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Summary:

Netflix wants to recover from a disastrous few months by launching in the U.K. and Ireland — but the company will have to overcome many obstacles to achieve success, not least competition from broadcasters who have very different priorities from their American counterparts.

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It’s been a tough few months for Reed Hastings.

Since announcing an unpopular price hike in October, the Netflix (s NFLX) CEO has presided over a grim cascade of events that has seen the company’s prospects plummet. His drastic answer to the price problem — a surprise plan to separate the streaming and DVD businesses — got a cold reception, forcing him to rapidly back-pedal on the scheme. In the end, all he has to show for the company’s mad season is a confusing, sprawling mess largely composed of hordes of pissed off customers and a crumbling share price.

Given all of this, Hastings — and the business he runs — are desperate for some good news. And so we see the launch of Netflix in the U.K. and Ireland, which is certainly one way to try to get the company’s 2012 off to a strong start.

The basics, which we’ve already covered, are pretty familiar. British users pay £5.99 a month, while in Ireland it costs €6.99 (both around $9 USD). In return, they get access to a library of on-demand movies and television programs streamed to a device of their choosing. The service has forged deals with many local broadcasters, including the BBC and Channel 4, to provide a mixture of old and new programming on-demand. It has carried over rights for some top American TV series, and acquired a backlist of movies from most of the major studios.

It’s fair to say that the launch is off to a solid, though not spectacular, start.

Still, you can forgive Netflix for thinking it knows how to build up a business like this and make it work — after all, if it can crack the world’s most valuable TV and movie market, what’s to stop it doing the same elsewhere?

The truth is, however, it’s just not that simple: establishing itself on the other side of the Atlantic will not be easy, and major success could be almost impossible. Here’s why.

Mixed competition

First, Netflix’s rivals in the U.K. and Ireland are a lot more established. The biggest obvious competitor is Lovefilm, a DVD rental and on-demand streaming service that was bought out by Amazon a year ago.

Streaming service Blinkbox, meanwhile, has been going great guns since launching in 2006, and it has the marketing support of majority shareholder Tesco, the world’s second-most profitable retailer after Walmart. Google, at the same time, appears to have been concentrating its efforts to push YouTube rentals in Britain, with a publicity blitz in recent months.

These all make entry into the market complicated for Netflix, but not insurmountable.

Instead, the biggest stumbling block could be the existing TV players.

Two markets divided by a common language

Netflix may think its existing relationships and successes will be transferable — particularly ones that speak the same language and share similar tastes for Hollywood movies and American television. But what’s tough for outsiders to understand, however, is that the shape of British broadcasting is very, very different to the other side of the Atlantic.

Take Rupert Murdoch. In America, for example, he’s a major media operator and his Fox network is a big deal. But in the U.K., it’s even bigger. His British TV business, Sky, is much more advanced and influential, and has found great success by being very aggressive and forward-looking. Sky is prepared to pay over the odds to score rights to popular shows and jealously guards exclusive movie content as a way to safeguard its core subscription TV service: all things that could prove significant obstacles to Netflix’s ambitions.

In addition, Sky has invested heavily in mobile streaming apps with SkyGo, and has just announced a stake in Zeebox, an innovative TV guide app that I wrote about a few months ago. It’s not scared to move with the times, and it’s certainly going to continue to innovate, competing in that area with Netflix’s multi-device strategy.

The biggest difference that Netflix will find between America and Britain, however, is one that only takes three letters to explain: The BBC.

The role that publicly funded TV plays in the U.K. and Ireland is hard to overstate. The biggest streaming service here, by a long way, is the BBC’s iPlayer: a high quality product designed specifically to stream the latest episodes of some of the most popular TV in the market.

Going up against that is a very tall order. Sure, Netflix, Lovefilm and others have made deals to get hold of some BBC content, but they are largely getting non-exclusive access to a back catalog of older shows — old Doctor Who episodes, for example. But the iPlayer is free, and because it isn’t looking to extract maximum commercial value from it, the BBC isn’t handing out rights to new content. That makes it nearly impossible to compete with.

But it’s not just that. In addition, the iPlayer is also a markedly better experience than Netflix, both technically (I rarely find iPlayer struggling to deliver high-definition streams; only a limited amount of the Netflix launch catalog is available in HD) and in terms of user experience (Netflix’s U.K. UI is currently basic and hard to navigate around).

The battle of Hastings

None of this makes it impossible for Netflix to succeed, but it does mean the company’s definition of success has to be significantly altered.

From the outside, the British and Irish market looks like a vast patchwork of services and providers: perfect territory for a big, swaggering giant to come in and clean up. In fact, the truth is just the opposite: For Netflix to get anything like the success it has had in America, it will need to find out a way to get around Rupert Murdoch and the BBC, two of the world’s most powerful media forces.

They have no reason to work with Netflix and every reason to actively work against it, meaning that where Reed Hastings may have thought crossing the Atlantic was one way to get over his troublesome few months, in reality, he may have just laid the foundation for another year of headaches.

  1. The exclusive content deals that both LOVEFiLM and Netflix have been negotiating in the previous years mean that there isn’t much competition, just that content is going to be spread across multiple services potentially requiring multiple subscriptions.

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  2. Surely though it is LoveFilm that Netflix are after? BBC and Sky are big fish, but I’m not sure Netflix want to swim in their pond just yet.
    If my point is wrong though, Netflix do have form when potentially taking business from the big fish. In the US, the big cable and phone companies have started to take notice. Both in terms of losing subscribers and in terms of Netflix users well, using their broadband service more.

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  3. A good business strategy for Netflix would be to focus on the content that got them so popular in the first place – film. BBC has a stranglehold on its television content and whatever films it helped to produce, but there’s certainly more film out there. And just as Netflix brokered deals to stream BBC content in the US, they could possibly broker deals to stream exclusive US content overseas. There have been some missteps over the past few months, but Netflix is smart and probably knows how to approach this.

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  4. Kate O'Hanlon Monday, January 9, 2012

    The UK and Ireland are two differnet countries. Neither Lovefilm nor Blinkbox nor iPlayer are available to residentes of the Republic of Ireland (neither is amazon video service).
    This is despite the fact that Ireland does recieve over the air television from the UK.
    The UK, Irlenad and the USA are *three* markets divided by a common language.

    I for one am over the moon that for once an international company isn’t rolling out to Ireland last.

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    1. Exactly. I wonder if they’ll split the catalogue, I imagine we could get more stuff if it wasn’t dependent on what licenses aren’t available to the UK.

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  5. @3screenplanet Monday, January 9, 2012

    To clarify, SkyGo might be a worthy product but Netflix–having already developed to 400+ devices and platforms–won’t shake in its boots upon hearing of anyone else’s multi-device strategy. In fact, a large portion of Netflix’s value is its ubiquity. This will serve its UK and Ireland customers quite well.

    Reports of the demise of Netflix have been greatly exaggerated.

    @3screenplanet

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  6. Lovefilm only has about 2.5 million subscribers, Netflix will have more than that by the Fall, the end of the year to play it safe.

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  7. If iPlayer is only streaming the latest episodes of BBC shows, that should prevent it from becoming a competitor no bigger than Hulu in the US. The screenshot you posted makes it seem like a website focusing on the latest episodes of shows and new programs, which is not quite like the experience when a user is browsing through libraries of movies and seasons of TV shows. The shelves of Wal-Mart and 7-Eleven may be stacked with similar items, but the stores serve a distinctly different market.

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    1. Daniel Brierton Monday, January 9, 2012

      iPlayer streams both the latest episodes of BBC shows and the archive episodes that Netflix and LoveFilm have rights to.

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      1. Andrew Livingston Tuesday, January 10, 2012

        I’m afraid this is incorrect. The archive episodes that BBC Worldwide license to Netflix, LoveFilm, MSN video et al would only appear on iPlayer if they have aired on the BBC’s public service television channels within the last seven days.

        There is some archive content on iPlayer, but it so far it’s different programming to that being made available commercially (such as our year long archive of some current affairs strand, or the BBC 4 Permanent Collections).

        We’re beginning to add functionality to iPlayer to tell you which third party sites exist where you can watch those programmes if they’re not available on the iPlayer site itself, but that’s not the same thing.

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  8. I think you also forget that every Xbox, PS3, and Wii, and many other televisions and devices come preloaded with netflix capability. You may find that many many more people have the technology already to invest in netflix.

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  9. Nonsense. Amount of films on Netflix is many times bigger than that of LoveFilm. Also, I tried using LoveFilm few months ago. It’s rubbish. They lost the first CD and the second one took 10 days to deliver, by which time the trial was over. They did not have those films available to stream, while Netflix does.

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  10. Won’t there come a point fairly soon where Sky’s contracts with US broadcasters / content owners are going to be seen as anti-competitive in the digital age?

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