Just Wait – There’s More to Come

Michael Hedges September 15, 2014 Follow on Twitter

Anticipation is a powerful marketing motivator. Put a little wait-time ahead of a new product or service launch – even a service upgrade – and interest builds, chatter swells and customers ready their cash. Chatter, though, is unpredictable; critics and competitors have hashtags too. Clever marketing people know this and plan carefully.

While some are eagerly awaiting the imminent arrival of subscription video on demand (SVOD) service Netflix to France and Germany as well as Austria, Belgium, Switzerland and Luxembourg, some are biting their nails. It’s the company’s biggest geographic expansion since entering the UK, Ireland and Scandinavia in 2012 followed by the Netherlands in 2013. Market watchers expect video on demand services revenue – ad-supported and subscription – to exceed €7 billion by 2018.

The launch of the Netflix SVOD service – along with anything from the largely American digital supremos - is fraught with complex issues; economic, cultural and emotional, not to forget the political, notably in France. “We don’t want to become a digital colony of global internet giants,” said former French Economy Minister Arnoud Montebourg in May, before being shuffled out of the government. “What’s at stake is our sovereignty itself.”

Preparing for Netflix’ arrival is the French National Center for Cinema and Animation (CNC), a government sponsored support group that provides a wide variety of grants-in-aid from promoting French film heritage and modernizing cinemas to professional training and, of course, production funding. The CNC is funded by a distribution tax largely levied on television broadcasters but extended to video on demand services. “Discretely,” noted Le Figaro (September 6), the CNC extended its taxing authority to providers serving customers in France but domiciled elsewhere. Netflix’ new European headquarters – and tax base – is in Amsterdam.

Former French Minister of Culture and Communication Aurélie Filippetti communicated to the European Commission interest in European-level rules focusing on the destination of audiovisual services rather than origination, which the Organization for Economic Co-operation and Development (OECD) enshrined in a ruling on value added tax (VAT) declarations. That change, effective in 2015, remands foreign companies to declare revenues where services are rendered allowing VAT collection according to national rules, including “French culture-tax obligations.”

French rules also require video on demand (VOD) and subscription video on demand (SVOD) suppliers catalogue 40% French content. But Mme Filippetti and M Montebourg were dismissed at the end of August in a clear effort to make the government more business-friendly. Mme Filippetti was replaced by Fleur Pellerin, digital economy minister delegate before an earlier government shake-up. Heading the French Culture Ministry, Mme Pellerin must defend the audiovisual sector from perceived encroachment from Google, Apple, Microsoft, Amazon and now Netflix and without “tuer la poule aux oeufs d'or.” She’s expressed interest in a “win-win dialogue between France and Netflix.”

About a decade ago Apple introduced the iTunes online music store and the iPod music player in Europe. Digital commerce was set alight. Within two years the respective iTunes and iPod market shares in Europe exceeded 50%. The music industry predicted the end of the world and lobbied politicians to save them. The world changed but did not end.

The Netflix brand strength, not unlike Apple, is part technology, part marketing and part content. The company sold plenty of DVDs and subscriptions in the US, getting the attention of the financial kingdom and other online retailers. Acquiring exclusive rights to big film catalogues was followed, quite conspicuously, by commissioning original productions. The success of House of Cards, Lilyhammer and Orange Is The New Black raised the bar for video on demand services if not the whole television business. Warner Television, part of Time Warner, sold Netflix the global subscription video on demand (SVOD) rights for the highly anticipated Batman prequel Gotham. 

Readiness to offer original – and exclusive – content has become emblematic of the Netflix brand. A political drama series in eight episodes created by French screenwriter Dan Franck and producer Pascal Breton titled Marseilles will soon enter production for late 2015 viewing. “Netflix has given us a blank page to create a 'House of Cards' in French that breaks through unspoken hypocrisy,” said Dan Franck, quoted by AFP (September 1).

French animated adventure-fantasy series Wakfu, created around a popular video game, is set to join the global Netflix catalogue. Netflix CEO Reed Hastings’ goal for the company’s French business is 30% market penetration within five years and he’s promised a German-language original series “soon” while acquiring rights to a few existing German-language shows. Mr. Hastings’ strategy for introducing Netflix to more European territory is to keep expectations from carrying the day.

Trade issues are, of course, a two-way street. French film and TV producers would certainly like more space for their works on VOD services in other countries, including the United States. “Getting more French films on VOD platforms is a big big push for us,” said Unifrance executive director Isabelle Giordano to Screen Daily (September 7). “We are in discussions with CNC and the French government about this.” Unifrance promotes an international presence for the French film industry and receives CNC funding.

The Netflix greatest hits will – mostly – be available with dubbed German and French, including Orange Is The New Black and Fargo. French pay-TV operator Canal+ offered the first two seasons of House of Cards and, surprise, announced last week signing for season three, ready for broadcast in March on its CanalPlay SVOD service. Netflix will offer cult favorite crime drama Dexter in France, pealing it away from Canal+, after acquiring international rights to all eight seasons from CBS. CanalPlay has always been high risk for Canal+; its main revenue stream being pay-TV.

Not overcome in France is the rather significant problem of internet access. No French internet service provider (ISP) has agreed to put Netflix on their IPTV boxes, leaving customers to find the service on personal computers, game boxes and mobile devices. “No operator wants to be a Trojan Horse for Netflix,” said an anonymous telecom source to AFP (September 12). Netflix has ordered one terabit of bandwidth from the Paris internet backbone.

Unlike the auspicious iTunes and iPod launches in Europe, Netflix faces competitors “well prepared” in the lessons of the last decade, noted German news agency DPA (September 10). European-based online music stores in 2004 were rudimentary, in line with available technology and, arguably, interest in digital economics. There are at least three thousand on-demand TV suppliers in Europe, reported the European Audiovisual Observatory in July. French TV watchers can choose from among 241 providers, half from outside France. Add one more: Japan’s Rakuten launched its Wuaki.tv VOD service in France just a week before the Netflix arrival.

Media and tech watchers in German-speaking countries have been no less interested than the French of Netflix’ arrival, enthusiastic mostly about price competition. “The conventional television market could be completely in ruins,” offered Die Welt (September 14). Price sensitivity in Germany for media services significant; the compulsory household public broadcasting license fee is just under €18 per month, setting a tough threshold.

ProSiebenSat1. Media Group has offered VOD service Maxdome since 2006. A week prior to the Netflix launch in Germany a redesigned Maxdome website appeared along new pricing plans, 80 new shows and a new ad campaign that riffs on the word “max.” In August Sky Deutschland, owned by 21st Century Fox and a spoke in its pay-TV wheel of fortune Sky Europe, cut monthly rates for its SVOD service Snap to roughly half that of Netflix. Rates for Amazon’s Fire TV service were also slashed.

Serious TV fans, regardless of geography, flock to well-known – and well-reported - series and movies. These folks know all the acclaimed shows from House of Cards to Downton Abbey and want to see them now. They binge-watch. They pay.  

“Many series’ fans favor the original language now that speed is more important than dubbing,” observed Austrian newspaper Die Presse (September 6). Subtitling original language movies and TV shows is common though viewers always prefer dialogue dubbed into their preferred language. Producers need weeks or months to create separate audio tracks.

Austrian and Swiss VOD fans also have Sky Deutschland; Maxdome, Amazon’s Fire TV and Vivendi’s Watchever. Austrian public broadcaster ORF offers the Filmmit VOD service as well as linear online TV portal TVthek. Filmmit offers mostly Austrian productions while TVthek shows international series and films, sixty new ones just announced.

Telecom giant Swisscom offers TeleKlub, mostly movies, and said it could bundle VOD service at a flat-rate to customers by the end of the year. Swiss cable TV operator Cablecom jumped into the VOD business at the first of September with MyPrime, initially with two thousand titles and at no charge to existing customers. Bit by the bug of original content Cablecom is producing a Swiss-German sitcom - Fässler-Kunz – to debut all eight episodes at once in December. Binge-watching is coming to Switzerland.

“The fact that UPC Cablecom launches this new service so quickly before the launch of Netflix in Switzerland testifies to a certain fear of the American service,” said consumer watchdog Comparis technology expert Ralf Beyeler, quoted by 20min.ch (September 3). Swiss watchmakers largely shrugged when Apple CEO Tim Cook rolled out the Apple Watch last week along with yet another iPhone. What he failed to mention was the end of the iPod Classic, silently removed from the catalogue. He did say the company is working on projects “that haven’t been rumored yet.”

Anticipation keeps them on the edge of their chairs.

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