Netflix's Launch Into U.K. And Ireland Already In Trouble

Jan.10.12 | About: Netflix, Inc. (NFLX)

Shares of Netflix (NASDAQ:NFLX) were up 2% on Monday's open as the company launched its streaming service into the UK and Ireland. This move was expected, as they have been telling us that they would launch in Q1. The problem for Netflix is that they are already losing in this race, and I don't see how things are going to improve for them.

Netflix priced its UK service at £5.99 and its Ireland service at £6.99, and has stated that it has a wide variety of distribution deals with content providers. Seems like they should do well, right?

Not quite. Just a few hours after the announcement of their launch, Amazon (NASDAQ:AMZN) announced that its Lovefilm subsidiary is launching a streaming plan in the UK, and it will only cost £4.99. Netflix just launched their service and their price is already 20% higher than Amazon. Now, we would expect that Netflix should have more content, but sometimes, price will win. Also, Lovefilm dominates the local online DVD rental market, saying that it already has over 2 million subscribers. To put that number in perspective, Netflix launched its international business in 2010. After five quarters of operations, they only had 1.48 million customers. If it takes them this long to grow their UK and Ireland base, Lovefilm will take them out, especially if it remains priced at the lower level.

Another issue for Netflix is Apple (NASDAQ:AAPL), which seems ready to launch its Apple TV product in the next year or so. Apple is already exploring content deals, and if they get into this market, Netflix is dead.

Netflix should be celebrating today, and they probably are. This is going to be the last international expansion for a while, until they can get back on better footing. The company has its problems now but we thought they would at least be able to celebrate this news for a couple of days, if not maybe a few weeks. Unfortunately, it only lasted hours. Amazon's Lovefilm, which already has an established presence in the region, has launched a lower priced service, and if the Apple train enters this station, Netflix might want to just pack up and leave.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.