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Why Netflix Would Face Resistance Breaking Into France

The market reportedly ripe for the streaming service’s next invasion boasts huge barriers to entry

A nation packed with cinephiles and avid consumers of U.S. drama imports, France seems like a natural fit for a service like Netflix. But it won’t be easy for the subscription VOD service to crack this country.

There have been several reports in recent months claiming that Netflix will make Gaul its next overseas market as early as next year. The streaming service, which declined comment, has yet to signal its next move, though expectations are high that expansion of some sort is coming soon — after just a single country, the Netherlands, was added in 2013.

The 8 million subs Netflix has amassed in 40 overseas countries to date have been achieved with varying degrees of difficulty from market to market, but France could prove the toughest test yet if the company dares go there.

As part of the drafting of a new antipiracy law, the French entertainment biz has been embroiled in negotiations for months to tweak the sequence of rights windows in which movies are released. Gaul’s current windows, Europe’s strictest, include an SVOD window — the one in which Netflix typically gets movies — at 36 months after theatrical bow; a compromise to cut that span in half is being negotiated.

Many TV channels and theatrical exhibitors defend the status quo, claiming that a shift would mean the downfall of the nation’s film financing system, and benefit mostly multiterritory platforms like Netflix. The French system protects a mix of subsidies generated by taxes on movies’ theatrical receipts, among other film-related sales, as well as investments from free-to-air and pay TV channels.

Netflix could, however, still thrive in France even if the SVOD window remains at 36 months, because the company is focusing more and more on original TV series including “House of Cards.” But a lengthy SVOD window would impact its stock of library titles.

That protectionist framework, part of Gaul’s so-called cultural exception, isn’t the only issue that has made France problematic for Netflix. Investment quotas and higher taxes are some of the other drawbacks the platform may face in the nation.

Most French industryites — from film guilds to lawmakers and VOD services — are pushing hard to have multiterritory digital companies that are headquartered abroad and distribute content in France comply with the same investment quotas and taxes as local players.

Since January 2011, French SVOD services must allocate 21% of their annual revenues toward investment in local and European films via pre-buys and co-productions. They also have to pay a value-added tax of 19.6% on VOD sales.

Gallic bizzers have been outraged that iTunes and Google, which distribute content in France and account for a big chunk of the country’s digital sales, pay a mere 7% VAT because they’re not France-based.

Add that to the costs incurred by American companies to dub U.S.-originated content into French, and in licensing a higher proportion of local content to add to the SVOD mix.

While Netflix weights its options, French pay TV groups Canal Plus and Orange Cinema Series have had plenty of time to anticipate its launch, strengthening their respective SVOD platforms.

“We’re confident because we boast a competitive edge in terms of distribution and content with premium series (via our partnership with HBO) and French programming,” states Sebastien Goales, VP of communications for Orange’s content division.

Manuel Alduy, head of Canal Plus’ film division, believes Netflix will find that the French market is already well served. “In the U.S., Netflix pioneered on-demand TV and filled a gap left by networks that weren’t showing films,” he said. “In France, however, audiences already have access to a plethora of films and series on TV and VOD.”

But Screen Digest analyst Richard Broughton notes that what seemed like similar obstacles in other markets proved surmountable. “IPTV didn’t prevent Netflix from achieving a strong start in the Netherlands and Sweden, two markets with a very high pay-TV penetration levels and advanced on-demand services,” he said.

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