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The European Journal
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Gerard Pogorel

Europe facing the challenges of the new global audio-visual landscape

Consumers are examining their personal finances as never before to determine what they can afford to buy and weigh what products and services provide the most value to their household.

The year 2020, tragically affected by the COVID-19 pandemic, sees a transformation of the global audiovisual landscape. Classic free or pay television channels, mostly specific to each country, are complemented and substituted by an increasingly number of services allowing access to audiovisual shows, on demand or by subscription, independent or associated with national television and film industries. New broadcast and streaming services have very significant financial resources.

Abundant financial means allow an international footprint from the outset, both for the shows offered in the catalog and for the technical and marketing channels of distribution. How do streaming services originating from America (Netflix, Amazon, Apple, WarnerMedia, Disney) position themselves with regard to countries with a strong domestic creative focus, often advocating the need for cultural “diversity”. Symmetrically, many countries create great television and cinema in Europe, France, Italy, Germany, Great Britain, Scandinavia, Poland, in Asia, China, South Korea or Taiwan, or in Latin America Brazil or Mexico. They already enjoy international recognition. How can they take advantage of the international extension of communication networks supporting globalized Internet platforms? The scene will now be increasingly global, as powerful actors with global ambitions emerge on all continents.

“Diversity” countries produce works that already have an audience outside their borders. Demand is so strong, in Denmark for example, that the demand for qualified professionals exceeds supply, at a moment when demand is multiplied by digital platforms. The challenge for creators is the channeling of works of diversity to broader audiences. The extent of the catalog of national film and television productions and the marketing resources limit the possibilities of a direct relationship between national operators and international audiences. This raises the crucial question of the relationship of works of cultural diversity with international networks and platforms, most often of American origin.

We meet, in countries of “diversity”, a tangle of devices created over time in a defensive spirit for local productions: quotas, financial aid, various obligations concerning exclusive content or events said to be of “major importance. », as well as mergers and acquisitions restrictions. These measures, whose raison d’être should not be lost, must however be carefully re-examined in the light of the new realities of the digital world. The recent controversy over the definition of “cinema”, initiated by Martin Scorsese, following the debate concerning Rosa at the Oscars, illustrates the potential contribution of platforms to creation. We can already see how the platforms, anxious to attract a local clientele for their international extension, provide welcome financial means for original cultural productions. The international openness and the range of possible agreements between network operators and creative producers, managed with farsightedness, present a historic opportunity for the development of cultural diversity at the international level, for increased opening of markets to different productions.

Alongside the cavalry of blockbusters and their sequels and prequels, diversity today is driven by a plurality of vectors. National streaming services exist or are being created. They play an important national role but enjoy limited access beyond their borders. The integrated quadruple-play offers of telecom operators, with their large markets and significant financial resources, are a powerful support tool for penetration. Even more, the platforms are a privileged vehicle for financing and international expansion. Regulatory distrust of horizontal or vertical integration, such as exclusivity, which could be justified when the range of works and events offered to the audio-visual was limited, is much less so today, as the offer as well as the expectations of the public have widened and diversified. The fulfillment of the digital promises for the countries of diversity, in Europe, in Asia (South Korea, Taiwan), in Latin America (Brazil, Mexico), to name but a few, supposes to carefully re-examine the constraints weighing on the digital economy, in particular those affecting cross-border flows of data, capital and works, and to achieve the synergy of the creations of cultural diversity and large international networks.

Telecommunications and broadcasting industries in Europe have long been segregated in silos, with companies reluctant to integrate across different skill sets and assets. Network operators now offer converged services comprising voice, data and content, the latter being the major growth factor.

The big question for audio-visual actors in Europe will be how to confront and make the most of the worldwide developments to come. Telecommunications and broadcasting industries in Europe have long been segregated in silos, with companies reluctant to integrate across different skill sets and assets. Network operators now offer converged services comprising voice, data and content, the latter being the major growth factor.

In Germany, Deutsche Telekom chose a conservative strategy as a content aggregator rather than an exclusive media rights-holder. It signed deals with other companies, including Netflix and Amazon Prime Video. German broadcasters have made significant investments in high quality content, DT is possibly wary of gaps in management cultures.

Conversely in the UK, BT has pursued a content acquisition strategy. It grabbed the Champions League from Sky, spending £4.8 billion (US$ 6.1 billion) for the rights of the English Premier League, the Champions League and Europa League. It currently spends more than £700 million per year on top-tier international and domestic football. Competition has increased, with e-commerce giant Amazon winning a three-year broadcast package for the Premier League, while Sky would like to use the Champions League to boost its NOW TV streaming service. British broadcasters joint venture BritBox has been pitched as a cheaper additional streaming service for consumers who already subscribe to Netflix, with a focus on providing thousands of hours of archive material and classic box-sets by the two broadcasters. What was launched in 2017 as a platform showcasing the best of British content in the US and Canada, is now Britain’s new weapon in the streaming wars.

A few European-wide initiatives are under way. In 2017, Mediaset agreed to set up a joint trading platform for digital video advertising with European commercial broadcasters TF1 (France) and ProSiebenSat.1 (Germany), establishing in equal shares the European Broadcaster Exchange (EBX). The purpose was to address at scale the demand for pan-European by media agencies planning continent-wide video campaigns. It was the start of a strategic collaboration to drive forward the technological development of online advertising. The joint venture should allow reaching over 250 million people, a critical mass able to face the giants of the global web. With a higher ambition, in September 2019, Mediaset announced the establishment of a European wide media Group, MFE, based in Netherlands, including the Italian and Spain wholly owned TV companies and its stake in Germany based ProsiebenSat1.

After the 2017 Vivendi/Telecom Italia/Mediaset project of a “Netflix of Southern Europe” was put on the back burner, the Vodafone/Liberty deal in May 2018 was a significant catalyst for the sector in Europe, potentially paving the way a consolidation across Europe along this business model. Similar deals involve all European operators, BT, DT, Orange, Altice, Free, Telefonica, etc.

Meanwhile, the European Public Service Broadcasters have also been active, joining forces at national and also European levels. RAI for example teamed up with France Télévisions and German ZDF in an alliance for the co-production of content for the three public television services of Italy, France, and Germany. Franco-German ARTE is asserting its European ambition by offering programs in 6 languages, without copyright limitations in Europe, unlike most other offers.

In France the three largest French broadcasters France TV, M6 and TF1 will operate the joint online-video platform Salto, planned to be launched in 2020. Public-service broadcaster France Télévisions would stop selling shows to Netflix so it can keep exclusivity for its own home-grown equivalent, to keep strong French and also European fiction. France has been a strong proponent of cultural diversity policies, with tax breaks and quotas to incentivize local players, contributing at the beginning to Netflix being a slower burn than in the UK or the Nordics. In theory, not working with Netflix might allow French broadcasters, which back around 75% of audio-visual creation in France, to maintain a strong foothold by having more market leverage. But in the French TV industry, where budgets and revenues have fallen flat, Netflix has been welcomed by producers, and broadcasters for bringing more money to the sector.

The challenge for “diversity” creations is to reach wider audiences. The breadth of the catalogue of national film and television productions and the marketing means limiting the possibilities of a direct relationship between national operators and international audiences.

The economic damage caused by the COVID-19 pandemic is dramatic and is affecting industries heavily. Streaming is among the (few) winning businesses in the global lockdown. Since 2010, the Pay-TV ecosystem has seen nearly a 30% reduction in overall viewing hours and as much as a 60% decline among 12-35-years-old. Pay-TV is the largest recurring discretionary entertainment expense for the average household. This makes it one of the first places families will look when struggling with bills, unemployment, or other financial pressures, especially when they already have Netflix, Amazon Prime, Disney+, and significant free streaming offerings from national broadcasters.

Consumers are examining their personal finances as never before to determine what they can afford to buy and weigh what products and services provide the most value to their household. Household prioritization of paid entertainment services against other household services and product needs will determine if a free trial, promotional offer, or an exclusive piece of content converts to a paid subscription.

The cultural dimension will become increasingly important for Europe in the future: the European creative industries already produce shows that is very popular in each country of origin, with an audience significantly higher than the American ones. Thanks to the Internet and to the new streaming services, potential demand is growing at world level. The new digital world platforms present a unique opportunity for Europe to expand outside their borders.