Netflix expansion in Europe worries French film industry

Netflix is tapping into six new markets Monday hoping to gain a big subscriber base around Europe but is facing a frosty welcome in France. Well-established French competitors are trying to head off a Netflix wave, the government wants oversight and the cinema industry wants Netflix to invest heavily in French productions.

The video-streaming giant, which has more than 50 million subscribers in 40 countries, this year earmarked $400 million US to expand further internationally. It's launching now in Germany, Austria, Switzerland, France, Belgium and Luxembourg after setting up in Britain, Ireland, Denmark, Finland, Norway, Sweden and the Netherlands in recent years.

The presence of Netflix, which has headquarters in Los Gatos, Calif., is welcome in most European countries but less so in France, where Netflix hopes to reach a third of French homes in the next five to 10 years. Netflix declined to comment on its challenges in France before the official launch Monday.

Video streaming well established in Europe

The company was a pioneer in the field in the U.S. and enjoyed new success by creating original content such as the series House of Cards. But video-on-demand services are now already well established in many European markets.

Canal+, France's main pay-TV operator, has half a million subscribers for its CanalPlay, started in 2011, and moved Wednesday to head off a competitive blow from Netflix. Canal+, which already owns French rights to House of Cards, launched a new partnership with HBO as well as the possibility to pre-download series and movies to watch later without an internet connection. It also announced it will create French and American-produced TV series.

"What is impressive with Netflix is its technological and marketing abilities," said Frederic Goldsmith, from a French-based group of movie producers, "but its service isn't new."

Patrick Holzman, CanalPlay's director, is banking on its "French touch" and proximity with customers. "Our strategy is the same, with or without Netflix," said Holzman.

Bruno Delecour, head of FilmoTV, one of France's first video-on-demand companies, said the buzz around Netflix is positive for the French market, because it incites new households to try video-on-demand services. But Delecour remains vigilant. The entrepreneur decided to focus on developing a specialized offer in movies rather than competing with a generalized content provider like Netflix.

"We've been preparing for competitors for years. We made the choice to occupy one segment of the market and invested heavily accordingly," he said.

High domestic content requirements

In Germany, experts have said little impact is expected by Netflix's arrival, as the country already offers a considerable amount of free and pay-TV.

Another challenge in France is a requirement that 40 per cent of content on French radio, TV and movies in theatres must be of French origin.

Because Netflix's European headquarters are in Amsterdam, the company does not have to comply with the rule, which is designed to protect domestic creativity.

But French movie and television industry experts rally around the idea of the "French Exception."

"Offering only American series will not work," said Pascal Rogard, director of France's Society of Dramatic Authors and Composers.

Aware of this, Netflix has already planned to produce an eight-episode television drama series called Marseille, written by French award-winning writer Dan Frank and set to start in late 2015.

But for some contributors to French cinema, this investment effort falls short.

"We welcome the competition," said Rogard, "but only if they're playing with the same rules."

Will be taxed in France

Netflix will have to comply with some French and European regulations. Notably, it will be barred from streaming films under three years old. From January 2015 onward, Netflix will also have to pay a two per cent tax if its annual earnings are more than 10 million euros, following a recent decision by the French Culture Ministry to tax operators based abroad.

In France, many close to the film industry fear Netflix will drag subscribers away from Canal+, which is currently the main financier of French-made films.

"There is a particularity in France in that television channels finance domestic productions. Their level of investment is calculated according to the number of subscribers," Florence Gastaud, head of a union of French producers and authors, explained. "Therefore, if the number of subscribers goes down (as some move to a Netflix subscription), the investment in domestic production goes down."

In another possible hurdle, France's Council of State, a body that advises the government on legal issues, on Tuesday recommended government oversight over the algorithm that Netflix uses to present series and movies, to make sure French and European content is well positioned.

Developing domestic production is not such a major concern in other markets.

In the Netherlands, where Netflix launched last year, on-demand media services aren't required to adhere to a quota of 50 per cent European content for public and commercial television channels, just expected to generally promote the representation and access to European content, according to the Ministry of Education and Culture.

Netflix offers catalogue Dutch films but does not offer popular Dutch TV shows. The two largest Dutch-language programming, SBS and RTL, teamed up to offer a Netflix competitor called NLZiet in July. In its latest report, the new company claims 10,000 customers — a number considerably smaller than the hundreds of thousands of Dutch Netflix subscribers.