Europe will be the new vein of Netflix

After the launch of the popular content distribution service in numerous countries on the Old Continent, Europe will account for 20% of the subscriber base next year.

After sweeping the US market, Netflix has now set its sights on Europe. According to a study by IHS Technology, over the next four years, the growth rate will accelerate exponentially following the launch later this year of the popular content distribution service in Belgium, France, Luxembourg, Austria, Switzerland and Germany, adding five to six million new subscribers.

Richard Broughton, director of broadband analysis at IHS, believes that “thanks to the expansion of Netflix and its growing popularity in markets such as the United Kingdom, Ireland, the Netherlands and the Scandinavian countries, we predict that the company will add a total of eight million new subscribers by the end of 2018.”

IHS has highlighted in a report the great change that is taking place around the world with respect to the contracting of online and on-demand content services. IHS expects subscription services like Netflix to grow around 18% worldwide over the next five years. However, this growth could reach 35% in Western Europe between now and 2020. One of those responsible for this growth will be Europe, which will occupy second place in number of subscribers behind the United Kingdom. The IHS report points out that this market presents enormous opportunities, but at the same time great obstacles.

Amazon, Vivendi and Sky Deutschland are making a strong presence in a market in which Germans have a low spending profile compared to the United Kingdom.

IHS also refers in its report to the costs borne by Netflix. The acquisition and distribution of content make up the bulk of direct costs. Internationally, Netflix's cost of revenue (of which key components are content acquisition and streaming costs) reached $267 million in Q2 2014, an average of $6.71 per month for each paid and free subscriber.

IHS expects that the addition of six new markets will result in significant additional costs for Netflix. Netflix's costs increased from $30 million to $35 million in the quarter in which the service was launched in the United Kingdom and Ireland, even reaching $80 million per quarter at the end of Q1 2014, according to IHS estimates.