Germany

Contributed by Marion Jenke (UFA Research, Potsdam) and Patrick Vonderau (Stockholm University)

August 2017

Market Characteristics:
In September of 2014, Netflix launched simultaneously in Germany, Austria, and Switzerland. The launch had been widely anticipated in the German-speaking countries, given favorable news reports about the service’s offerings in other European countries and the release of House of Cards’ first season the previous year. Despite Netflix’ then ongoing re-branding as Internet television, however, the German perception rather was of an “online videostore” akin to already existing services such as Videoload (Deutsche Telekom, since 2003), Lovefilm/Amazon Prime Video (Amazon, since 2003), Maxdome (ProSiebenSat 1 Media, since 2006), or Watchever (Vivendi, 2013-2016). Somewhat ironically, the newest episodes of House of Cards were first made available via Sky’s pay-tv services and Pro Sieben. Another disappointment came with Netflix’ catalog size; as of February 2015, the German catalog included a meager 1,646 titles, considerably less than what then was available in Scandinavia or the UK, not to speak of the U.S. (8,522 titles).[1] Netflix nevertheless managed to attract around 500,000 German subscribers by early 2015.

Apart from a generally fragmented content licensing situation in Germany (and Europe), two further characteristics of the marketplace were the rather strong competition from existing VOD platforms alongside free and pay TV offerings, and the German “Rundfunkgebühr,” a 17,50 Euro monthly device-independent license fee covering public service broadcasting programmes, to be paid by each German household. Given the obligation to pay that fee, many viewers would opt for a cheap streaming service like Netflix over a more pricy pay-tv subscription such as Sky TV’s. While this may have helped Netflix’ market entry (and slowed down the growth of pay-TV), the free TV-offer in Germany also was, and is enormous, with two major public broadcasters (ARD and ZDF) that both include smaller channels that target niche audiences controlling about half of the audience market. In addition, Germany’s so-called “dual system” since the 1980s has included a continuously expanding, privately owned, advertising-funded free TV (Pro Sieben, RTL, etc).

Long before Netflix, VOD was rich and diverse, both in Europe – 696 European VOD-platforms were counted back in 2008 – and in Germany, where around 80 VOD services remain operational today. Competition becomes observable in relation to both content and business model. Firms such as Amazon Prime, Chili, ClipFish, GooglePlay, iTunes, Maxdome, Microsoft, VideoLoad and Viewster compete with Netflix over licenses and viewers by offering film and television content. Companies such as EYZ and Mubi compete primarily by offering the same (subscription) model, while Amazon Prime and Maxdome compete both in regard to content and access. Of interest in this respect is pricing, with Amazon Prime Video currently available for only EUR 4,08 monthly (as part of Amazon Premium) or EUR 7,99 respectively (separate subscription), the same subscription fee asked for by Maxdome, while Netflix adapts price to streaming quality and number of devices per household, ranging from EUR 7,99 to 11,99. Maxdome seems to hold the largest catalog – 55,000 titles already back in 2014 – for the lowest fee.

As of 2016, Netflix had not yet become the key disruptive player on the German market. Of Germany’s 81 million inhabitants – a market larger than Australia’s and Canada’s combined, with an internet penetration rate of 87 percent[2] – only 6.7 percent used Netflix, compared to 12 percent using Amazon (and growing), 5.1 percent using iTunes, and 4.5 percent using Maxdome. The by far largest share of VOD usage, however, related to free portals such as YouTube’s (81 percent), followed by the “media centres” (Mediatheken) of ARD/ZDF and private broadcasters. Free film and television content programming is the key dominant characteristic of the German market.

Regulation

There is no specific or coherent German legal framework for the internet or internet-based services. Regulation largely relates to content, with the distribution of broadcasting (television) content falling under the so-called Rundfunkstaatsvertrag, or Interstate Broadcasting Treaty, established in 1987 and permanently updated. In addition, the German Telemedia Act (Telemediengesetz, 2007-) provides basic regulation for all sorts of electronic information and communication services. While traditional linear television content was quite strictly regulated, VOD services still remain largely unregulated in Germany. As of spring 2017, this seems to change, however, following suggestions recently made by the European Commission to adapt rules for VOD portals to the existing regulation of linear television broadcasters. Netflix thus may be required to adopt local content quotes and offer a larger number of European titles – between 20 and 30 percent of its future catalog. Netflix also may have to financially contribute to European film funding.

Since the introduction of private broadcasting and the implementation of cable networks platforms have taken on a central role in Germany’s television distribution. Cable network operators such as Vodafone Kabel Deutschland or Unitymedia act as gatekeepers between television program providers and audiences. Regulators therefore have developped specific rules for cable network operators in order to ensure plurality of opinion. Accordingly, television program providers have to be guaranteed equal opportunities of access to platforms and, consequently, audiences. Following the Tenth Amendment to the Interstate Broadcasting Treaty (2008), regulators have begun to observe all kinds of television platforms and to include them into regulatory oversight (§ 52, a-f). Using a broad notion of ‘platform’ which relates to internet platforms only insofar as they hold a “dominant position in the market” (§ 52 1,1), the Treaty leaves regulatory specificities to the respective state media authorities, focussing on issues such as program diversity, fair fees and tariffs, and constitutional order.

Viewing Habits

Compared to Scandinavia, Germany is still behind when it comes to the media reach of online services. By autumn of 2015, one year after Netflix’ launch in Germany, more Germans watched television (93 percent) and listened to radio (92 percent) than using the internet (85 percent), let alone the mobile internet (55 percent), according to AGOF Digital Facts and the Verband Privater Rundfunk und Telemedien e.V. (VPRT). Television sets still dominated the home, and many viewers preferred to watch Netflix on television screens, too. Accordingly, the share of Smart TV in 2014 was at around 16 percent in German households, and had grown to 27.6 percent by 2016. Netflix’ lack of offline functionality additionally motivated stationary use, since users preferred to save their mobile data budgets. Reliable statistics on smartphone or tablet use remain scarce. In March of 2017, Netflix declared to begin providing special content for the small screen, underlining that smartphones were and are not the first option to use Netflix. SVOD in general remains a niche phenomenon, and this particularly holds true for out-of-home watching on mobile devices.

Internet Pricing and Availability

As of 2017, internet penetration rate in Germany is at around 87 percent, correlating to 63.7 million users. Access to the internet is not area-wide in Germany but depends on region. In some rural areas, internet capacity is not sufficient to watch internet distributed video content. This process is only changing slowly. Pricing models vary but are between € 25 – 60,00/m at an average. The connection needed to receive internet streams buffer-free is at about five megabits and for 4K-Streaming at about 25 MB/s. Netflix has adopted to this situation by offering various pricing plans: low resolution access (0.3 GB/h), standard resolution access (0.7 GB/h), high resolution (3 GB/h) and Ultra HD (7 GB). Netflix also adapts streaming quality to available internet speed. Since January 2017, a selection of titles can be viewed offline on Android and iOS systems, an option increasingly used. Currently it looks like most users subscribe to the “Standard Netflix” package. According to a non-representative survey among fans (see here or here),[3] it became clear that standard accounts often are used by multiple users – friends are sharing the log-in data and costs, watching separately in their various homes.

Content

While Netflix’ catalog had about 1,646 titles by February 2015, it currently (May 2017) has between 2,298 and 2,535 titles, according to AufNetflix.de and JustWatch, respectively. Initially, only 33 Oscar-winning movies were to be found in the catalog; some of them, such us Rocky or Rain Man, had been multiple reruns on German free TV.[4] In terms of its back catalog, Netflix nevertheless was, and remains, focussed on movies rather than series, continuously offering a 1:3 or 1:4 ratio of films over tv content. The (over-)provision of backcatalog films runs contrary to the strong interest in series such as Big Bang Theory or House of Cards. Sometimes only parts of a series are shown on Netflix (e.g.the the first five seasons of Family Guy).[5] The non-availability of anticipated television content certainly did not ease Netflix’ market entry.

Amanda Lotz observes that in the U.S., a main reason for subscribing to Netflix “is the convenience of on-demand programming” rather than the content itself. [6] This is different in Germany with its large number of free public and private (ad-financed) TV channels. In 2016, more than 51 free German-language channels were available.[7] Accordingly, the main reason for subscribing to Netflix seems to be a different one – namely, to watch entertainment in its original (English) version instead of the German-dubbed version. A 2016 survey among 1.161 young German adults revealed that the motivation and ability to watch foreign productions, specially anglophone titles, largely depends on age: the younger the audience, the higher the interest in original English versions.[8] The interest in watching “the original” also prevails among the minority of academic observers and journalists writing about Netflix.[9]

Contrary to the US, market conditions in Germany remain difficult, given the fragmented European market place. Netflix has to follow the sequential release of established windowing practices, and its catalog will never be more than a “revolving collection of licensing agreements.”[10] The legal situation of many well known series such as Breaking Bad, Sherlock, The Walking Dead, Sons of Anarchy or Big Bang Theory does not permit exclusive access. Some of these titles are also available via other portals or even broadcast for free on public television, with search engines such as Vodster offering to find the cheapest (or gratis) form of access.

Consumer and Press Reaction

Before Netflix’ German launch in 2014, commentators fell allover themselves in enthusiasm and praise. Stirring up curiosity and anticipation little by little, Netflix’ publicity campaign managed to suggest that there never had been a VOD portal before. Leading weekly news journal Der Spiegel published a four-page story,[11] and public service broadcaster ZDF helped promote Netflix by inviting Reed Hastings for an interview. Competitors anxiously anticipated the launch, with pay TV-broadcaster Sky bringing down the price for its portal Snap. But although there was (and is) a competitive market in Germany, it was (and is) still comparable small. First commentaries about Netflix’ overrated stock value started to appear already in 2015.[12] The stock price went up and down again in 2016.[13] Since autumn 2016, criticism of Netflix’ catalog[14] and streaming quality standards[15] increased. Although Netflix held a major European Preview event in Berlin in January of 2017, news media failed to see it as anything more than a soft promotion, lacking “hard facts.”[16]

Subscriber Estimates

See above. According to estimates, Netflix currently (May 2017) has around five million German subscribers, or 20 percent market share.

Local Netflix Office

Netflix Services Germany
GmnH, Friedrichst. 88
10117 Berlin, Deutschland
+49 30 2200281-0.

Former employee: Stefan Tiedemann (Senior Marketing Manager, left November 2015). Current employees or number of employees unknown.

Notes

[1] Stephen Heyman, “Netflix Taps into a Growing International Market,” New York Times, 12 February 2015.

[2] Statistics provided by Statistisches Bundesamt, www.destatis.de.

[3] See, for instance, https://www.freeware.de/netflix-app/tipp/netflix-account-teilen-ist-das-sharing-erlaubt/ or http://raphaelschoen.net/netflix-9-tipps-mit-denen-du-mehr-aus-deinem-streaming-abo-herausholst/ (accessed 24/03/2017).

[4] http://blog.zeit.de/netzfilmblog/2014/09/16/netflix-deutschland-start-preise-angebot/ (accessed 24/03/2017).

[5] Ibid.

[6] Amanda D. Lotz (2017) Portals – A Treatise on Internet-Distributed Television. Ann Arbor: Michigan Publishing.

[7] http://www.ip-network.com/tvkeyfacts/tv_key_facts_2016/pdf/Germany.pdf (accessed 24/03/2017).

[8] https://yougov.de/news/2016/01/14/jeder-vierte-junge-erwachsene-schaut-tv-serien-auf/ (accessed 24/03/2017).

[9] http://forum.massengeschmack.tv/showthread.php?19578-Englisch-vs-Deutsch/page2 (accessed 24/03/2017).

[10] Eric Hoyt (2014) Hollywood Vault: Film Libraries Before Home Video. Berkeley: University of California Press.

[11] Der Spiegel, No 36/2014.

[12] http://boerse.ard.de/aktien/aktie-des-tages/hat-netflix-den-zenith-ueberschritten100.html (accessed 24/03/2017).

[13] In April 2016 the shares went down: http://www.spiegel.de/wirtschaft/unternehmen/netflix-aktie-bricht-ein-ein-kartenhaus-a-1087921.html and in October 2016 they went up: http://www.spiegel.de/wirtschaft/unternehmen/netflix-quartalszahlen-aktie-steigt-dank-zahlreicher-neuer-nutzer-a-1117063.html (accessed 24/03/2017).

[14] http://www.techbook.de/entertainment/netflix-schrumpft-immer-weniger-filme-und-serien-im-angebot (accessed 24/03/2017).

[15] http://www.quotenmeter.de/n/92002/diagnose-qualitaetsschizophrenie-netflix-und-sein-widerspruechlicher-selbstanspruch (accessed 24/03/2017).

[16] https://www.dwdl.de/magazin/60363/netflix_in_berlin_wir_fangen_mit_europa_jetzt_erst_an/ (accessed 24/03/2017).