Netflix Needs to Catch Up Overseas

Netflix's (Nasdaq: NFLX  ) secret recipe will be light on Salt when it rolls out its streaming service in the U.K. next quarter.

Sony (NYSE: SNE  ) has inked a streaming deal with Amazon.com's (Nasdaq: AMZN  ) LOVEFiLM. The multiyear agreement covers new and upcoming Sony theatrical releases during the second subscription pay-TV window in the U.K. It will also include older titles and TV shows when the deal kicks in come June.

We're talking about more than Salt, thankfully. Sony titles including The Social Network, 2012, and the U.K.-based Arthur Christmas. The television catalog is rich in kid-friendly animated shows including Transformers and Spectacular Spider-Man.

However, the real dagger here for Netflix is that LOVEFiLM's deal is exclusive.

LOVEFiLM, much like Netflix closer to home, was launched as a DVD rental service. It too has spent the past couple of years ramping up its digital library. Ahead of Netflix's launch in Ireland and the U.K. early next year, LOVEFiLM has been shrewdly locking up major content providers with exclusive deals. Time Warner's (NYSE: TWX  ) Warner Bros., Disney (NYSE: DIS  ) , and Lionsgate (NYSE: LGF  ) are other major studios that have sided with LOVEFiLM.

In other words, let's not assume that Netflix's foray across the pond will be as successful as its entry into Canada late last year and its push into Latin America and the Caribbean last quarter. Not only will Netflix be unable to compete with LOVEFiLM's disc-based rentals, but now its streaming catalog may be insufficient.

Netflix has already warned investors to brace themselves for a loss next year as it invests in its U.K. rollout, though now there are bigger questions about the long-term profitability of its stateside operations.

Flopping overseas will naturally damage Netflix's growth story at a time when it's struggling to get its domestic business back on track.

Netflix? Unsalted? Say it ain't so, Reed Hastings.

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