Everyone is aware of the impact Netflix has had on the television and film industry, particularly in the last couple of years. With the release of their own original films such as ‘Roma’, which won three Oscars earlier this year, and their own successful original TV shows such as Stranger Things, Netflix is ascendant in both arms of the industry. Their recent original film Birdbox was viewed by around 45 million accounts in the first weekend, which would far surpass any box office equivalent, although Netflix has only recently started releasing figures and there is no way to verify them. Now boasting 137 million subscribers, 33% of US viewers have actually ‘cut the cord’ of their cable TV entirely, in favour of OTT platforms. No longer is Netflix simply a streaming service there to distribute third party content, but in 2018 alone they invested $12 billion into their own original content, which makes up 85% of the shows on their streaming service. These unprecedented levels of investment have made it difficult for traditional competitors to keep up with Netflix, however this could be about to change. With industry norms and long-established precedent being turned on its head, a few significant names in the industry are now emerging as potential competitors to give Netflix a run for their money. Here we look at the new UK and EU competitors and how these industry disruptions are affecting the industry legally.
Potential UK competitors:
- Disney’s Disney+
2019 has already been a busy year for Disney with their $71 billion acquisition of 21st Century Fox having closed in New York last month. We will now also see the release of Disney’s new streaming service Disney+ towards the end of this year. The new direct-to-consumer streaming service could position itself as an emerging rival to Netflix. Disney has announced plans for a second Star Wars live-action series and extensions on the Monsters Inc. and High School Musical stories which will all be released directly onto the Disney+ platform. A live-action reboot of Lady and the Tramp will also head straight to Disney+ as an exclusive, along with other original titles creating key selling points for Disney+. This platform release will see a significant change in Disney’s business model as they begin to cancel their licensing agreements with Netflix, seeing them forfeit around $300 million a year in licensing fees and starting to focus on their own exclusive services. Disney’s CEO, Bob Iger, has said however that their strategy may differ from Netflix’s somewhat as they’ll “not necessarily be in the volume game, but be in the quality game”. Although Iger has said Disney’s focus will be ‘quality not quantity’, they are already outlining a long list of original content that new subscribers can expect. Disney+’s content will differ significantly from much of Netflix’s more adult content.
- BBC Worldwide and ITV’s BritBox
At the end of February, BBC Studios and ITV announced their new joint venture for 2019 with the launch of BritBox, a new paid-for streaming service to stand as a further rival to Netflix. With an expected release date towards the end of 2019, ITV has said the new platform will be offering an “unrivalled collection of British boxsets and original series” including original content created by British production companies, commissioned specifically for BritBox. The service is currently available in the US under the same name and already has over half a million subscribers. It has been claimed the new British service will not be identical to its North American sister-platform and ITV’s CEO, Carol McCall, has said it “will be the home for the best of British creativity – celebrating the best of the past, the best of today and investing in new British originated content in the future”. ITV has plans to invest £25 million in 2019 and a further £40 million in 2020. Similar to Disney, the release of this new platform will likely see the end of existing licensing deals to services such as Netflix in favour of exclusive content on the content owners’ platform. McCall has argued, however, BritBox is “complementary to Netflix because it’s doing a very different thing”.
- Apple TV+
On 25 March 2019, Apple announced the launch of its own streaming service, Apple TV+. Celebrities including Steven Spielberg, Oprah Winfrey, Reese Witherspoon and Jennifer Aniston were all involved in the highly publicised release in California. However, Apple has “only” spent a reported $1 billion on original content, a figure dwarfed by the spending figure of Netflix. Apple TV+ may not be offering anything revolutionary yet, however it will mean Apple will now be providing TV, payment, news, gaming and music services all in the same place, creating a comprehensive media platform. BritBox will be available to watch on the service, whereas Netflix chose not to be involved. It is too early to tell where this service is going to sit in the crowded streaming market.
- Amazon’s Prime Video
Amazon Prime Video is arguably Netflix’s biggest direct competitor. Although Amazon’s business model is different to Netflix’s, with one of their primary aims being to encourage viewers to purchase goods from their shopping site, they aspire to be just as successful as a video streaming service. It has been reported that Amazon has started spending similar figures to Netflix with an estimated annual commitment of around $5 billion in original content. Amazon’s CFO, Brian Olsavsky said he expects Amazon’s spend to “increase even further in 2019”, highlighting their 10 Golden Globe and 3 Oscar nominations already received. With Amazon’s growing focus on big-budget original shows and sports rights, they continue to be another serious competitor.
What about the rest of Europe?
1. Germany
In Germany, Amazon has established itself in the market with aggressive consumer prices. As a result, it has nearly twice as many subscribers as its nearest rival, Netflix. Providers of traditional European TV channels (such as RTL/Bertelsmann, ProSiebenSat.1, SBS) are likely try to create an open “marketplace”-style platform where they can offer their content. This would provide an opposing model to Amazon and Netflix, enabling a range of channels and production companies to seek direct market access. Traditional linear TV remains important, but in Germany “TV” is mainly advertising-financed, and Netflix’s and Amazon’s subscriber-based business models look likely to eclipse traditional TV in the long run.
Contribution by Simon Assion.
- Italy
According to the Italian Communications Guarantee (AGCOM), Netflix is only part of the 5% market share of ‘other operators’ in the pay-TV market. Sky is the market leader with around 77% of the market share in 2017. In 2018, Sky On Demand and Netflix announced a partnership under which Sky will become a partner of Netflix, rather than a competitor. The two companies will offer a specific entertainment TV package entitled “SkyQ”, combining Netflix’s service with Sky’s programming. Existing Netflix customers can also choose to migrate their account to the new Sky TV package, or access the Netflix app using existing account details. Mr. Andrea Zappia, chief executive officer of Sky, denied that the arrival of Netflix should be considered as a revolution or innovation on the Italian market, on the contrary considering the Californian giant as an “old” proposal.
Chili is another competitor, founded in June 2012 in Milan as a transactional platform that allows customers to watch on-demand movies and TV series. Unlike Netflix’s subscription model, Chili allows users to rent or individually purchase titles. The arrival of Netflix was viewed optimistically by the previous chief executive officer of Chili, Mr. Stefano Parisi, who considered it as causing movement in the market towards video on demand.
Another entrant in the video-on-demand market is Mediaset Group’s “Mediaset Premium” offering. Launched in 2013, their “Infinity” channel represents an innovative offering of movies and TV series on-demand. The most distinctive feature of Infinity, however, is the so-called “Premiere”, namely first window movies that the network makes available to its subscribers every Friday for a limited time (usually a week). In order to compete with Netflix, Mediaset has operated two main strategies: to cut the price of subscription and by buying IP rights in various content.
For Gian Marco Rinaldi‘s full article on the Italian streaming market, see here.
- The Netherlands
Netflix is by far the largest player on the streaming market in The Netherlands, holding a 75% share. The Dutch subscription based streaming platform “Videoland” comes in second with a 12% share. Owned by RTL Nederland, a subsidiary of Luxembourg based RTL Group, Videoland offers “thousands of films and series from home and abroad” but is particularly known for self-produced Dutch series like Black Tulip (Zwarte Tulp), Suspects and Mocro Maffia. Sven Sauvé, CEO of RTL Nederland, has said that “Videoland is growing faster than ever. And so it needs to, because not only do we want to be the market leader on TV, we also want to be the local number one in video on demand.” In September 2018 Videoland recorded year-on-year paid subscriber growth of 119%. Total subscriber viewing time also increased by 245% in the first nine months of 2018. Videoland’s strong growth was primarily driven by local original content shows such as the reality format Temptation Island VIPs, which were exclusively available on the subscription video-on-demand service.
Contribution by Thijs van den Heuvel.
- Poland
There is not yet a single major competitor in Poland emerging to rival Netflix; however the market is split into three groups of service providers. Firstly, there are the other services offering similar subscription-based business models such as HBO GO. Secondly, there are VOD services owned by TV stations or other media outlets such as VOD.pl which mostly offer content for free with adverts or on a pay per view basis. Finally there are illegal VOD sites such as CDA.pl offering pirated films uploaded by users, which are designed to make use of the hosting exemption to copyright infringement. It will be interesting to see how the new Copyright Directive affects these kinds of sites going forward and if the appetite will increase in the market for Netflix alternatives.
Contribution by Michal Salajczyk.
Competition law
With all of this disruption in the industry, what are some of the legal implications arising?
- Changes to views on competition
There has been a significant movement of the competition law position in the UK with the launch of BritBox. BritBox comes ten years after the Competition Commission blocked a proposal for a similar multi-channel British streaming service, Project Kangaroo. In 2009, the chairman of the Competition Commission, Peter Freeman, considered the joint venture between ITV, BBC Worldwide and Channel 4 “too much of a threat to competition in this developing market and has to be stopped”. In contrast, however, this year Ofcom has encouraged the release of BritBox, arguing it will allow broadcasters to “keep pace with global players”.
In Germany attempts by channel providers to collaborate, similar to that of Project Kangaroo, have been prohibited by the German competition authority (Bundeskartellamt). These prohibitions were also due to contract clauses that breached Article 101 TFEU (cartel prohibition). It seems likely that other European countries will try to follow BritBox and channel providers will try to work together to establish such platforms.
Major players may, however, soon need to carefully consider their position in the market in respect to the competition law requirements associated with market dominance. If they are able to dictate prices and conditions to content producers then this may well become subject to regulatory review. For example in Italy the Italian Communications Guarantee (AGCOM) expressed its opinion on a merger procedure consisting of the acquisition of R2 S.r.l. (a branch company of Mediaset Premium) by Sky. AGCOM stated that “With regard to the pay-TV market, Sky is a dominant player and has a market share of around 77% in 2017. The main competitor is Mediaset Premium, while other operators have a combined market share of less than 5% in the same year”. AGCOM is therefore starting an investigation into this merger, in order to determine if this acquisition is likely to create or to strengthen a dominant position in the market for retail pay-TV services by Sky.
- Changes to contract negotiations
By changing the game so fundamentally, Netflix has thrown out the original rule book and effectively started the ‘wild west’ of contract negotiations. Production companies are now pushing for eye-watering budgets following Netflix’s The Crown’s rumoured $10 million budget per episode and Altered Carbon with an even bigger $20 million budget per episode. In reality, budgets this size are unlikely to be regularly repeated but this has opened the eyes of production companies to the potentially deep pockets in this new OTT world. Long-established patterns of film release dates, TV scheduling, marketing and talent paydays are now often ignored and up for negotiation. Netflix became the first company to negotiate buy outs of content with no residual payments for production companies or creatives. This is seen as one of the biggest game changers in negotiations, particularly for writers, actors and directors. The outdated nature of agreements such as the PACT/WGGB Writer’s Guild, which have not been properly updated since 2003 and the PACT Equity agreement which is struggling to keep up with the speed of changes, has meant writers and artists contracts are now becoming so bespoke it is opening up a pandora’s box in negotiations. It seems that nearly everything has potential to be changed and heavily negotiated.
How will the industry handle these new ‘norms’ and how will the legal teams cope with the constant change?
