As the first mover in becoming a fully global SVOD direct-to-consumer distributor of video, Netflix is facing head-on the challenges posed by multi-regional distribution. These fall into two broad categories: licensing content on a global basis, and conforming to regional content distribution rules. Both pose huge challenges.
Regional Content Distribution Rules
Of the two, complying with all the local regulations regarding the distribution of video could be the most challenging. Netflix, when it launched globally in January, decided not to make any initial accommodations to the additional 100 or so countries it immediately became available in. This quickly led to a ban by Telekomikasi Indonesia, a partly State owned company in Indonesia, and illustrates how Netflix will need to thread the needle of regulations in every region it is now available.
Indonesian law requires that video providers have their content reviewed by the Indonesia Censorship Agency. Licensing laws require that traditional television companies be owned by a legal entity in the country, have an Indonesian partner, or apply to the State ministry for a special license. Netflix, of course, says it is not a television company, but Indonesian authorities are working to reclassify Internet providers as television providers.
Netflix is struggling with a different issue in Europe. Many countries have quotas for the amount of local content a video service provider must offer. The European Commission is seeking to unify this practice across member states in the Audiovisual Media Services Directive (AMSD,) and could end up requiring 20 percent of Netflix content be European. Needless to say, Netflix is not happy about this. Joris Evers, Head of Netflix European Communications, said:
“We appreciate the Commission’s objective to have European production flourish, however the proposed measures won’t actually achieve that.”
Any company wishing to deliver content direct-to-consumer around the world, as Netflix is doing will have to deal with the three issues highlighted here: decency laws, media distributor ownership requirements, and local content licensing rules.
Obtaining global, rather than regional, licenses to content continues to be a challenge for Netflix, but of the two issues discussed this seems the least threatening to international success. In the last quarterly earnings call, Ted Sarandos, the company’s head of content, commented:
“Every new dollar we spend is for global content and global rights. So when you see a show come on Netflix it will be available everywhere.”
The company is approaching this two ways:
- Negotiating for global rights from content owners for the shows and movies it seeks to license
- Getting global distribution rights to content it produces.
A great example of how the company is doing both these at once is how it went about getting the rights to a Danish show produced by TV2. Rita, a drama-comedy about a politically incorrect teacher, used public funding to finance the production of the first two seasons, but this typically is not given for shows entering their third season. Netflix stepped in to co-fund and produce the show. The way distribution is now handled for Rita is that TV2 retains rights to the linear run, and to digital stacking and seven-day catch-up during that run. Once the linear run is over there is a hold back period after which Netflix can launch season 3 of the show worldwide. However, in the Nordics Rita continues to be branded by TV2, while everywhere else it is branded a “Netflix Original.”
Netflix still has a long way to go with Hollywood on this issue, but the deal with TV2 clearly shows it is making good progress.
As Amazon, HBO, and others move to emulate Netflix’ global approach, they will have to think very hard about their strategy toward regional content distribution rules and global licensing. In particular, waiting and watching how Netflix overcomes the regional challenges could be the smartest move they can make.
Why it matters
Any company entering the global direct-to-consumer SVOD market with have to deal with two huge content related issues.
Complying with regional content distribution rules will be extremely challenging in the long term.
Obtaining global licenses to content will be a short term challenge, but it will likely ease over time by adopting similar tactics to Netflix.