Local content production and acquisition has become a major focus for the big sVoD players as regions around the world start to impose quotas on service providers of all types. As in some other areas such as data compliance with GDPR, the European Union (EU) has set the global tone with its directive approved by the European Parliament in October 2018 to require all video service providers including broadcasters, pay TV operators and social media firms like Facebook, as well as sVoD players, to include at least 30% of EU content within their output.
This is due to come into force on September 19th 2020 and detail will not be provided until the end of 2019, so at present it is unclear whether the 30% rule will be imposed on the basis of time, number of titles or some other measure. Nevertheless, some other significant countries have been moving in the same direction, with Mexico on the verge of imposing the same 30% quota, while the Make it Australian campaign has been gaining groundswell there.
The principle target of quotas and motivation for them are the big SVoD players, which in Europe currently boil down to just two on a pan-continental basis, Netflix and Amazon Prime Video. Comcast is also on their heels in the UK, Ireland, Germany, Austria and Italy following its acquisition of Sky with Now TV well established in those countries. Disney could also emerge as a major force this year following the launch of its global OTT services, coupled with expansion of Hulu when it takes 60% control after completing its $71 billion acquisition of most of Fox’s assets.
Netflix and Amazon both dislike quotas and have lobbied against their introduction, arguing correctly that they are a crude instrument of policy and that direct incentives to local content producers have already been shown to work much better, as in Brazil. But the EU in particular likes to wave its big stick at US invaders and senses that quotas may achieve at least short-term benefits for local content producers and studios.
It is true also that the imposition of quotas to some extent plays into the hands of the big two and dovetails with their strategies. Even in the absence of quotas they knew they must invest increasingly in local production if they wanted to consolidate their position and increase their share of overseas markets.
There is at least some leeway in that the quota is applied on a European wide basis so that it could in theory be met for all countries, say just by producing in France. In practice though, with the multitude of languages, it requires separate investment in a number of key markets.
So, Netflix has declared it will increase the number of European titles it produces by another third during 2019, on top of the 141 projects spread across various countries in 2018, including recommissions. On top of this, Netflix is targeting the European children’s video market following its big rights deal struck with the Roald Dahl Company in November 2018, aiming to produce a ‘Dahl Universe’ of titles in multiple languages. This will feature animated versions of Dahl’s books, which themselves have been translated into 58 languages.
Of course, the EU quota serves as a baseline for competition between the SVoD players given that local broadcasters and operators are already likely to be compliant. The point is that Netflix and Amazon have gained ground in many foreign markets on the back of blockbuster English language content, including more recently their own series such as Netflix’s House of Cards and Amazon’s Bosch. But at the same time, demand for locally made content has increased in many countries, so to gain more subscribers and eyeball time, Amazon and Netflix have ramped up production of local content in the national languages, with some success. Netflix’s Dark, its first German language original series released in December 2017, helped achieve a spike in subs there, following other quite successful international language debuts such as the Italian series Suburra: Blood on Rome in 2017, Brazilian series 3% in 2016, and Mexican series Club de Cuervos in 2015.
Dark highlighted the potential of foreign language production to provide a two-edged sword by feeding back into core markets, with a recent report from Los Angeles-based Parrot Analytics indicating that the series has enjoyed greater global demand than any other European non-English Netflix title. Other Netflix series that have gained significant native and English language audiences include Elite, Narcos and Sacred Games. This, as much as quotas, is driving up Netflix production of non-English originals, which based on current announcements could account for as much as 35% of its production in 2019, more than double the figure for 2018.
This is being driven not just by Europe but also other regions, with the first African title just being produced where its target is MultiChoice, the South African DTH operator whose original productions via the Africa Magic channel are distributed across the whole Sub Saharan region.
Meanwhile, Amazon has also responded strongly with a slightly different approach focused in Europe so far rather more on co-production with national broadcasters, which it views as a major distribution channel. In the UK it has had several co-productions with the BBC, including Brown Good Omens starring David Tennant, as well as with ITV. It has also been working with ProSieben in Germany and Canal Plus in France, with revenues shared irrespective of which partner delivers the content.
However, Amazon is also following Netflix directly with plans for more fully owned originals by setting up a European production hub, probably in Madrid, Spain, where it has been looking at locations. This would then not be far from Netflix’s own inaugural production hub currently under construction in the La Ciudad de la Tele campus in Madrid.
Amazon and Netflix are also locking horns in India, the one major market where local incumbents have resisted their invasion successfully so far. There, Amazon has made the greater inroads but still only has a 5% share of the SVoD market, compared with 1.5% for Netflix, with Hotstar top on almost 70% and SonyLIV second on 12%.
According to some data from consultancy firm Deloitte, Hindi movies account for 43% of the total $2.1 billion annual industry revenue there and Amazon cornered its 5% share by making 70% of its catalogue non-English. At the same time, there is plenty of demand for English content undubbed as that is widely spoken among the country’s middle classes.
Irrespective of quotas and local competition, the big game is between the major SVoD and tech players. Among them, Netflix is in the unique position of being dedicated to video but it is also smaller than Amazon, Google and Apple by a factor of 6 or 7. While these rivals have fingers in other pies, they also have the resources to come in and spend much more heavily, especially Amazon which still seems to be fiddling in video while Netflix burns cash.