Netflix, HBO to battle for Nordic viewers

Los Angeles Thu Aug 16, 2012 2:34am IST

A sign is shown at the headquarters of Netflix in Los Gatos, California September 20, 2011. REUTERS/Robert Galbraith

A sign is shown at the headquarters of Netflix in Los Gatos, California September 20, 2011.

Credit: Reuters/Robert Galbraith

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Los Angeles (Reuters) - Video streaming company Netflix Inc and pay television channel HBO will launch competing services in Norway, Denmark, Sweden and Finland, setting up a new battleground between the companies that have fought in the United States for entertainment dollars and viewers' time.

For Netflix, the move furthers its international expansion while growth in its home U.S. market slows. Netflix shares gained 2.4 percent on Nasdaq on Wednesday to close at $63.26.

The company said late on Tuesday it would offer its unlimited streaming of movies and TV shows by year's end in Scandanavia. Netflix previously announced plans to launch in a new European market in the fourth quarter but had not provided details.

HBO, a unit of Time Warner Inc, said on Wednesday it will launch a multi-platform video distribution service in a joint venture with European entertainment and technology company Parsifal International. HBO did not reveal what the service would include, saying details will be announced in Sweden at the end of the month.

The network is rolling out its HBO Go on-demand service internationally. It provides streamed movies to HBO subscribers in nine European countries. Service in Brazil is planned soon.

Netflix CEO Reed Hastings once described HBO Go as the biggest competitor to his company's subscription video rental service, which offers on-demand viewing for $8 a month in the United States. He also has said the two services are complementary and in July raised the possibility of a partnership, an idea that HBO quickly knocked down.

Netflix is trying to tap new markets while growth in the United States slows. In its second-quarter earnings report on July 24, the company warned it may not meet its year-end target for new subscribers and shares have since plunged more than 25 percent.

The Nordic region offers Netflix a market with a high education rate and high household incomes, Wedbush Securities analyst Michael Pachter said. That should help the company avoid challenges it has seen Latin America, including "low device penetration, weak Internet infrastructure, and consumer payment challenges," Pachter said in a note to clients.

Pachter rates Netflix "underperform" with a $45 price target.

Moves by Netflix into new territories have come at a cost. The company cited international expansion when predicted it will operate at a loss in the fourth quarter.

That prompted some Wall Street analysts to question why Netflix is pushing ahead with the expansion.

Atlantic Equities analyst James Cordwell said he was "concerned about the overall strategy of international expansion given questionable returns." He rates Netflix "neutral" with a $72 price target.

CEO Hastings said he sees a once-in-a-generation opportunity to gain streaming subscribers around the world. Netflix had 3.6 million international streaming subscribers at the end of the second quarter.

Time Warner shares gained 0.6 percent to end the day at $42.69 on the New York Stock Exchange.

(Additional reporting by Himank Sharma and Sruthi Ramakrishnan in Bangalore; Edited by Sreejiraj Eluvangal, Ronald Grover and Leslie Gevirtz)

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