Netflix and Amazon face quotas for European movies and TV shows

EU proposal aimed at preserving cultural diversity and bolstering European production

The European Commission today announced a new proposal that will require streaming services like Netflix and Amazon Prime to devote at least 20 percent of their libraries to European content, as part of an overhaul of existing broadcasting regulations. The Audiovisual Media Services Directive also requires streaming companies to prominently feature European titles on their websites, and enables member states to mandate that the companies contribute to the production of European films and TV shows. The plan was announced as part of a broader effort to create a "digital single market" across the European Union.

The proposal aims to bolster investment in European film and TV production by bringing streaming services in line with existing regulations on traditional broadcasters, which are currently required to devote more than half of their programming to European content. The EU says the new rules would level the playing field and preserve cultural diversity, but Netflix says the requirements would distort the streaming market and hamper its personalized recommendation service.

"They need the certainty of a modern and fair legal environment."
"I want online platforms and the audiovisual and creative sectors to be powerhouses in the digital economy, not weigh them down with unnecessary rules," Andrus Ansip, vice president for the EU's Digital Single Market initiative, said in a statement Wednesday. "They need the certainty of a modern and fair legal environment: that is what we are providing today." In addition to the 20 percent quota, today's proposal calls on member states to ensure that online video services to "take appropriate measures" to protect minors from harmful content and to combat hate speech.

European films currently account for 27 percent of titles on all streaming services and 21 percent on Netflix, according to a study that was conducted for the European Commission. The study also found that traditional broadcasters invest, on average, 20 percent of their turnover in European production, compared to less than 1 percent for streaming services, as the Financial Times reported last week.
Netflix released its first original European production, Marseille, earlier this month, and is developing original series in Spain, Italy, and Germany. In comments on a draft of the proposal made public last week, the company said that although it supports the goal of promoting European works, quotas would encourage streaming companies to purchase lower-quality titles to meet the requirements. It also said that the requirement to prominently display European titles would "interfere" with personalized recommendations.

"Our members around the world love European programming, that’s why our investment in European programming, including Netflix original titles created in Europe, is growing," Netflix said in a statement Wednesday following the release of the EU proposal. "We appreciate the Commission's objective to have European production flourish, however the proposed measures won't actually achieve that." (Amazon did not submit public comments on the draft, and did not respond to a request for comment from The Verge.)

Jonathan Broughton, a senior analyst in home entertainment at the research firm IHS, says that Netflix would be harder hit by the EU's proposal, because it relies more heavily on US content than Amazon does. According to data compiled by IHS, EU titles comprise 28 percent of Amazon Prime's library (in terms of total duration), compared to 21 percent for Netflix. Broughton also expects streaming services to face further regulations going forward, as legislation catches up to new technologies and as competitors move to acquire titles for streaming and drive up prices. As The Wall Street Journal reported earlier this year, some European broadcasters have begun working together to stem Netflix's rapid expansion. In its most recent earnings report, Netflix said that 42 percent of its subscribers are now outside of the US.

"While [Netflix] has performed extremely well in the past, the market they're operating in now is not the same market they entered into," Broughton said in a phone interview this week. "The competitors are a lot more savvy, they understand the value of the content... and in the future, [Netflix] probably won't be experiencing the same explosive growth that we've seen previously."

"Here, it's the war of the dinosaurs."
In implementing quotas to protect cultural diversity, the EU is returning to familiar territory. Several European countries began imposing screen quotas and subsidies for domestic films in the 1920s, as a way to prevent Hollywood studios from flooding their markets. France, which dominated the global film market in the pre-Hollywood era, has steadily increased film subsidies since the 1980s, and continues to enforce minimum quotas for locally produced content on TV.

"You could say that it's a complete waste of money — that the film that was subsidized, if left to the open market, would not have been produced," says John Sedgwick, a professor at the University of Portsmouth who studies the history of film economics. "But what you would then have is you would end up with no Italian post-war cinema, or no French post-war cinema."
 
"If you don't want to reduce culture to a homogeneous element — if you want to encourage diversity in culture — and the market fails, then the only way around this is by circumnavigating the market."
But others have raised doubts over the effectiveness of subsidies and quotas in spurring growth. Patrick Messerlin, a professor of economics at L'Institut d'études politiques de Paris (Sciences Po), has published papers arguing that France's subsidies have not increased the global market share of French movies, as they aimed to do, and that they've given rise to a rigid, "monopolistic" industry that has hindered competitiveness. The EU's directive, he says, is another step in the wrong direction.
"This regulation is stupid because they see Netflix only as an importer of movies," Messerlin says, adding that regulators should instead embrace streaming services as a "bridge" to the international market. But in France, he says, the industry is still dominated by "the old guys who want to do business like they did 50 years ago."

"Here, it's the war of the dinosaurs... It's Jurassic Park."