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TV Stations, Don’t Pig Out on Netflix’s European Cash
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TV Stations, Don’t Pig Out on Netflix’s European Cash

Publié par
BNN Bloomberg
le
07 janvier 2019

Opinion piece says that if European broadcasters are smart about it, they can milk the video-on-demand giants’ needs for local content to fund the development of their own competing platforms.

It’s a conundrum confronting broadcasters across Europe: with television ad sales in structural decline, just how do they weather the Netflix Inc. and Amazon.com Inc. storm?

There might just be a way for the likes of ProSiebenSat.1 Media SE and Television Francaise 1 to use new European Union rules to their advantage. If they’re smart about it, they can milk the video-on-demand giants’ needs for local content to fund the development of their own competing platforms.

An EU directive comes into effect on Monday which stipulates that 30 percent of video content available through on-demand platforms must be locally produced. Member states now have 21 months to pass the rules into national legislation. There’s no such quota currently.

The opportunity lies in the way the directive defines “local.” It doesn’t mean that Netflix’s German offering, for instance, must have 30 percent of its shows made in Germany. Rather, the content can originate anywhere in the EU — and the VOD platforms will have to find it from somewhere. Although Netflix is expanding its European production capabilities (it established a production hub in Madrid last year), it will be forced to lean to a great extent on existing local studios. That means that the broadcasters with captive studio arms can sell shows to the Americans.

The European firms must, however, be disciplined about exactly what they decide to sell. While ITV Plc may not be in the EU for much longer given Brexit, the way it has sold some shows serves as a good model. Its lavish adaptation of Vanity Fair is a co-production with Amazon Studios. The British broadcaster retains the domestic distribution rights, while Amazon holds them internationally.

That’s the right approach — it helps satisfy Amazon’s need for locally produced content, while also plumping up the coffers of ITV’s growing studios business. Crucially, it ensures that ITV, for whom a proprietary video-on-demand platform is a tenet of Chief Executive Officer Carolyn McCall’s strategy, doesn’t sacrifice an important advantage in its home market by offering up a flagship show for a short-term boost.

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The investment in video-on-demand platforms will reduce free cash flow for Europe’s biggest broadcasters for the next seven years before they start to be accretive, Morgan Stanley analysts including Omar Sheikh estimate. If the European firms refuse to sell the domestic rights to their best shows to the tech newcomers, they may be better able to offset those costs without creating unnecessary competition. This can also foster their key edge: broadcasters say their long experience studying the viewing habits of their domestic audiences improves decision making on local programming requirements.

It will nonetheless be a tough few years for the ProSiebens, RTLs and TF1s of the region. Television advertising revenue looks unlikely to improve — and Brexit is sure to make this worse. The studios business, while growing, is less profitable than advertising.

But there is a way for broadcasters to navigate the shift in viewing behavior in a way that lets them exploit the deep pockets of the American arrivistes to fund their own plans: sell international rights for key shows, but make sure they retain the crown jewels for their competing domestic on-demand platforms.

© BNN Bloomberg

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