Streaming services such as Netflix, Amazon Prime Video and Apple TV Plus will soon be forced to play a more significant role in the financing of European content when the Audiovisual Media Services Directive officially kicks off on Jan. 1.

While each of the European Union’s member states is in the process of exploring ways to adapt the directive — which requires streamers to allocate at least 30% of their catalogues to local programming — France is leading the charge, powered by a task force of representatives from the producers and directors guilds, along with the National Film Board (CNC) and the Directorate-General for Media and Culture Industries (DGMIC). A draft of the decree was submitted to the French government around 10 days ago and a final decision is expected in early December.

Defining the contours of the decree has been a balancing act for the task force and the French orgs whose goal has been to craft strong enough incentives to get streamers on board and willing to rejig their investment and acquisitions model, but at the same time preserve the foundation of the French film industry and the diversity of its independent production sector.

Once greenlit by the government, the decree will need to be approved by the Council of State and the CSA (broadcasting authorities). Platforms will then be expected to sign agreements with the CSA and industry guilds.

France is one of Netflix’s key European markets. The streaming service boasts nearly 9 million subscribers within its borders, and launched a fully-staffed Paris office in January. The company also recently chose France to trial its first linear channel.

“This transposition of the directive and the new obligations of platforms will be decisive for the legacy of France President Emmanuel Macron’s mandate,” said Marc Missonnier (“Little Nicholas,” “Mirage,” “Cheyenne et Lola”), a leading French producer who is a key member of the task force.

“Why is it historical? Because professionals are so enthusiastic about the arrival of platforms, and it’s important that as [platforms] continue growing, they take part in a system that took decades to build,” said Missonnier.

The core principle of the system, explained Missonnier, is that “those who broadcast or distribute content in France should pre-finance this content and guarantee some cultural diversity, as well as some independence, so that those who produce and those who broadcast or distribute aren’t always the same.”

The draft decree proposes for the streamers three separate local investment rates of 20%, 22.5% or 25% of their annual turnover, which would be reinvested in local film and TV. For instance, if Netflix has a turnover of $951 million (€800 million) in France, and it decides to invest 20% of that turnover, it will be required to invest €160 million in content in France. The exact split between investment in films versus TV will be set by the CSA after the decree’s publication.

If the streamer hopes to receive a stronger release window to broadcast and distribute films sooner, its corresponding investment will also need to be greater.

Based on the draft decree, if a service chooses the lower investment rate of 20%, it will have the least advantageous release window and can only hold the French rights to movies.

However, if services invest 22.5% and 25% of turnover, they can obtain world rights to the content (and pay accordingly for the privilege). Currently, the release window for all subscription-based services is 36 months, but the decree says that window will be brought down to between 13 and 25 months for an investment of 22.5%, and under 13 months for an investment of 25%.

International sales agents and distributors who aren’t part of the task force are finding the possibility of handing world rights to streamers to be highly problematic for their respective business models.

“It’s a huge mistake to give platforms access to world rights in exchange for a percentage of investment; it will be very detrimental to the breadth and diversity of the independent film industry,” said Emilie Georges at Memento Films International, which has handled “Call Me By Your Name,” “A Separation” and “My Salinger Year.”

“Even if Netflix’s window for the whole world is set at 12 months on these movies, we won’t be able to sell residual rights to these films around the world, sell them to individual distributors or TV channels who refuse to take films that will be on Netflix, or even show them to festivals because many of them are reluctant to take Netflix movies,” said Georges.

Missonnier said sales agents and distributors would be protected to some extent because only French rights are taken into account as part of the investment obligation of streaming services, and can’t represent more than 75% of the acquisition price. He says this 75% cap on French rights will ensure that Netflix doesn’t get a bargain for world rights on movies.

But Georges said this calculation is incongruous to the market reality.

“Of course if you make a French comedy whose primary market is France, international rights may not be worth more than 25% of an acquisition price, but for director-driven, prestige festival movies, the world rights are often worth more than the French rights,” added the executive, citing Celine Sciamma whose latest film, “Portrait of a Lady on Fire,” sold more tickets internationally than in France.

Streamers will also have to work with local distributors in France on movies. Although the investment percentage applies to both films and TV content, the decree has different obligations for TV and cinema. As such, movies backed by streamers will have to be released in theaters in France because “based on the French law, the theatrical release is the difference between [television content] and a film,” said Missonnier.

Another key aspect of the directive is the percentage of independent production that platforms must commit to. The decree says independent production must represent 75% of the streamers’ investment in France, in line with traditional players. The platforms will be able to pre-buy those independently-produced films — but not co-produce them — and will have rights for a duration of 12 months.

With regards to TV series, independent productions will need to form at least 66% of titles, and platforms will have broadcasting rights for a duration of 36 months. For in-house productions, Netflix will have global rights to shows they fully finance.

If any platform’s slate includes at least 10 movies, that service will also have to contribute to the financing of films. The decree says platforms will be able to produce in-house and won’t have to work with local producers on these films — another problematic point for local producers guilds, who strongly object to the provision.

The task force has met with executives from Netflix, Amazon Prime Video and Disney as part of the ongoing talks. “We’re discussing, but it’s not negotiation. If platforms don’t agree with the decree, notably because they are not headquartered in France, it will [still] apply to them because it’s a decree,” said Missonnier.

The decree’s obligations are calculated based on annual turnover. Missonnier said the government will determine how to calculate accordingly for hybrid services like Apple and Amazon since their turnover isn’t only linked to movies and television content.

Meanwhile, Netflix will start declaring its revenues from France to the local tax administration starting in January, according to Capital. Since launching in France in September 2014, Netflix declared its French revenues to the administration in Amsterdam where its European headquarters are located. The streaming giant is applying the same model in Spain, it said earlier this week.

https://variety.com/2020/film/global/eu-directive-streamers-local-content-netflix-amazon-france-1234839918/