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Belgium / Europe

Ivana Kostovska and Marlen Komorowski • Researchers, imec-SMIT-VUB

“We expect policy debates to be infused with ideas on how to better refine investment obligations for VoD providers”

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- The two researchers talked us through the European Union’s Audiovisual Media Services Directive and how it is having an impact on the market

Ivana Kostovska and Marlen Komorowski • Researchers, imec-SMIT-VUB

Cineuropa spoke to Ivana Kostovska and Marlen Komorowski, researchers at Brussels’ imec-SMIT-VUB, to discuss the ways in which the Audiovisual Media Services Directive (AVMSD) is having an impact on the EU’s audiovisual market.

Cineuropa: What is the main goal of the AVMSD?
Marlen Komorowski:
The AVMSD was born of the growth of VoD players and the debate it sparked concerning the implementation of possible regulations. The 2018 review aimed to create a “level playing field” between the broadcasters and the VoD players, as well as to enable legislation that had already been approved by a few countries, such as France and Germany.

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What is the current legislation like in the EU, and what financial obligations exist across the European Union? What procedures do VoD providers need to follow?
Ivana Kostovska:
It’s very clear that the so-called “Netflix tax” is a sort of hunting ground for attracting investments by global VoD streamers. The basic premise is that everyone that benefits from accessing EU markets has to support European content, including players such as Netflix, Disney+ and others.

Legislation in the EU is highly fragmented, focusing on the local legislative context. In general, when looking at the legal texts that transpose the AVMSD, we can draw a distinction between several approaches. In some countries, policymakers decided to allocate responsibility to film-funding bodies that have to collect a certain percentage of revenue from VoD providers. This form of investment obligation is consistent with the policy tradition in some member states. In Germany, for example, the film-subsidy system is built upon a long tradition of collecting levies and distributing them within the industry through public film support schemes. In other countries, we can see that there are more “light touch” approaches, wherein VoD providers themselves are allowed to invest directly in the production of European works or to choose to make either a direct investment in production or a payment to the film fund. At the other end of the spectrum is France, with the most ambitious investment obligation that is referenced by European policymakers quite often.

What are the motivations driving the implementation of the directive?
IK:
We see that many member states redefine policy goals by putting the emphasis on economic objectives and leaving cultural protectionist standpoints in the background. In this sense, policymakers want to integrate global VoD players into the local ecosystems.

When an investment obligation is introduced as a payment to a film fund, the goal is often to improve the financial fitness of a film-funding body and make up for the shortfall of a levy collected from traditional players, such as cinema and broadcasters. In Germany, for example, the FFA estimates that the only source of levy revenue expected to rise by 2026 is the one collected from VoD providers. The levy collected from the cinema sector and distributors has experienced the sharpest drop in the past few years. By comparing the FFA’s revenue flows in Germany for 2020, we can observe that the levy paid by VoD providers reached the level of that paid by broadcasters. In France, there is also an upward trend in the levy collected from video and VoD services (€87.3 million in 2020).

In a nutshell, countries such as Germany, France and Poland require VoD providers targeting their jurisdictions to support film funds in an effort to reduce the regulatory burden of traditional players. So, are Netflix taxes just a drop in the ocean, or are they game changers? Evaluating the effects is complex, to say the least, as we are dealing with a moving policy target and evolving markets. Measuring the impact is really difficult because the increase in the levy collected in France, for example, can be attributed partly to the effect of the pandemic on the uptake of VoD services, but also to the increase in the rate of the levy in 2020.

How might these actions help European independent creators?
IK:
Investment obligations in some national regulatory frameworks are linked to ensuring the retention of IP rights by local independent producers and improving their contractual relationships with VoD providers. France is spearheading policy intervention with the SMAD decree. The law limits the duration of exclusive rights for VoD providers to allow independent producers to fully exploit the value of their content. So French legislators, in a way, are modernising the definition of independent works by putting forward stricter criteria for their exploitation on VoD services. In my opinion, this is one of the most exciting novelties that might resonate with other policymakers in the EU.

Currently, the signals coming from local producers in Italy suggest that following in these French footsteps would be a desirable way to move forward. Considering future developments in VoD regulation in the area of supporting European works, I’d expect new approaches to content rights management to emerge. Moreover, we might expect policy debates to be infused with ideas on how to better refine investment obligations for VoD providers. The relevant question here is including specific genres, as is the case in France.

Finally, what is important to bear in mind is that global VoD providers want to have their slice of the cake. Netflix asked the CNC for the chance for producers who work with them to benefit from public support schemes and the tax credit in France. Recently, the CNC set up a temporary “selective platform fund” to support the production of independent audiovisual works intended for an exclusive release on VoD services established abroad and affected by the SMAD decree. The new support scheme is focused on specific genres. This also means that in the future, we can expect other member states to come up with support for independent producers that collaborate with VoD services targeting their markets.

Do you believe there could be any side effects stemming from the implementation of the AVMSD?
MK:
The investment obligations, in all cases, are also for local players. Local VoD providers will have to invest certain amounts in local productions, and that will be a push to innovate. Netflix itself already supports the AVMSD and sees it as part of an established investment strategy for creating more European content. I believe the AVMSD will have an impact on how flexible, local VoD services can operate with their own content, though.

IK: Some challenges could arise from the fact that the AVMSD is a minimum-harmonisation directive. Member states with smaller audiovisual markets could be at a disadvantage because, most often, they introduce light-touch investment obligations with lower rates. Also, it is still too early to understand the impact of investment obligations on the sustainability of the European audiovisual ecosystem.

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