NEW YORK (
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has a lot to prove in 2012, specifically how successful it can be in the U.K. and Ireland.
The company, whose stock lost 70% of its value just in the past three months, is so confident in the future of its streaming business overseas that it is even willing to take a loss in the new year. But given 2011 was a year when Netflix turned a blind eye to customer and investor dissatisfaction, failing at its international strategy could ultimately destroy the company's growth prospects and further erode management's credibility.
Netflix plans to launch a streaming service similar to its $7.99 U.S. plan in the U.K. and Ireland in early 2012 and is currently working to secure streaming deals in the regions. It has already reached agreements with
for television shows and films.
This will be Netflix's third major push outside the U.S., having launched a streaming service in Canada last year and in Latin America and the Caribbean in September.
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Netflix's expansion into the U.K. and Ireland will be very different than its launch in these other regions, which were relatively uncharted territories. In the U.K. and Ireland, Netflix is up against
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LoveFilm, which has already laid the groundwork in those regions and continues to ramp up its offerings.
LoveFilm announced that it struck an exclusive deal with
for films like
The Social Network
. The multi-year deal for streaming rights to "second subscription pay-TV window," blocks Netflix from receiving the same content in the market.
LoveFilm also already has locked up other exclusive deals with content providers like
, drastically limiting the content available to Netflix for some time. LoveFilm also distributes DVDs, giving it a physical presence Netflix lacks overseas.
The competition Netflix faces in the U.K. and Ireland has made Wall Street hesitant.
"We are particularly skeptical about the company's prospects for success in the U.K., where competitor Amazon has a well-entrenched DVD-by mail subsidiary (LoveFilm) that it purchased for over $300 million last year," Wedbush analyst Michael Pachter wrote in a note. "We think that the U.K. will be a battleground for Amazon to test a hybrid service of its own, and think that LoveFilm is well positioned to eat Netflix's proverbial lunch there."