Why an EU Content Quota Would Hit Netflix a Lot Harder Than Amazon (Analysis)

The European Commission next week will unveil proposed changes to European law that could include a 20 percent content quota for online video services.

Next week the European Commission will unveil its plans to overhaul Europe's broadcasting legislation, part of a wide range of measures aimed at creating a single, pan-EU market for digital services.

If leaks and off-hand comments by some of those involved are to be believed, next week's proposals could include a new quota for online video companies like Amazon and Netflix, requiring the streaming giants to devote “at least” 20 percent of their catalogs to European films and TV shows.

There are also suggestions that the EU could push for a broader investment quota, legislating that SVOD companies devote a fixed portion of their programming investment to European content.

The first quota wouldn't be too difficult for Netflix or Amazon to meet. The bulk of their regional services in Europe already have sufficient European programming to meet a 20 percent catalog rule.

It's a different story with programming investment. Amazon and Netflix currently invest less than 1 percent of their turnover in Euro content, so a quota, and figures as high as 20 percent have been floated, would mean a major shift. Alongside financing the occasional European series, as Netflix has done with its poorly-received French political drama Marseille, or Amazon with Ripper Street and The Grand Tour, the upcoming motoring series from the talents behind BBC's Top Gear, the companies would be forced to buy up, or self-finance, a raft of new series and feature films from the continent.

“While we cannot go into details at this stage, we can say that the proposal will notably strengthen the promotion of European works' obligations for on-demand services,” a spokeswoman for the European Commission tells THR. “The proposal will aim at encouraging new investment in European works. Europeans will have access to a broader offer of European works in catalogs and this measure will contribute to cultural diversity and more opportunities for creators in Europe.”

Speaking at the Cannes Film Festival in France earlier this week, Andrus Ansip, commissioner for the single digital market, said the new measures were needed to “create a fairer playing field” between online services and TV. According to an EU study, television broadcasters in Europe typically invest around 20 percent of their turnover in new content, most of it of European origin.

If Europe does introduce a quota, Netflix will be the hardest hit. For starters, the company is the only major streaming service operating in every European country. Amazon is big in the U.K. and Germany, but hasn't yet launched its Prime Video service in such other major European countries as France, Italy or Spain.

Netflix's strategy, moreover, could make it difficult for Reed Hastings and his team to adjust. Netflix's one-world model is designed so that Netflix offerings are, as much as possible, the same everywhere. Marseille bowed May 5 on Netflix U.S., as well as across Europe. To facilitate this global day-and-date approach, Netflix has invested heavily in a handful of European series with either big names (such as French star Gerard Depardieu in Marseille) or in easily-recognizable genres, such as sci-fi (Black Mirror), Italian mafia thriller (Suburra) or The Crown, a British period drama in the vein of Downton Abbey.

On the film side, Netflix has also gone big, and typically American, committing a reported $90 million to upcoming Will Smith, Joel Edgerton starrer Bright and $60 million for War Machine, starring Brad Pitt. There are exceptions. Netflix took global rights on Look Who's Back, a German comedy about Adolf Hitler returning to modern-day Berlin; took Jamie Dornan-starrer Jadotville in all its territories, and recently nabbed a number of Dutch films, including local box-office hits A Noble Intention and Bon Bini Holland.

Amazon, in contrast, has favored a more bespoke approach, taking British comedies like Catastrophe or the French-set fashion drama The Collection for its U.K. service and commissioning Matthias Schweighofer, one of Germany's biggest stars but unknown outside the country, to produce and star in its Wanted, its first German-language series.

On the film side, Amazon has also embraced the European community and its lower budget, more auteur-oriented features. Three of the four Amazon films that screened in Cannes competition this year —Woody Allen's Cafe Society, Nicolas Winding Refn's The Neon Demon, and Jim Jarmusch's Paterson —were European co-productions, made with European money and classified as European content.

In Cannes, Amazon bought three more European films, taking Asghar Farhadi's French/Iranian drama The Salesman, another competition title, and pre-buying You Were Never Really Here from Scottish director Lynne Ramsay and Peterloo, the upcoming period drama from British filmmaker Mike Leigh.

Netflix's big Cannes deal was a $10 million buy of Wheelman, a Jeremy Rush-directed U.S. action film starring Frank Grillo.

In a response to the commission's proposals quoted by the Financial Times, Netflix warned Brussels that a European content quota would create a “perverse incentive” for SVOD companies to buy cheap titles.

“Rigid numerical quotas risk suffocating the market for on-demand audiovisual media services,” the FT quoted Netflix's response. “An obligation to carry content to meet a numerical quota may cause new players to struggle to achieve a sustainable business model.”

Instead of quotas, Netflix said the European Commission should focus on “incentivizing” the production of European content.

Part of the drive to overhaul European law regarding TV regulations is to prevent companies like Netflix from taking advantage of loopholes that allow them to avoid certain taxes and financial contributions to local production.

In France, for example, TV networks are required to invest a proportion of their turnover directly in French production. Netflix set up its European headquarters in the Netherlands in part to avoid that legislation, as well as France's higher tax regime.

Currently, Europe gives individual member states a great deal of leeway in deciding how to implement laws regarding European content. While France has strict financial requirements for local-language investment, the Czech Republic lets broadcasters decide how much they want to contribute. Other European countries only require that SVOD providers promote national works on their services but do not stipulate how much European content is to be made available.

“The (audiovisual) directive is, based on minimum harmonization and has been enacted differently in the member states. For example in certain member states the rules on promotion of audiovisual works are stricter than in others,” a Commission spokeswoman tells THR. “This is an issue which is being addressed in the revision of the directive.”

How the new directive or quota is applied will determine its eventual impact. Netflix and Amazon already offer a substantial volume of European films and TV series to their local subscribers, in some cases more than 20 percent of total programming. It remains to be seen if that will be sufficient to satisfy the politicians in Brussels.

Netflix declined comment for this story. Amazon could not be reached for comment on Friday.

Correction May 21, 01:00: An earlier version of this story incorrectly stated that Amazon still had operations in Scandinavia. They have shut down their operations there. The Hollywood Reporter regrets the error.