatively positive one for Netflix, given the need for the company to expand, but it brings with it a new set of challenges.
According to a report from a German news source, which was picked up by Janko Roettgers over at Gigaom.com, Netflix Inc (NASDAQ:NFLX) is preparing to launch its streaming service to the central European country before the year is out. The move will represent the extension of the brand through much of the continent’s major population centers. That doesn’t mean there’s an easy time ahead for the company as it tries to expand business to Europe.
Netflix expands European coverage
Netflix already operates in seven European countries, Finland, the Netherlands, the United Kingdom, Sweden, Denmark, Norway and Ireland. The reason for its entry into those markets is understandable. Each country boasts a high income, two have a native English speaking population, and the remaining five have a high level of English speakers.
According to the report, “multiple people with knowledge of the process” have given information that suggests a September launch. Rumors that the company is preparing a German advertising campaign have been circulating for months, and the company has offered positions where knowledge of German was deemed a plus.
The real challenges for Netflix Inc (NASDAQ:NFLX) will start to arrive as it tries to expand beyond the reaches of the English language media saturated north of Europe. The company needs to expand into populations where most of the media consumed is local. That means establishing entire new teams in order to source and sort content, and that means higher costs.
Netflix heads toward cost explosion
Countries like France, Italy, Spain and the entirety of Eastern Europe are less willing consumers of English-language media. In order for Netflix Inc (NASDAQ:NFLX) to succeed in those markets it will have to spend money, and establish permanent operations. Costs are low for Netflix right now, but as it moves further into original content and tries to break into European markets those costs may spiral upward.
The German experiment is certain to be watched closely for hints about the future of the company. With 80 million people and a strong economy the country is an ideal market for Netflix Inc (NASDAQ:NFLX) to aim for. The cost of revenue, and the company’s success with selecting the correct media to entertain an audience with a different culture, will be plain for the company’s investors to see.
Those very investors have been increasingly skeptical about Netflix Inc (NASDAQ:NFLX) since the start of the year. The company’s stock has lost around 11% of its value since January 1, and there appears to be little sign of recovery just yet. With a P/E of more than 170 and an uncertain future Netflix is a risky bet on one vision of the future of video. The company’s performance in Germany should demonstrate how that experiment will go.