Netflix, Inc. (NFLX) Expansion Plan Faces Regulatory Hurdles

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Netflix, Inc. (NFLX) Expansion Plan Faces Regulatory Hurdles
NFLX Photo by Matt Perreault

According a number of media industry analysts, Netflix, Inc. (NASDAQ:NFLX)’s biggest challenge remains in front of the rapidly growing entertainment giant. The Wall Street Journal reported yesterday that Netflix is negotiating with several entertainment companies regarding licensing agreements for European markets like France, Germany and others. The article also claims that Netflix is close to a deal in France regarding a possible launch of streaming services before the end of this year. The company already operates in the United Kingdom, Nordic areas and the Netherlands.

Netflix in the European market

Europe represents a huge potential market for streaming-service providers such as Netflix, Inc. (NASDAQ:NFLX), and a relatively unsaturated market to date. Western Europe had more than 134 million broadband homes at the end of 2013, compared to just 88 million in the U.S. The general consensus is that Western Europe also represents a rapidly growing market, with some analysts projecting $1.1 billion annually in streaming-video industry revenue for Europe by 2017 as appetite for movies and other content grows.

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Local regulations restrict streaming services

However, Netflix, Inc. (NASDAQ:NFLX) must overcome significant regulatory hurdles before they can begin streaming movies in European countries. France, for example, has strong IP laws and prohibits streaming films until at least three years after their theatrical release. Video services are also generally required to finance the film production in France.

Other European countries have similar licensing hurdles and distribution requirements that Netflix, Inc. (NASDAQ:NFLX) must deal with before they can start large-scale operations on the continent. Analysts note that this process is likely to take a couple of years to come to full fruition.

European competition trying to lock in subscribers

European entertainment providers and media firms aren’t ignoring the elephant trying to move into their living room. Euro media giants like Germany’s Sky Deutschland AG (ETR:SKYD) (FRA:SKYD) (OTCMKTS:SKDTY), France’s Societe d’Edition de Canal Plus SA (EPA:AN) (of Vivendi), and Italy’s Mediaset SpA (BIT:MS) (OTCMKTS:MDIUY) are trying to lock-in subscribers with a number of deals including unlimited streaming bundles starting at around €10 ($13.50) per month.

Netflix, Inc. (NASDAQ:NFLX) is trading up $7.77 today at $408.19 at 11:40 AM ET.

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