Shares of Netflix Inc. (NFLX) were trading up +1.16 or +0.24 percent to $477.71 per share in this morning’s premarket, after news that Netflix will be expanding into six new European markets beginning today. The expansion will begin in France where Netflix executives have spent months negotiating with the French government. Netflix stock closed down -5.01 or -1.04 percent to $476.55 per share in Friday’s regular trading session.
Los Gatos, California based Netflix Inc. is an Internet subscription service offering subscribers unlimited streaming television shows and movies that can be watched on television sets, computers or on mobile devices. The company currently operates in North and South America, the United Kingdom, the Caribbean, Scandinavia, the Netherlands, and Iceland. With this week’s expansion Netflix will have operations in 47 countries including six new markets in Western Europe.
The six new markets include Austria, Belgium, France, Germany, Luxembourg and Switzerland. Netflix is already available in Britain, Denmark, Finland, Ireland, Norway, the Netherlands and Sweden, and will cover most of Europe after this week’s expansion. Netflix Chief Executive Officer, Reed Hastings stated that, “This is the biggest international launch we’ve ever done. It represents nearly 80M broadband households and about 200M people.”
While Netflix is popular and has been welcomed in many European countries, France has been a challenge due to strict government regulation of the television and film industries. Television and media companies are required by the French government to make investments in French content. France’s main pay TV company, Canal+, started in 2011 and has 520,000 subscribers. Because of the company’s large investments in French films, there has been concern that Netflix will take subscribers from Canal+.
Netflix has spent months negotiating with the French government which has a number of regulations designed to protect France’s film and television industry, known as the “Cultural Exception.” which requires that 40 percent of content in radio, television and movies originate in France. Because Netflix European operations are based in the Netherlands, it does not have to comply with this regulation.
An example of the Cultural Exception is that video on demand companies such as Netflix cannot stream films until three years after their release in theatres. Streaming companies with annual earnings in excess of 10 million Euros must turn over 15 percent of revenues to the European film industry, as well as 12 percent to French filmmakers.
Netflix is producing a new French language television series as part of its plan to attract French subscribers and comply with the Cultural Exception. The series will be a “House of Cards” type show centered in the French port of Marseille and will be about power, revenge and corruption.
Netflix stock is at the high end of its range, having made an all time high of $484. 89 on September 10th. With the new expansion into the European market, and with $400 million set aside for further expansions, Netflix stock will probably continue to appreciate in the near term.
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