4
1. Introduction
With the rise of the internet, worldwide unimpeded access to all kinds of online services,
irrespective of geographical distance or state borders has become the norm. However,
the reality is often quite different for digital media, especially in the EU. Some studies
have documented this fragmentation. Gomez-Herrera & Martens (2015) find that cross-
border availability in the Apple iTunes stores across the EU28 is around 80% for music
and only 40% for film. Gomez-Herrera and Martens (2015) find that cross-border
accessibility of VoD services in the EU is very limited. It is often argued that geographical
market segmentation is caused by consumer preferences for local media content.
However, consumers have preferences for a variety of media content, both foreign and
domestic. Aguiar & Waldfogel (2015) show that further opening of digital music markets
in the EU would increase both consumer welfare and producer revenue. Legal, regulatory
and commercially driven market segmentation do not necessarily result in an optimal
outcome for consumers or producers. Market segmentation restricts competition in
domestic markets and may boost revenue for local producers. The EU Digital Single
Market policy seeks to overcome territorial restrictions in the EU’s internal market for
digital media services and make digital content more widely available, accessible and
portable across borders between EU Member States.
The market for Video-on-demand (VoD) film streaming services is growing rapidly. In
the US, over 40% of all households use one or more video streaming services. Netflix is
the market leader in the US, delivering film streaming to 36% of all households, followed
by Amazon (13%) and Hulu (6%)
. Netflix subscription in Europe is much lower, with
UK subscription reported to be around 14% of all households. Since the EU VoD market
is very fragmented across hundreds of mostly national service providers it is very hard
to estimate Netflix' market shares in all these countries. The impressive take-up of VoD
services in national markets hides the fact that there is virtually no cross-border access
to these online services in the EU. Beyond cross-border access, a trailblazer study the
European Audio-Visual Observatory (2014) finds that availability of a list of 50 top films
among six national video-on-demand (VoD) providers in seven EU Member States is
around 19% only.
In this study we focus on geographical market segmentation in Netflix, a subscription
VoD platform that has relatively wide geographical coverage in the EU. At the time of
writing Netflix offered streaming services for film and TV series in 22 countries, including
11 EU Member States: Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Luxembourg, Netherlands, Sweden and United Kingdom
. Its nearest competitor,
Amazon Instant Video, is available in the UK, Germany and Austria only and offers both
streaming and downloads film services on a transaction basis (TVoD). Apple iTunes and
Google Play cover the EU28 but only provide film download services (rental and
purchase). After a successful start in the UK and Ireland (shared language with its home
market in the US) and in the Nordic countries (high broadband penetration rates) it
started in France and Germany and in shared language markets Belgium, Luxemburg
and Austria. Expansion into shared language markets is a logical strategy since language
is a very strong driver in (cross-border) demand for digital content (Gomez & Martens,
2015).
Netflix services in the EU come with geographical limitations: they are distributed
through separate national stores that are digitally sealed off. As a result, cross-border
accessibility is zero: users living in one country cannot subscribe to Netflix in another
country – unless they use VPN to hide their true IP address and location. Cross-border
portability is also very limited. Netflix services are accessible only in the country where
See http://www.geekwire.com/2015/netflix-still-king-of-streaming-video-but-amazon-gaining-
market-share/
It expanded services to Spain and Portugal in October 2015.