European Court Rules Against Netflix in German Film Subsidies Case

Netflix argued that because it is not based in Germany, it does not need to contribute to national subsidy programs.

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The Court of Justice of the European Union has ruled against Netflix, dismissing a challenge by the streaming giant to having Germany's film subsidy system apply to them. An update to a German law requires Netflix, and all other online streaming companies, to contribute a portion of the revenue earned by their German services to the country's national subsidy system, the German Federal Film Board (FFA), which funds local film and television production.

German cinemas and television networks already contribute to the fund, but a law, passed in 2014 and approved retrospectively by the European Union in 2016, requires all German streaming services to do so as well.

Netflix challenged the application of the law to them, saying it should not apply as Netflix is not technically a German company (Netflix has its European headquarters in The Netherlands). Netflix took its case to the European court, arguing it could not effectively defend itself in Germany. Netflix fears that if the German law is upheld, they could face different regulations in different countries across Europe. Specifically, Netflix argued Europe's so-called country of origin principle should exempt it from the German law.

The court on Wednesday rejected the suit as inadmissible, dismissing Netflix's argument that it could not find justice in the German system and rejecting the company's country of origin argument. The court did not rule on the legality of the subsidy levy itself, opening up a potential avenue should Netflix decide to challenge the ruling in Germany. Barring that, Netflix must comply with the law and also, retrospectively, pay a portion of its German earnings from 2014 to the present.

The law requires, as of 2017, that German streaming companies contribute 2.5 percent of their revenue to the FFA. Between 2014 and 2016, that figure was between 1.8 and 2.3 percent depending on revenue. As a contributor to the FFA, Netflix will be eligible to apply for production subsidies for its own productions that shoot in Germany.

Netflix's objection to the law did not stop the company from acquiring Mute, Duncan Jones' sci-fi thriller starring Alexander Skarsgard and Paul Rudd, which received more than $1.4 million (1.2 million euros) in German subsidies. The film's production company, Liberty Productions, not Netflix, applied for the subsidies, though Mute was marketed as a “Netflix Original” worldwide.

Netflix also claimed the German law unfairly targeted it as the country's leading streaming service. The court said the law was not designed specifically with Netflix in mind but applied to all streaming services in the country. Netflix does not release specific subscriber numbers in Germany but, according to Cologne-based analytics group Goldmedia, the company is the No. 2 streaming service in the country, with more than 20 percent market share, behind Amazon Prime with 30 percent.

"The Court's decision on this procedural matter is disappointing though not surprising as we knew we first had to clear with the Court whether our case was admissible," Netflix said in a statement. "We will review the full details of the decision when they are made available."