This article follows our earlier one which discussed uncertainty regarding the sustainability of funding for original content in Europe, where national TV content remains primarily funded by (public and commercial) free-to-air (FTA) TV channels. The potential financial weakness of FTA channels due to cyclical and structural changes could have a negative impact on the levels of national and European TV production in future, leading to the need for additional funding and/or new regulation.1
Figure 1: Current sources of funding for national TV production in European countries (illustrative) [Source: Analysys Mason, 2014]
Below, we consider some potential new sources of funding for national TV production in Europe, based on an overview of current trends.
New exogenous sources of funding are growing, but are likely to remain relatively small resources for most national TV production industries in the European Union (EU).
Potential funding sources are emerging which could complement investment in national TV production by FTA channels, as indicated in Figure 2 and discussed below.
Figure 2: Potential sources of funding (illustrative) [Source: Analysys Mason, 2014]
(1) The new over-the-top (OTT) subscription video on demand (SVOD) services. Netflix's investment in TV series (such as House of Cards and Orange is the new Black) exemplifies an exciting new source of original audiovisual production. However, most spend by SVOD services is on rights acquisitions rather than original production: of the USD3 billion Netflix spends worldwide each year, only around 10% is devoted to original production,2 and it is very likely that a tiny proportion of this 10% would go to local production in the countries where Netflix is established outside the USA (like The Crown, a UK series to be launched in 2016). Unless there is a significant change in regulatory obligations, the commercial incentives for global players are likely to keep their investment in local productions relatively small in most EU countries.
Under the Audiovisual Media Services Directive, EU Member States can introduce content obligations for non-linear services. However, these efforts seem to be having little effect on SVOD services such as Netflix or Amazon Prime which have located their activities in EU countries that impose both low taxation and minimal investment obligations.
(2) Export revenue: international income accounted for one third of revenue generated by the UK's independent production sector in 2013, compared with less than 15% ten years ago.3 However, this source should not be overestimated: most of this revenue derives from overseas subsidiaries which produce content adapted to their target markets, with sales of UK-finished programmes accounting for just 17% of this international income (GBP156 million in 2013). Despite the remarkable success of UK independent producers, it is highly unlikely that this could be replicated by most other European countries (particularly when producing non-English content): at best international income would provide an appreciable complementary source of funding.
Transfers of funds from pay-TV distribution platforms (cable, satellite or IPTV) can provide significant resources for national TV production.
Two main models for transferring funds already exist:
(3) Retransmission fees could be used to transfer money from pay-TV distribution platforms to major FTA channels which have national content investment obligations, thus indirectly supporting the production of national and European content. Many TV channels in the USA receive retransmission fees from pay-TV retailers, and the same is true in some European countries such as Belgium, the Netherlands and, more recently, Germany. This approach, which is now being debated in some other European countries, could support major FTA TV companies by providing funding to supplement their potentially declining revenue streams.
(4) Pay-TV distribution platforms can contribute to national production funds: in Canada and France (since 1997 and 2007 respectively), pay-TV retailers pay a specific tax to public funds which provide direct support to national audiovisual production. In France this contribution provided EUR224 million in 2013 to CNC, the fund which supports French independent TV production.
Indeed, these transfers can provide a significant source of revenue for national audiovisual productions. For example, the contribution that Canadian pay-TV retailers make to public funds amounts to more than 5% of pay-TV revenue in Canada;4 this compares to the USD6 billion of retransmission fees (3% of cable operators' revenue) which might be paid by pay-TV platforms in the USA by 2018.5
Given the rapid changes that are underway in the TV ecosystem, it is essential for both market players and policy makers to understand these potential funding sources and adapt policy and regulatory frameworks accordingly, if support for European TV original content is to remain as a policy objective.
Source: Analysys Mason
