Europe’s strategy on movies – embedded in the past, pro Netflix – dumb

Mariya Gabriel, European Commissioner for the Digital Economy and Society, gave a speech this week at the Berlin Film Festival about the future of making movies in Europe. As befits someone so young (a full Commissioner at 37) her aims are noble and altruistic, if somewhat protectionist, but the law of unintended consequences is almost certain to show its hand.

Her rambling reverential speech about the beauty of film, touched on the cold war (she was in Berlin after all) and then on she went to the current economic climate (positive) – focusing on media’s role in strengthening competition and its openness shining a light on intolerance, inequality and racism – which was high praise indeed for an industry currently known for being rife with sexual predators – the only thing the movie industry has been in the new for, of late.

She said Europe cannot overcome society’s challenges without rich, free and diverse film production and promptly revealed plans to create a search engine which would only find European made films, and only those which are available online in Europe. The move would be to encourage watching European films, rather than US or non-EU films. We have been here before when Europe tried to take on Google with its own search engine – What happened to that particular experiment, we wonder?

Her contribution so far has been to preside over a €1.46 billion budget since her appointment last July, which spends about 31% of the cash on insuring creative ventures, 13% of it supporting cross border co-operation and 56% or some €774 million, supporting the distribution of European films overseas.

We are almost tempted to say that there is already a search engine that finds all the available films, and it’s called Netflix and it spends even more than the European Union on supporting local content. But that would be trite, and it’s not quite accurate.

The idea is to have this search engine ready by the end of 2018 mostly to allow professionals to identify the countries in which the films are being seen and where they are accessible and to put pressure on other European countries to offer them. Later that search engine might be available to the public.

Other initiatives include creating a European Film Week in schools throughout Europe, setting up VR demonstrations, get mentoring for young movie talent, and create a new financial instrument, to bring both public and private cash to movie projects – based around financial guarantees which she already controls with part of the fund. Her last idea is to get Europeans to cooperate on movies.

As she got into her stride she talked about copyright modernization (which let’s face it is not going to happen as it’s been on the agender for a decade and nothing much has changed) and wants to support rights holders in their negotiations with online platforms – basically to prevent unauthorized distribution on digital platforms – all very laudable.

She kept the big guns until last and promised that the amendments to the Audiovisual Media Services Directive, will be pushed through, and we all know that in here is the proposal that VoD libraries, in particular US-owned SVoD libraries, will have to have 30% of their content made in Europe. It has other things in it like better protection of minors, but fundamentally it is a protectionist strategy, like the one adopted in France, which has totally failed to protect the industry in France.

Gabriel then quoted Albert Camus (a great writer – though Algerian and claimed by the French, not European, who never made a film) and everybody cheered.

At Faultline we have long lost confidence in changes promised by the European Commission – it may be forgotten that in 2011 the patents systems was up for a shake up, bringing in software only patents into Europe and a unified EU patent Office. There remains an EU Patent Office, but it does not provide patents across Europe as each country voted to keep their own patent process and Parliament voted down the software patent amendments. Something similar happened on Copyright reform, and this also harks back to around 2011. The inimitable Michel Barnier who is currently conducting Brexit negotiations with the UK was one of the Commissioners back then who misjudged the mood of politicians, which wanted to make Copyright an EU wide thing, killing off Geo-blocking.

That came up again when Sky in the UK wanted to use its existing rights to service UK customers when they were on holiday in Spain or other countries in Europe, and at the time the Commission brought in Hollywood studios to tell them about the new reality, but the European Parliament once again watered down the reforms at the last minute – requiring just news programming to be distributed in this way, not movies. So no real change.

So for at least 8 years the Commission has wanted to create a European wide content industry and has embraced this by fiddling with copyright law and content rights regulation. And yet in 5 years Netflix has done more for European content rights by exporting content like Dark from Germany and Subarra from Italy, than all these well meaning and poorly considered interventions by the state.

And all of the good has come out of the marketplace – not out of regulation.

Here’s the deal – it costs roughly 52% of what it takes to create high quality video in the US, to instead create it in Italy. Netflix has the global skills to take stories which are crafted in Italy, with Italian actors and ensure that the production values are those of a US film. Will that qualify as a European film? We imagine so.

In the UK and Germany this cost is closer to 80% pf what the US spends and in France it is around 65%. These four European countries plus Spain are where Netflix has chosen to spend much of its content money that it spends in Europe. This has two distinct effects – it makes Netflix a “good European” a status which will not be enjoyed by its rivals for some time, and it allows Netflix to create more content for the same money as its rivals. As much as we love Netflix, a good regulator does not want to prolong its advantages and instead wants to allow locals and if not, then other rivals, to catch up fast.

At present if you are a European production company and you are really, really good, you go and bang on the door of Netflix, and if you are a bit behind the times, you knock, cap in hand, at Mariya Gabriel’s door.

Every country dreams of being able to create content like Hollywood, but the scale and profitability of Hollywood, with its “big studio” distribution chains, can shove average content down the throats of cinema chains and European TV companies. The deal is straight forward – if you want our good content, take our not so good content too, or have neither.

In the past century the total global box office takings of Hollywood has been $505 billion – and box offices accounts for some 25% to 35% of total takings. By comparison the stalwarts of Europe are the UK, France, Germany and Italy – who have taken between them some $68 billion in box office revenues over the years (figures from The Numbers, owned by Nash Information). That is all of Europe, even including the golden age of films, made up around 13% of what Hollywood has contributed. It makes a lot less right now.

But what is changing is the way movies come to market and where they are produced, simply because Netflix needs to attract local content. It then takes that content and gets it a bigger audience by distributing its content across its entire reach. This means that it is financially advantageous to make some content everywhere – so some percentage of $6 billion, rising to $8 billion, the Netflix content budget – has to be spent in Europe.

The unintended consequences of the European Commission action is likely to be that weaker content businesses will be supported at the expense of stronger content businesses, with the EU typically supporting “lame-duck” incumbents. The outcome of the piece of legislation raising SVoD services to 30% of locally produced content will be that Netflix will meeting this quota, but neither Hulu (hoping to arrive here) or Amazon (already here) will be able to match it, starting as they are from zero, and the same will happen to any Disney produced SVoD service that comes out down the line in 2019.

But it is also possible that local services like Magine, Zattoo, Teleboy and Videofutur will fail to meet the local produce requirements, reliant as they are on US content – with the result being that only Netflix, by dint of timing, will be the only SVoD operating in Europe that meets the criteria, along with some AVoD channels from local broadcasters (Many of these will not make it either made up of non-EU produced content). It might be that Magine et al will be abot to adjust their offerings quite rapidly to qualify. Not so TV channels.

The search engine will then end up as a monopoly for Netflix and, and promote the precise thing Mariya Gabriel was hoping to repel.