The mission of video-on-demand (VOD) services like Netflix, HBO, and Hulu so far has been pretty successful in shaking up how the average consumer watches TV and movies.

When Netflix posted its second-quarter earnings last July, there was plenty to be happy about, particularly the fact that it’s hit 50 million subscribers – and that’s even with the recent subscription price hike.

However most of these reports are seen in the context of North America whereas over the next couple of years, online TV and video-on-demand services will begin to see their biggest gains in Europe. To wit, a report from Digital TV Research projects that online video subscriptions and revenue will outright soar by 2020.

The report, entitled ‘European Online TV & Video Forecasts’, says television and video-on-demand services will hit $1,633 million (1,266 million euros) by the end of the year and eventually $5,502 million (4,266 million euros) by 2020, with the UK leading the market and Germany not too far behind.

“The number of European homes paying a monthly subscription to receive SVOD [subscription video on demand] packages will climb from 1.78 million in 2010 (0.6% of TV households) to 17.99 million by end-2014 (6.4%) and onto 59.41 million in 2020 (20.7%)”

How VOD has taken shape in Europe

The VOD business in Europe is unique, owing the various different markets within it, which separates it from its current status in the United States on multiple levels. Also, Europe’s TV viewing habits are much less intensive than those of our American counterparts (roughly eight hours a day on average), according to stats from OECD, which charted viewing habits in 2011.

In the study, most Europeans watched about four hours of TV a day, while Swedes only watched roughly two hours per day.

Digital TV Research points out that the UK will remain the stronghold for online video and on-demand revenue. The number of Netflix users in the country has consistently risen according to The Communications Market 2014 report from Ofcom, which is all part of the wider picture; it notes that twice as many adults in the UK subscribe to a streaming service for video as for music.

The Digital TV Research report does however note that, while the UK will remain the “dominant territory”, its share of regional revenue will decline to 20% in 2020 (previously 30% in 2010).

This appears to make space for more countries to expand their VOD business – especially Germany – and we should expect to see more and more countries emerge with high subscriber numbers, though it hasn’t been an easy start no matter how you slice it.

On-demand fragmentation

The European Commission’s Fragmentation of the Single Market for On-line Video-on-Demand Services study (published in July) says that it’s unlikely that most European VOD providers are profitable, but suggests many are on the right path.

“In all EU countries, the VOD market is developing rapidly,” says the study, which interviewed several VOD providers across Europe to gauge the state of the market. “However all interviewees explain in one or another way that the market is not mature enough yet to allow VOD services to be profitable.”

The video-on-demand business in Europe has not been without its failures, or even closures. Swiss streaming service Acetrax was shut down in June 2013 after it was acquired by Sky while Sony shuttered Crackle UK earlier this year. There are more examples to be found.

And yet, most of the interviewees in the European Commission study noted that, despite some failures and difficulties in laying foundations, they expect to be profitable in the coming years; Digital TV Research’s latest findings support that confidence.

The arrival of bigger (usually American) streaming platforms is, unsurprisingly, augmenting this growth in the continent. Netflix, for example, is available in Scandinavia and as the ‘Fragmentation of the Single Market’ study points out, of many of the countries surveyed, those in Scandinavia have a strong uptake of streaming services.


Users in the Nordics have robust online habits, says one interviewee quoted in the study, which makes accessing VOD content a more natural step – and Netflix and HBO Nordics has pushed this even further.

“The idea that the launch of large brands (originating in the US) influences the mass-market take-up of VOD was voiced in other interviews as well,” says the European Commission study. “Even if these players are potential competitors, some of the interviewees saw their entrance as potentially beneficial for the market as a whole.”

This paints a positive image of the business for the likes of the UK, Sweden, and Norway but the researchers from Digital TV Research note that Germany will be close behind the UK by the time 2020 rolls around, while other large markets such as Italy and Russia will grow substantially as well.

Italy is one of the markets that Netflix will most likely be entering at some point in the future but the country has seen an impressive rise in VOD companies since last year, especially with Sky Italia, which opened up its on-demand platform back in 2012.

Meanwhile over in Russia, has been growing its operations gradually since early this year and eyeing up former Soviet countries for expansion.

The challenges of a fragmented market

As the European Commission study’s name would suggest, the VOD business in Europe is very fragmented, which is unlike the US.

Frode Hernes, VP of Product for TV & Devices at Opera Software, agrees:

“We have multiple languages, multiple tax rules, multiple rules for parental guidance so it’s not that easy to go all Europe immediately. You need to target for each market,” he says.

Nevertheless, this isn’t stopping the spread of companies such as HBO and Netflix, each offering its own unique service from the other.

Netflix is to make its debut in Germany, Belgium, France, Luxembourg, Austria, and Switzerland later this month, while HBO is available in several countries too. Germany and France in particular will provide a potentially huge customer base.

“If I was a VOD provider in the country where Netflix is entering, I would be frightened,” says Peter Csikos, VP of personalised recommendations and targeted ads firm ImpressTV. “They can purchase the same amount of content for a much lower price – and with much better terms.”

“The way these companies can be a good competition to Netflix is the fact that they are providing either better personalisation or better local content,” Csikos posits.

“The fact of the matter is: everyone wants to watch content in their local language and having that local content is a very important thing for all VOD providers. Furthermore, if you can have an exclusivity to local content, [that] can be a bigger advantage.”

Netflix appears to be aware of this. Ahead of its German launch this month, CEO Reed Hastings expressed interest in creating German-language content for customers and a Wall Street Journal report this week also makes mention of the company discussing French content.

These moves would place Netflix in a prime position to address the fragmented nature of the European market but also deliver English-language programming across the board.

Local as differentiator

First things first though. Netflix will be analysing the waves of data in the market before venturing into more local content production, but it appears the interest is certainly there at this early stage.

“Any operator with a limited license catalogue should of course be worried that the international players come in because they have much more money for buying content,” says Frode, who is based in Norway, where Netflix has been active since October 2012.

“That said, Netflix is not the most direct competitor because mainly it’s their own content like House of Cards and older content. Whereas iTunes and Amazon Prime go directly in competition with the local operators here in Norway, the focus is on new releases and box office hits.”

Local providers may need to increase their focus even more on securing local language content for their customers to maintain a grip on their market share should the likes of Amazon Prime come knocking.

As the market for VOD grows across the continent and with it, the growth of different devices and avenues to access content, Europe regardless of its fragmented nature looks primed and ready for a busy couple of years. Stay tuned.

Featured image credit: Twin Design + Netflix image by Stuart Monk / Shutterstock

  • Denis Bulichenko

    I have been working in this business since 2008 when first VOD services were launched in Russia. I don’t think that local players could stand the competition with global giants. Here is why:
    1. The VOD technology is expensive. VOD service has to have a DRM feature (protect the content) to get major’s content. Also quality is very important so a VOD service has to have a good enough CDN (deliver the content quickly and without too much buffering) and local price would be much higher in this case (just have a look at Amazon traffic cost).
    2. Content price. Needless to say that buying worldwide rights would be more effective than buying one country rights only. Local players won’t have any negotiations leverage at all.
    3. Experience. Global players have already gained required experience, they scale. Local players will have to gain all that, most likely through a painful process.
    4. Local presence and market understanding won’t bring much advantage. Global players will quickly buy local workforce with local market understanding.
    5. VOD service is a commodity. It would be just a price competition.

    Taken all those into account you will find that global players will get several times smaller expenditures due to economy of scale (DRM, CDN, content, operations).

    I think the only chance of local players is to get sold to global players when they go to a local market.