U.S. stream­ing ser­vices go na­tive to gain a foothold in Europe

Stream­ing ser­vices are cre­at­ing Euro­pean shows to win view­ers Ger­man stream­ing sub­scribers

Bloomberg Businessweek (Europe) - - NEWS - −Stefan Ni­cola and Kris­ten Sch­weizer

In a wooded area just out­side Ber­lin, ex­ca­va­tors rum­ble across the sandy soil, and the sound of ham­mer­ing fills the air as work­ers clam­ber up fivestory-high build­ing fa­cades. This is Ba­bels­berg, the stu­dio at the heart of Ger­many’s film in­dus­try, which is build­ing a $13 mil­lion out­door set that stretches across an area the size of two foot­ball fields. Called Neue Ber­liner Strasse— New Ber­lin Street—it will be home to Baby­lon Ber­lin, a 12-episode TV se­ries about the deca­dent fi­nal years be­fore Hitler rose to power that’s sched­uled to start shoot­ing in April. Pro­duced by Bri­tain’s Sky and Ger­man broad­caster ARD and di­rected by Tom Tyk­wer, cre­ator of the 1998 hit film Run Lola Run, “the pro­ject is of a scale un­like any­thing Ger­many has seen be­fore,” says Elke Walthelm, who heads Sky’s Ger­man con­tent busi­ness.

Ger­many is be­com­ing the fo­cal point in the bat­tle for the Euro­pean pay-TV mar­ket—de­liv­ered via meth­ods such as ca­ble, satel­lite, and stream­ing— which re­searcher IHS ex­pects to grow to $58 bil­lion in 2019, from $44 bil­lion last year. Sky has boosted spend­ing on orig­i­nal fare and al­lied with HBO and Show­time to dis­trib­ute its shows, and In­ter­net-based new­com­ers are woo­ing cus­tomers with lo­cal-lan­guage pro­duc­tions. Ama­zon.com in Fe­bru­ary said it’s hir­ing pop­u­lar Ger­man ac­tor Matthias Sch­weighöfer to di­rect and star in its first orig­i­nal se­ries pro­duced out­side the U.S., a hack­ing thriller set in Ber­lin called Wanted. Two weeks later, Netflix an­nounced its first Ger­man pro­ject, Dark, a su­per­nat­u­ral se­ries that will be di­rected by Switzer­land’s Baran bo Odar, whose thriller Who Am I was a box-of­fice hit in Ger­many. “Our U.S. orig­i­nal con­tent trav­els well, but there is great TV be­ing made in many coun­tries,” says Jonathan Fried­land, chief com­mu­ni­ca­tions of­fi­cer for Netflix.

Lo­cal con­tent is im­por­tant as the com­pa­nies seek to ex­pand in­ter­na­tion­ally. Netflix in May will air Mar­seille, a French political drama star­ring Gérard Depar­dieu, and it’s work­ing on an Ital­ian crime se­ries called Suburra that’s set to air next year. Sky has shot sev­eral shows in Ital­ian, in­clud­ing Go­mor­rah, an­other crime drama, now in its se­cond sea­son. Lo­cal-lan­guage pro­gram­ming res­onates with Euro­pean au­di­ences and is of­ten more pop­u­lar with ad­ver­tis­ers than im­ported shows—as seen in the suc­cess of Scan­di­na­vian dra­mas such as The Bridge and The Killing, says Neil Cam­pling, a me­dia an­a­lyst with Avi­ate Global in Lon­don. “But there’s also a higher de­gree of risk, since you have to be­lieve lo­cal con­tent will trans­late into global ap­peal,” he says.

As Netflix and Ama­zon seek a big­ger share of the Euro­pean mar­ket, they’re com­ing up against pow­er­ful in­cum­bents such as France’s Canal Plus, with 15 mil­lion sub­scribers, and Sky, with 21 mil­lion and an ex­ten­sive lineup of soc­cer, rugby, and other

sports pro­gram­ming it’s spent bil­lions of pounds as­sem­bling. And HBO, with chan­nels in 15 coun­tries, said in Fe­bru­ary it’s look­ing for Scan­di­na­vian pro­duc­tions. An­other chal­lenge for the stream­ing ser­vices: high-qual­ity con­tent pro­duced by well-funded pub­lic broad­cast­ers. While 90 per­cent of Amer­i­can homes have pay-TV sub­scrip­tions, only about 30 per­cent of Ger­man house­holds and two-thirds of those in the U.K. do. Those who pay can choose from a va­ri­ety of Net­flix­like stream­ing ser­vices, such as Sky’s Now TV and Max­dome in Ger­many.

The ad­van­tage Netflix and Ama­zon bring is their rel­a­tively mod­est price: In Ger­many, Netflix starts at €7.99 ($8.87) a month; Ama­zon Prime is €49 per year, which also in­cludes mu­sic stream­ing and free ship­ping for pur­chases from its Web store. Ca­ble TV, by con­trast, can run from €20 to €100 monthly, though the more ex­pen­sive pack­ages typ­i­cally in­clude In­ter­net. Netflix has joined with ca­ble and tele­com com­pa­nies in­clud­ing Vir­gin Me­dia in the U.K. and Deutsche Telekom in Ger­many to widen its reach in a “mar­riage of con­ve­nience,” says IHS an­a­lyst Ted Hall. “House­holds are likely to spread their en­ter­tain­ment bud­gets across a va­ri­ety of ser­vices.”

The fight will be waged through­out Europe, but Ger­many is of par­tic­u­lar im­por­tance as the re­gion’s largest and wealth­i­est econ­omy. And there’s plenty of room to grow: IHS says Netflix has 1 mil­lion sub­scribers in the coun­try—just 7 per­cent of its to­tal for Europe—and 3 mil­lion Ger­man house­holds use Ama­zon’s Prime video, about 7.7 per­cent of the coun­try’s homes with TVs, or a lit­tle more than half the pen­e­tra­tion it has in the U.S. “For such a de­vel­oped mar­ket, Ger­many was slow on the up­take,” says IHS an­a­lyst Daniel Sut­ton. “TV wasn’t some­thing you pay for, it’s some­thing you get. That’s chang­ing, and peo­ple are more will­ing to pay for TV.” The bot­tom line Netflix and Ama­zon, seek­ing a big­ger share of Europe’s $44 bil­lion pay-TV mar­ket, are cre­at­ing more lo­cal pro­gram­ming.

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