European countries launching “Netflix Tax” to support local production

Author Moonshot.news

Published on: 05/07/2022

The European TV market is largely an American business. Worried that this will lead to even more limited national production of TV and films, an increasing number of European countries plan to force international streaming companies like Netflix to pay a kind of streaming tax. The French have another approach saying that if you can’t beat them – join them. The country’s film industry is joining forces with Netflix, the by far biggest streaming service in Europe.

Denmark has decided that global TV streaming services such as Netflix and  Amazon must pay a levy of 6% of their revenue in the country to support local TV production.

The Danish fee comes as governments across Europe try to secure support for local TV and film production following the booming popularity of streaming services.

“Denmark must go as far as possible in providing good public service to children and young people, which can serve as a real alternative to the tech giants’ platforms and foreign content,” the Ministry of Culture said in a statement.

“Lex Netflix”

It added that fragmented media landscape following the entry of global streaming services “can challenge the cohesion and democratic dialogue in our country.”

Switzerland, Portugal and Spain have or plan to introduce similar measures. Swiss citizens voted in favour of a similar law dubbed ‘Lex Netflix’.

In Romania  streaming platforms will have to pay a tax of 4% of their revenues from transactions or subscriptions, according to legislation  passed by the Parliament .

The tax will be used to fund the national film fund, managed by the Romanian Film Center and providing support for the domestic film production.

The tax will not be applied in the case of providers with revenues that did not exceed EUR 65,000 in the previous fiscal year, or with ratings below 1%.

The bill also stipulates that VoD platforms under Romanian jurisdiction need to dedicate at least 30% of their catalogues to European works and promote them.

The Canadian lower house of parliament has passed legislation that would compel streaming services operating in the country to offer more local content.

While the primary focus of the bill has been major video streaming services it will also include other streaming platforms such as YouTube and Spotify who will be compelled to promote Canadian artists by law.

JOINING FORCES

French legislators apparently do not support only the French publishers versus the tech platforms, but also inspire other media players to form strong and mutually beneficial alliances: the three organizations that represent the French cinema (BLIC, BLOC and ARP)  have reached a historic financing agreement with Netflix, the first between a cinema association and a video streaming platform.

The agreement fuels the French film production with a percentage of Netflix’s net profits in France and in exchange gives the platform exclusivity rights and a shorter waiting time for streaming the movies.

Based on the agreement, for the next three years, Netflix is going to contribute 4% of its annual net revenue in France; more specifically the agreement includes:

• a minimum guaranteed of € 30 million per year for the creation of original French cinema production
• a diversity clause for at least 17% of the amount for the pre-financing of original French productions with a budget equal to or lower than 4 million euros
• a volume clause, securing a minimum of 10 movies financed per year.

For the year 2022, this investment is calculated to be approximately € 40 million for French and European productions.

According to the press release, Netflix “by becoming a privileged partner of the French cinema confirmed its position in the new media era and secures a first window of distribution within 15 months after the premiere of a movie, for a duration of 7 exclusive months”.

CINEMA ECOSYSTEM

The associations believe that this agreement will give a new push towards the modernization of the French cinema ecosystem and strengthen the French and the European French-speaking film production.

Thou new “production taxes” does not seem to be Netflix’ only trouble. The streaming giant recently for the first time in a decade reported loss of subscribers which gave the whole streaming business the shivers. And studies show that inflation and higher household costs make people cancel subscriptions.

That less sunny days could be on their way was not really a surprise as the streaming services boomed during the worst part of the pandemic when cinemas, theatres etc were closed and people were told/forced to stay at home and find their own entertainment.

Netflix, that has production companies in several countries and not only in the US, said that one problem is that people are sharing passwords. Surveys also showed that with increasing inflation and higher household costs, people look over what they subscribe to like Netflix, Spotify, news media etc.

Netflix therefore changed its strategy from no-advertising to planning for a lower cost advertising financed alternative while also laying off staff to cut costs.

“Both Ted and I regret not seeing our slowing revenue growth earlier so we could have ensured a more gradual readjustment of the business,” read a note sent to staff by Netflix co-chiefs Reed Hastings and Ted Sarandos.

HARD FOR EVERYONE

“We know these two rounds of layoffs have been very hard for everyone — creating a lot of anxiety and uncertainty. We plan to return to a more normal course of business going forward. And as we cut back in some areas, we also continue to invest significant amounts in our content and people: over the next 18 months, our employee base is planned to grow by ~1.5K to ~11.5K,” Hastings and Sarandos wrote.

Netflix continues to fight in an increasingly difficult streaming environment competing with other giants like Amazon Prime Video, Apple TV+, Disney+, Hulu, Paramount+, HBO Max and Discovery+.

Netflix, that has about 222 million subscribers globally, also gave a lower forecast for its next quarter, saying it’s preparing to lose another 2 million subscribers.

Sky, owned by US-company Comcast, is Europe’s largest TV company by revenue followed by German public broadcaster ARD. American Netflix is the third biggest TV company in Europe and the by far the biggest measured by video on demand subscription with 35% market share, according to an the European Audiovisual Observatory.

The number 2 streaming service in Europe is American Amazon Prime Video with 20.4% market share followed by US-based Apple with 8.4%.

The report says the top 100 audiovisual companies in Europe showed some resilience to the pandemic which has been accelerating pre-existing market trends. Their cumulated operating AV services revenues grew slightly more (+7.7% over 2016 at the end of 2020) than average inflation and the overall market.

Another significant change is that public players, measured by revenues, diminish between 2016 and 2020 (down by 3% to 31%). Public service broadcaster´s revenues decreased over the same period by 0.4% in real terms.

CONCENTRATION LEVELS

“Also, these players were not part of the consolidation game. Overall, the revenues of the traditional players have more or less stagnated, while the growth of the top 100 players was largely driven by the new subscription video on demand (SVOD) players. Netflix, Amazon and DAZN, accounted cumulatively for more than 75% of the revenue growth registered between 2016 and 2020 at the top 100 level.”

Concentration levels remain largely the same among the top 100 European AV groups. Over the five-year period, the top 20 players had around 70% of top 100 revenues.

The private European AV sector is less concentrated than the US one. The top five private European AV players account for 53% of top 20 revenues as opposed to 62% for players on the US market

The US interests in top 100 revenues has increased (by +4% up to 31% in 2020) due to the rise of the pure subscription video on demand players.

”US-backed AV players in Europe particularly stand out in the private sector where they comprised 44% of the main players’ revenues at the end of 2020. Two thirds of the US share were accounted for by Sky, Netflix, Amazon and DAZN. The share of US interests is by far the highest in the SVOD market, with around four in five subscriptions signed off by a US-backed OTT platform.”

By contrast, pay TV remains largely a European-driven business (US-backed companies account for only 16% of subscriptions), the report shows.

THEMATIC CHANNELS

US interests are less significant as regards TV audiences (only 11% of viewing time) as most of the main national broadcasters are still controlled by European interests.

US groups have launched a large range of thematic channels and catalogues all over Europe, which is reflected in a comparatively higher share by number of TV channels (19%) and on-demand services (25%) operated in Europe. Discovery, Sky, ViacomCBS and Disney are the top four networks in Europe by number of TV channels, while Discovery and Disney also rank among the top four groups by number of on-demand services.

A UK study shows that the global inflation will be a problem for the streaming market with subscribers cancelling subscripts as household costs are increasing faster than in many years.

A survey in the Nordic countries showed that more men than women cancelled their Netflix subscriptionin the first quarter 2022, and that the value for money that Netflix represents to them seems to have been a driving factor. Using Denmark as an example, it seems that national video streaming services led by national broadcasters will gain the most if Netflix continues to lose subscribers.

Market surveys have shown that the increasing competition on the market is also frustrating for the consumers.

Measurement firm Nielsen said a study shows consumers are overwhelmed by choice. 46% of the US audience said they feel overwhelmed by the growing number of services and platforms that has made it difficult to find the content they are looking for.

WEEKLE STREAMING

Overall, Americans increased their average weekly time streaming video by 18%, with a year-over-year increase from 143.2 billion streamed minutes to 169.4 billion between February 2021 and February 2022.

Two takeaways from the Nielsen study

• Streaming service consumption is expected to grow, with 93% of Americans reporting they will increase their paid streaming services or make no changes to their existing plans over the next year, and over the last three years there was an 18% increase in all available video content.
• Due to a nearly 20% increase in unique program titles over the past three years, nearly half of audiences (46%) feel overwhelmed by the growing number of services and platforms that makes it more difficult to find the content they’re looking for.

The focus on streaming television trend has over the last years has been clear in the US. Cable TV was  earlier the dominating platform. 9 in 10 households used to have it but that is now down to  just around half of them.