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Netflix to make leap into France and Germany

By Georgina Prodhan and Robert-Jan Bartunek

VIENNA/BRUSSELS (Reuters) - Netflix will launch in both France and Germany this year, the U.S. video streaming company said on Wednesday, in the biggest test so far of its global expansion strategy.

The move will set Netflix back in its goal of breaking even in its international business, which it would have achieved later this year, as it bets the time is right to break into Europe's two biggest markets and four other European countries.

Netflix, whose internet-based delivery of movies and TV series has disrupted pay-TV markets in the United States and elsewhere, wants to grow its international business to reach new customers and increase its buying clout with content providers.

It is already in more than 40 countries, mostly in Latin America, and has entered Britain, Ireland, the Nordics and the Netherlands in the past two years.

Netflix has grown its subscriber base fast - more than a quarter of its 48 million customers are now outside the United States - but each new country launch entails hefty investments in marketing and local content rights.

The planned launches in France and Germany - along with Austria, Belgium, Luxembourg and Switzerland - will raise new linguistic, cultural and legal challenges.

"You're going for the German- and French-speaking countries, which is a massive quantum leap," said Toby Syfret, TV analyst with UK-based media and telecoms research firm Enders Analysis.

France and Germany are some of the world's most advanced broadband markets. Germany has the highest number of broadband households in Europe, with 29.1 million in 2013, according to estimates from SNL Kagan. France is third with 24.7 million.

But neither country has a strong mainstream English-language culture, unlike the European markets Netflix has entered so far.

France, in addition, has rules that mean films can only appear on a monthly subscription video service three years after their debut in movie theatres, although they can be rented via a set-top box four months after their premiere.

"The content they (Netflix) can offer differs from country to country and local or exclusive content that (Belgian cable operator) Telenet offers, for example, can be a barrier," said Kepler Cheuvreux analyst Mattijs van Leijenhorst.

"But that doesn't mean they can't be a threat in the long term. In the Netherlands, they have been very successful," he said, estimating that Netflix had won about 500,000 customers since launching there in September 2013.

Dutch cable operator Ziggo said it lost 16,000 digital pay-TV subscribers in the first quarter of this year because of increased competition from providers such as Netflix.

SPACE INVADER

Keen to avoid the fate of a Ziggo, local operators and international competitors like Amazon's Prime Instant Video have anticipated Netflix's arrival with a mixture of aggressive and defensive measures.

In Germany, leading commercial broadcaster ProSiebenSat1 has cut the price of its Maxdome video-on-demand service by almost half over the past year to 7.99 euros a month.

Belgium's Telenet launched an unlimited video-on-demand service, dubbed "Rex and Rio", late last year which offers many hit series such as HBO's Game of Thrones for a monthly fee.

"Obviously, the local people are trying to prepare themselves for this space invader, as it were, but I think there are reasons why Netflix will hit them anyway," said Syfret.

He said Netflix's single-minded focus on one line of business and its superior data analysis and personal recommendations set it apart from competitors such as pay-TV broadcasters, with their captive customers and higher prices.

Rupert Murdoch's potential 10 billion-euro ($13.7 billion) consolidation of his Sky pay-TV operations in Britain, Germany and Italy into a single European operation could create a more powerful rival in bidding for content.

But Sky is more focused on recent releases in the first premium pay TV window, while Netflix has a wide variety of older titles which are less expensive.

Netflix has not announced details of pricing but said its monthly price would be "low". In the Netherlands, a subscription costs 8.99 euros a month, while in Britain Netflix costs 5.99 pounds ($10.09).

That compares with bundles that start at 21.50 pounds a month at Britain's BSkyB, or 12.90 euros a month for a basic starter pack at Sky Deutschland, not including set-up costs.

(Reporting by Lisa Richwine in Los Angeles, Robert-Jan Bartunek in Brussels, Georgina Prodhan in Vienna and Harro Ten Wolde in Frankfurt; Writing by Georgina Prodhan; Editing by Pravin Char and Louise Heavens)

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