Netflix (NASDAQ:NFLX) is reportedly gearing up for the next phase of its European invasion. Several sources have been reporting for months that the world's leading streaming service has been eyeing France and Germany as its next two markets. It's still not official, but we're starting to get some more details.
Variety is reporting this morning that Netflix will launch in France in the fall, but that it will do so by being headquartered outside of the country. Setting up camp in Luxembourg -- as other tech giants have done -- is financially advantageous as opposed to operating inside France.
Luxembourg-based companies don't have to shell out what would amount to a value-added tax (VAT) of 19.6% for their video-on-demand revenue, according to Variety. They also don't have to commit 15% of their revenue to bankrolling European movies with 80% of that going to French films. The stateside tech giants selling digital goods into France through Luxembourg are only paying a VAT of 7%, though the European Union recently voted in favor of service providers paying sales tax based on where the content is consumed instead of merely distributed.
France won't be an easy market to crack, and not just because of the financial burdens and regulatory barriers. France -- like the U.S. -- is particularly fond of its homegrown theatrical and TV show content. Offering up Breaking Bad or Orange Is the New Black either in subtitles or dubbed in French isn't going to be enough. It's not jingoism. A streaming service relying largely on French content wouldn't necessarily fly with the masses in the U.S., so why should it work the other way around?
Another reason that France will be tricky is that Netflix is going to have to work harder as an outsider to get noticed. French newspaper Les Echos is reporting that the deal breaker for Netflix in choosing Luxembourg over France isn't the VAT but the requirement to invest in French content. Whether it's true or not, it's not casting Netflix in a favorable light with locals before it even has had a chance to launch.
Netflix is going to have to strike partnerships in France to get noticed, and earlier reports have had Netflix in talks with telcos and broadband providers. That won't be as easy as you think, especially if Netflix's reputation as a stateside darling trying to circumvent geography to profit from France's economy gets around.
Another challenge will be simply a matter of timing. When Netflix rolled into Canada and then Latin America, it didn't face very stiff streaming competition. That hasn't been the case as it enters subsequent regions, and the more time passes, the more entrenched the existing players become.
Europe in general, and France in particular, are still important to Netflix. There's plenty at stake if things pan out. But every new market may very well be harder to crack for Netflix than the one it tackled before.
Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.