Why Netflix will win the SVoD battle in France (and Europe). ... Or will it?

In France, many people working in the cultural area like to think that our country is special: French TV audiences are necessarily more intelligent and savvy than Netflix-addicted viewers in the Midwest. Let's face it, we, the French, have a somewhat pretentious and elitist relationship to culture – we even coined the term “l’exception culturelle fran?aise”!  We prefer to praise the merits of edgy series produced by Canal + (Europe’s Pay TV Leader) than recognise the success of more general public productions, where France can also excel.  Saint Tropez, a series airing on TF1 and created in 1996 by Marathon, now has 480 episodes of 52 minutes and has been exported quite successfully to numerous countries across Western and Central Europe, Latin America and even in countries ranging from Azerbaijan and Lebanon…to the US.  Yet despite France’s capacity -- even if our elites find it distasteful -- to produce universally appealing TV fiction, I am not confident that this is enough to stem the tide of the Netflix invasion. Why?

 1- CONTENT

While Canal + produces fewer than ten original series annually, Netflix is able to release dozens, and even goes local (Marseille, a series with Gerard Depardieu, will be released in 2016). How can French channels compete against an economic model that almost automatically allows Netflix to break even, despite huge production budgets? For example, House of Cards’ budget was a whopping $ 110 million, compared to 27 million euros for Canal+’s recent blockbuster Versailles. Sure, the French like to think that a big budget doesn’t equal quality, and in many cases they are right. That said, one of the keys to SVOD brand success is diversity -- being able to produce low-budget stand-up comedy shows as well as blockbusters is what attracts viewers… and keeps them coming back. 

 In addition, Netflix, unlike its competitors, produces for all ages, including children. One of its most recent projects co-produced with DreamWorks , Dinotrux – a blending of Ice Age, Transformers and Cars -- clearly sends the message: kids are the key ! We will speak later of pricing strategies, but if we focus only on original content, France has the specificity of being a small country in terms of number of viewers but remains a prime target for many content companies. Honestly, I often wonder why and I bet, for example, that BeIn Sports does too.  Take the L1 football rights it purchased at 186.5 million euros compared to the channel’s monthly subscription rate of € 13. Just to break even, after 2 divisions the sports channel has to attract 1,195,513 subscribers !!!! Worse, this content represents only a few hours of a grid that must be filled 24/7. It seems almost impossible to find profitability in such a system. What is true for sports also holds for TV shows. Canal + has long understood this by filming its major series directly in English: ironic given the cultural purism I spoke of earlier!

 Original production is at the heart of SVOD success. What viewer would pay for a subscription to watch Friends when PopCorn or other streaming platforms propose immediate free access? As in all cultural industries, novelty and original content are the most important sources of value creation and the best weapons against profit loss to piracy.

 2- PRICE

Strangely, the original productions of Canal + do not serve the interests of its own SVOD service (CanalPlay, the French equivalent of Netflix). Take Versailles, which is of course exclusively broadcasted on Canal +.  However, if you do not subscribe to Canal+ because you think that 39.90 euros a month is too much to pay to watch one original series from time to time….don’t go looking for the series on CanalPlay.  You’ll find it first on iTunes, for 24.99 euros!

 The Canal group is locked into the deadly paradox of having to defend two opposing positions: on the one hand it needs to produce original content for Canal+ yet at the same time maintain its low-cost SVOD offer on Canalplay. From the point of view of content, Netflix’s main competitor is not Canalplay but Canal +!  To sum up: on one side of the ring you have a contender that offers one original series every other month for € 39.90/month, and in the other corner a challenger that can give you two new series a month for only € 7.99/month. It’s clear who is going to get the knockout!

We are moving into an era where viewers are more and more demanding in terms of content and consumers are increasingly astute in their budget decisions.  Netflix is the first to have understood this double bind, which brings us to the third point: the only way to square this circle is through economies of scale.

 3-  DISTRIBUTION

Let’s go back to the example of sports rights. If a season of House of Cards costs $ 110 million or about 98 million euros to produce and Netflix’s monthly subscription rate is € 7.99, to recoup this investment year on year, Netflix needs to attract 1,022,111 new subscribers. And that risk, they take it dozens of times a year! That’s THE point : there is no salvation, economically at least, without global distribution.

Canal and Lagardère have understood by targeting the African market, probably the biggest growth driver of the audiovisual industries in the coming years…. but by then? Without changing its price and distribution strategy (including its chronology of media vs CanalPlay), will media such as Canal +, have any future in a world where content diversity is wealth?

The battle for the French market is, I think, lost. I have difficulty understanding the relevance of the offer Zive Numericable has launched: a SVOD service aimed at, I assume, boosting premium subscriptions (around € 48.99 / month). Our operators are caught between the proverbial rock –price competition– and a hard place – growing demand for quality content. Netflix is well set from this point of view thanks to connected TVs and did not need to make any deals with operators to be present on all devices ... and this movement will certainly not be reversed. Operators have lost this leverage against content producers like Netflix who, thanks to their crushing editorial power, is one of the few who can afford to feed voracious public demand.

 CONCLUSION

There is little doubt that the battle for SVOD Wars is lost in France.  Unless, as France has often been able to do, instead of copying Netflix’s strategy, we invent a new model. For example, what if Canal group could admit that the public’s appetite for linear TV subscriptions is waning, that it is no longer an option to put all its eggs in the original production basket (be it fiction, sports or documentary),  and that it is high time to globalize its Canal + / Canalplay offer? Could not France Television (France’s public TV network) see the interest in trying to unite all French content creators to create a French"Netflix" to reach the world’s 220 million French speakers? Yes, France is special in many ways. But what will always surprise me is that often when French companies set out to tackle global markets they act like everyone else… forgetting that it is our chauvinistic drive to be different that sparks innovation and creativity, and thus profitability. Big mistake. Or… Canal+ will decide to create a joint venture with HBO (as the realized recently they should change strategy) and the fight will be epic !

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