Netflix Criticizes European Content Quota

New laws will require it to devote 30 percent of its catalog to European works.

Netflix has resigned itself to new European quotas, set to pass into law later this year. But it isn't happy about them.

In its letter to shareholders published with its third-quarter earnings after the U.S. stock market close Tuesday, Netflix cited the new legislation, which will require all video-on-demand services operating in the European Union to devote a minimum of 30 percent of their online catalogs to European works. In addition, certain European countries, among them France and Germany, will require streaming platforms to contribute a portion of their revenues to subsidy bodies that finance local film and TV productions.

Netflix said its increased investment in European productions, already underway, meant the company anticipated “being able to meet these requirements by evolving our content offering.” But, it argued, the quota approach is an effective way to promote the European industry.

“We anticipate that a regional content quota which approximates the region's share of our global membership will only marginally reduce member satisfaction,” Netflix wrote. “Nonetheless, quotas, regardless of market size, can negatively impact both the customer experience and creativity. We believe a more effective way for a country to support strong local content is to directly incentivize local content creators, independent of distribution channel.”

In an unconfirmed figure first cited by The Wall Street Journal, Netflix plans to spend about $1 billion on original and co-produced content in Europe this year, in part to meet the coming quota laws. The company has set up its first-ever European production hub in Spain — to produce such Spanish-language originals as Cable Girls, Money Heist and Elite — and recently announced a trio of new French original series. This summer, the company failed in a legal bid to get out of paying into Germany's film and TV subsidy system. German law requires streaming companies operating in Germany to contribute 2.5 percent of their local revenue to the German Federal Film board, which bankrolls local film and TV productions.

Netflix impressed investors with better-than-expected third-quarter results late Tuesday. The streamer saw subscriber figures jump significantly to more than 137 million, with revenue up 34 percent to $4 billion for the latest quarter. Much of that growth is driven by international markets, an indication, perhaps, of why Netflix, despite its opposition, is willing to toe the EU line on quotas.