When a company launches a new service in to a new market, it usually takes far longer than two quarters to disclose its first success rate. But that’s exactly what a bullish Netflix did Tuesday night, when it announced:
“Six months ago, we launched Netflix in the UK and Ireland, and today we are one million members strong.”
In just two quarters and two countries, Netflix has gathered an online customer base equal to half of that which Lovefilm, which also rents out DVDs and games, has amassed in five countries and over a decade.
The company doesn’t even have a UK office.
Netflix has invested very heavily in a UK and Ireland marketing campaign that includes multiple high-rotation TV ads and direct mail, and which has driven mainstream awareness for over-the-top movie subscriptions as a segment.
That investment hurts Netflix’s bottom line, but one million subscribers paying £5.99 per month gives Netflix monthly UK and Ireland revenue of £5,990,000 or £71,880,000 per year, and it’s only growing.
In Tuesday’s earning disclosure, Netflix repeated its launch-time stated theory that Lovefilm is not its main competition:
“We believe we have pulled ahead of Lovefilm in every important streaming-related metric.
“Going forward, competing effectively with Sky is our core and substantial challenge.”
Lovefilm claims two million subscribers and won’t disclose subscriber count for its Lovefilm Instant streaming tier, which it launched alongside Netflix in January. Netflix likely already has more streaming-only customers than Lovefilm does.
The UK over-the-top movie subscription segment is now hotting up. Aside from these two challengers, BSkyB, which owns exclusive licenses for offering movies from six Hollywood majors via subscription, is making them available to its own satellite subscribers on internet devices and last week launched Now TV, a spin-off over-the-top service offering Sky Movies without satellite subscription for £15 per month. That is three times more expensive than either Netflix or Lovefilm, but avid blockbuster fans may consider the newer, bigger catalogue three times better.
Amazon must decide how much it wants to capitalise Lovefilm so it can front up on content acquisition and marketing.
Impressively, Netflix’s one million new UK and Ireland members is also about half the size of the customer base it had signed in Canada and over 40 Latin American countries in a whole two years.
Netflix now intends to replicate its UK and Ireland roll-out elsewhere in Europe. But, as it invests in doing so, it will also need to spend heavily to out-bid BSkyB for UK and Ireland studio deals. As recent fee hikes for Premier League soccer show, BSkyB has the wherewithal to invest heavily in content.
The threat to Netflix, however, is its catalogue, full of old fare.
“As long as there are good markets to enter around the world, we will take U.S. profits and put them in to international expansion,” CEO Reed Hastings told investment analysts.