As Netflix reached about 20 million North American subscribers, rumours started spreading about an imminent global expansion of the US giant, fuelled by two job vacancies posted on the company website which require “the need to prepare for “rapid” international expansion and “will support a specific country / region outside of North America.” Time might be ripe for strategic business thinking, given also the recent news that YouTube has confirmed plans to expand its movie-rental service.

Netflix was planning to launch in the UK way back in 2004, but subsequently decided to focus on its core business in the United States (and later Canada). This attempted move prompted commentators to write that the UK is at the top of the list of countries that Netflix might consider for its imminent expansion.

However, the UK’s online rental market is already populated by different actors, the most important of which is Lovefilm (BskyB & Virgin Media and Blinkbox follow behind). Similarly to Netflix, LoveFilm is a hybrid streaming and DVD rental model (people can either stream online or get DVDs by mail). Its size – and fan base, as showed by Market Sentinel’s  own Skyttle Friends tool – are however much smaller:

What would happen if Netflix is going to enter the UK market? Would it constitute a threat for Lovefilm and the other rental companies?

Some market research analyses show that the US giant might encounter several difficulties in this sense:

1) Amazon took full control of Lovefilm in January 2011: having the financial backing of such a powerful enterprise might boost Lovefilm’s services, especially in terms of content offered (Netflix had until now a bigger content selection);

2) Broadband problems in the UK might constitute an obstacle for the expansion of the US company. Many high quality videos from Netflix are encoded at a bit rate of more than 2 Mbps, but in the UK only 13 million households have a broadband speed of more than 2 Mbps, on a total of 18.7 million broadband households that could potentially subscribe (see Will Netflix Enter the UK?, by Trefis Team).

3) If Netflix is going to expand in several different European countries, there will be additional problems in terms of the need to negotiate rights and act on a country-by-country basis, rather than within a big, unified market;

4) European interest in home video is lower than in the US: figures for VHS and DVD rentals, as well as purchases, have historically been much lower in Europe than in the United States (see Can Netflix’s US Online Success Be Replicated in Europe?, by David Mercer)

However, Netflix might have a definitive advantage on Lovefilm if broadband issues are resolved. A lot of online commentary by users seems to point out that the most common complaints against Lovefilm are bad quality of streaming, delivery issues and faulty DVDs. Phil Baxter writes in reply to the blog post “Netflix beefing up service center in preparation for global launch“:

With regard to faulty/broken disks, there are problems too, as we can read on Lovefilm’s Facebook page – Discussion Group:

Delivery times are another critical issue for Lovefilm:

It remains to be seen if Amazon’s backing will be enough for Lovefilm to improve its service and counter Netflix’s potential expansion into the UK market. In the meantime, what’s your opinion on the matter? Would you give Netflix a try or do you prefer to stick to Lovefilm? Who would win in the “Clash of the Titans”?