Netflix Gets Big Competition for UK, Irish Viewers (NFLX, AMZN, VMED)

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The UK market for streaming video is about to get more crowded. Earlier this month, Netflix Inc. (NASDAQ: NFLX) announced that it would offer its streaming video service in the UK and Ireland for about $9/month. Today, the UK’s largest satellite TV provider, British Sky Broadcasting — or BSkyB — will offer a similar service within six months. Lovefilm, owned by (NASDAQ: AMZN) and Virgin Media Inc. (NASDAQ: VMED) already offer paid streaming video in these markets, while the BBC and UK Channel 4 offer free streaming of some content.

BSkyB’s entry is not good news for Netflix’s nascent service. The British company claims about 10.4 million paid subscribers to its satellite service that now costs about $75/month. Worse, for Netflix, is that BSkyB currently owns first-run satellite rights to most Hollywood movies and the company has been willing to pay high prices to maintain its catbird seat.

Customers of BSkyB will be able to pay a monthly subscription rate (as yet unspecified) or rent the movies on a per-viewing basis. Netflix offers only a subscription package. Still worse for Netflix, BSkyB already offers its 10.4 million subscribers free streaming of some content.

Perhaps worst of all for Netflix, which is getting price competition from Lovefilm already, is that BSkyB, with its lock on first rights for new content, may actually be able to charge customers more for the streaming service. Most of Netflix’s content is older movies and TV shows because content owners have been reluctant to allow the company to stream the content until DVDs have been released.

If BSkyB is able to maintain its hold on new content, and charge more for it, Netflix and the other streaming providers will have a very tough fight on their hands. One thing the competition has on its side is a running investigation of BSkyB’s near-monopoly position in the pay TV movie market. A final ruling is due in August, and a preliminary ruling did go against the British giant.

From a BSkyB shareholder’s point of view, it might be better to sign up more subscribers at $75/month than a lot of streaming only subscribers paying less than $10/month, at least in the short run.

Netflix shares are down nearly -5% today, at $119.20 in a 52-week range of $62.37-$304.79. In the last month, Netflix shares have gained 72% on a run of positive developments. Today’s news is the first serious hiccup.

Paul Ausick