Netflix’s Expansion Across Europe Targets 22M Internet Users

This morning, Netflix (NFLX) announced they plan to roll out streaming services to consumers in Norway, Sweden, Denmark and Finland by the end of this year. Based on the number of Internet users in those regions, Netflix is targeting about 22M connected consumers. Here’s how that breaks down per region (numbers based on data from the ITU).

• Sweden: 8,441,718 Internet users on Dec.31, 2011, 92.9% penetration rate
• Finland: 4,661,265 Internet users as of Dec.31, 2011, 88.6% penetration rate
• Denmark: 4,923,824 Internet users as of Dec.31, 2011, 89.0% penetration rate
• Norway: 4,560,572 Internet users as of Dec.31, 2011, 97.2% penetration rate

To get subscribers, Netflix needs content for these new regions, specific to what consumers want to watch in these countries. But they have the chicken and the egg problem. To get subscribers, Netflix needs content. To get content, Netflix has to pay the studios which requires subscribers. Netflix is having to commit to up front massive payouts to studios for whatever content they can get. But if subscriber growth stagnates, Netflix could quickly find itself upside down in those agreements. From a financial perspective, Netflix has already estimated it won’t be profitable next year as they expand into new territories in a clear sign that content costs are skyrocketing.

The good news is that there are a lot of Internet users in these European regions and their broadband speed is pretty high. The exact speed per country depends on which stats you look at, but the average looks to be at least 5Mbps, which is plenty for Netflix’s streaming service. Netflix has their work cut out for them in terms of licensing the right kind of content for these regions and that will determine how successful they can be in signing up new subscribers. So far, the company hasn’t done a good job with their content licensing strategy in Latin America, so one has to hope they have an easier time in these new European countries.