10.1. Industrial strategies: a trend towards the weakening of national historical audiovisual actors

In France and even more so in India, the deployment of OTT platforms has led to the development of a generous offer, partly from “new entrants” in these markets. On the one hand, these are national players in the telecommunications industries (Orange and SFR in France, Airtel and Reliance Jio in India) or transnational digital players, including Amazon (in both countries) and Alibaba. These actors share lower tariffs because they consider the supply of cultural products less as a direct source of income than as a set of joint products that distinguish their offer from that of their competitors or collect data on consumers, data that is necessary to add value to their main offer (connection services or e-commerce). As a result, they may agree to record losses. Orange as well as SFR (Discovery and NBCUniversal) expenses with major American studios for ensuring content exclusivity are very high (US$30 million for Orange alone with HBO¹)). On the other hand, these new offers come from transnational actors in the cultural industries, including Netflix, as well as, and more significantly in India than in France, from historical audiovisual actors. Disney is one of the most important players in Indian television. Its importance has increased further since the acquisition of major Indian chains owned until 2017 by News Corporation. Other US players, including Viacom, are present in India, but there are also Chinese and Japanese interests (Sony, in particular).

Historical national audiovisual actors are also present, but with more “defensive” strategies. In France, Canal+ has long tried to minimize the place of its subscription-based video-on-demand channel Canal Play (Bouquillion et al. 2011), because these forms of broadcasting are less profitable. In doing so, a boulevard was offered at Netflix’s entry into the French market, which took place in 2014. Overall, the deployment of the OTT helps to challenge and weaken the positions that the dominant players had acquired. Three important trends are underway.

First, there is a relative loss of autonomy of the content economy as the logic of joint products increases. The monetarization of this content is seen more indirectly than in other offers. Telecommunications operators are seeking to improve sales of their subscription offerings by integrating content into their network connection services, while Amazon is clearly seeking to direct consumers to its e-commerce offerings. As a result, the incumbent national players may suffer from a decrease in their resources due to increased competition and lower subscription prices. This is the situation of Canal+, the main historical player in pay-TV in France:

“From 5.4 million direct subscribers as of September 30, 2016, Canal+ had fallen to 5.25 million at the end of 2016 and below the 5 million mark at the end of June 2017, as a result of competition from beIn Sports or SFR regarding sport or Netflix regarding cinema and series”².

OTT platforms tend to lower the profitability of pay-TV and, in particular, to accentuate a decline in the video market already underway before the OTT boom, at least in France. Thus, during the period 2008–2015, the global video market fell by nearly 29% (LIFO 2017). The deployment of digital offers has made up for the market decline even less, as it has been carried out at low rates initiated by Netflix. At the same time, there has been a rapid and profound transformation of the market structure. Subscription accounted for 49.5% of the video market in 2017 compared to only 10.4% in 2012 (CNC 2017).

Second, complex interplay between transnational and national content is at work. National content is not eliminated, but is offered according to specific strategies. Indeed, the dominant players within OTT rely both on the offer of foreign content, which can be particularly attractive, and on the production of national content. In the case of India, they rely on content in Hindi and major regional languages. In both countries, different strategies are at work depending on the actors. They can seek to make content profitable on an international scale, including some “directly”, i.e. without using the former relays of the major national channels when they bought retransmission rights on their territory for foreign, especially American, films or series. This practice still exists, but Netflix tries to hinder it by buying the rights for the world of productions from the major studios.

Similarly, Netflix is committed to enhancing the value of its original content offering on a global scale. OTT actors may also seek to hold exclusive rights to transnational content in order to attract subscribers while preventing competitors from benefiting from it. These players may also seek to “nationalize” or regionalize part of the content offer to better penetrate markets. Most of them also try to build an image of their company as a more “creative” actor than others, particularly by contributing to the discovery of new talent through partnerships with local actors and by developing offers on YouTube. Such a strategy goes hand in hand with a desire to conquer urban and youth markets. This is especially true in India, where the expression on major television channels with advertising funding is particularly restricted, notably in the name of the protection of moral values. Similarly, actors can then plead all the more easily with regulatory authorities because they do not have to submit to public policies aimed at defending creation and diversity since their “ecosystem” would “naturally” be an element in promoting creation.

These games between transnational and national content allow the segmentation of the offer in order to provide not only costly content that justifies subscription to “premium” packages, but also content produced at a low cost, which in turn presents a large number of “short” content that is quickly renewed and is intended for mobile media with a value mainly through advertising. This strategy is very important in India, where some of the players are thinking about the continuity of their offer on different media and with different methods of valuation.

Third, the strong influence of financial actors benefits transnational actors and puts national actors at a disadvantage. Admittedly, it is not new for financial actors to support companies in the culture and communication industries with transnational ambitions. Amazon’s history at the time of the so-called “new economy” in the 1990s is an example of this trend which continues even today. It can also be noted that the level of development achieved by Netflix today is largely due to the support of financial players. Without significant fund-raising, Netflix would not have been able to finance its very costly international expansion strategy or its ambitious spending program in the production of original content. Netflix has spent US$17 billion on content in recent years. A quarter of the expenses go to original productions with exclusive rights³. It should also be noted that this international expansion has been quite largely accompanied by a decline in average income per user (ARPU).

In other words, this costly development could not be self-financed. Compared to other competing industrial players, Netflix⁴ has a clear advantage, while these competitors are less able to raise funds. For example, at the end of 2017, Netflix’s revenues were US$11.6 billion and their earnings were US$0.6 billion, which is lower than those of Vivendi (owner of Canal+), respectively €11.4 billion and €1.2 billion. On the contrary, Netflix’s market capitalization, measured on May 3, 2018, was US$133 billion, while Vivendi’s was only €28.8 billion. Netflix’s market value is therefore more than 11.4 times its turnover, while Vivendi’s is only 2.5 times its turnover. The disproportion would be even greater if it were calculated in relation to profit.

One of these two groups, Netflix, is a speculative stock, and thus has all the financial facilities to develop, while the other, Vivendi, is considered unlikely to grow and, as a result, cannot raise significant funds. On the one hand, there is a virtuous circle between the financing and growth of the company and, on the other hand, a vicious circle. Similarly, Disney benefits from positive expectations from financial circles without which it could not finance its expansion policy, including in India. However, Disney is not considered a speculative value, unlike Netflix, as evidenced by the proportions of its market valuation, US$147.6 billion (May 3, 2018), with sales of US$55 billion and profits of US$8.9 billion in the fiscal year 2017.

Overall, it has to be said that the financial weights of the competing players in the OTT market are very different. The main transnational players, particularly American ones, benefit from very high financial weights compared to the others. For example, on May 3, 2018, the stock market valuation of the two major OTT players other than Canal+ was relatively low. Altice’s was €11.6 billion and Orange’s was €40.1 billion. One of the players in OTT that far exceeds all the others, including Netflix, is Amazon, which is both a transnational company and a communications industry. On July 13, 2018, its market capitalization was US$871.7 billion (with sales of US$177.8 billion and profits of US$3 billion in 2017). Amazon’s financial size gives Amazon Prime Video a very wide margin of flexibility.

10.2. Public policies: between transnational logic and national policy development

In both France and India, the deployment of OTT has increased tensions around public policy issues with complex interplay between transnational logic and its national dimension.

In France, with the arrival of transnational players, particularly Netflix, there are increasing demands from national players to reduce regulatory obligations. National broadcasters are challenging obligations to finance film production (calculated as a percentage of their turnover) and broadcasting quotas. There are three reasons for this. First, new foreign entrants refuse to submit to it, which creates a distortion of competition. Second, broadcasters are not entitled to acquire co-production shares through the sums thus spent. They only have broadcasting rights and cannot therefore compile catalogues of rights. Finally, they point out that these obligations are becoming unbearable given the decline in their turnover. This questioning of the public system is not new. Canal+ had already made such a request in the very early 2000s, when Jean-Marie Messier, its then leader, praised the merits of cultural diversity against the cultural exception.

Similarly, media chronology is also a sensitive issue. While a large majority of producers still support this system, broadcasters are asking for it to be made more flexible. For digital platform players, these rules can be obstacles to their strategies. For example, for Orange, it is more interesting to be able to quickly broadcast new films in order to promote its Triple-Play offer. This operator therefore requested a shortening of the deadlines. Netflix wants to win more and more subscribers, thanks in particular to the films produced by the company. Netflix has thus announced its intention not to respect the chronology and, even more radically, its intention not to release films in cinemas. Canal+ has a more intermediate position, in that the chronology allows the group to reserve recent films for the channel and the satellite bouquet, and not for its OTT Canal Play service, whose promotional model is less interesting for the group.

Faced with these pressures, the French government seems to want to maintain the regulatory framework in place and extend it to the various forms of nonlinear television, including OTT offers and foreign players. The French Minister of Culture and Communication in office in 2017 and 2018, Françoise Nyssen, relied on the plans to revise the European Audiovisual Media Services (AVMS) Directive presented in May 2017, which provided the possibility for Member States to impose, in particular, quotas for the broadcasting of European and national products, and extended creative financing mechanisms to broadcasters whose offer covers their territory, but whose head office is located in another Member State of the European Union.

In India, the situation is very different. The audiovisual sector is not considered as part of the culture, but only as an economic activity like any other, a “business”. As a result, there is no support policy in its favor. Neither the economic actors nor the authorities seem to want its development. On the contrary, the audiovisual sector raises political issues that require regulation. These issues are related to respect for tradition and religions, in particular Hinduism, as well as, for other social groups, freedom of expression. At the same time, other regulatory issues, more directly economic, are raised. In concrete terms, there are currently lively debates on four themes with closely intertwined economic and political implications: censorship, broadcasters’ retransfers to broadcasting network operators, net neutrality and intellectual property rights (IPR).

Censorship and self-censorship are commonly practiced in the case of broadcasting, cinema and even the Internet. Citizens can file an application with the courts if they consider that a content violates religious, moral or national values. As a result, professionals have developed a strong self-censorship in order to avoid disastrous economic consequences. Similarly, terrestrial channels must pay heavy retransfers to the operators of broadcasting networks. The amounts are set by the Telecom Regulatory Authority of India (TRAI).

On the contrary, OTT offers are not subject to the same regulations. They are less censored, because it is considered that viewing this content requires a voluntary and thoughtful approach on the part of users, unlike viewers of flow television, who have to deal with channel programming. Freedom of expression, therefore, is greater among OTT offers, which gives them a greater comparative advantage, making them very attractive to young and less conservative people. In addition, the absence of repayment in the name of net neutrality rules is another advantage that limits the cost of offering these services. Regulators, under pressure from leaders of religious and political movements, leaders of terrestrial channels and telecommunication operators, have tried to increase the censorship of nonlinear pay-TV offers and impose fees on network operators by sacrificing net neutrality. Nevertheless, in 2017, these attempts triggered a major citizen protest movement, which was widely covered by the media and which, for the time being, has stopped these political wills.

In addition, IPR regulations have been adopted and India has signed various international agreements, notably under pressure from the United States. Artists have also been explicitly granted rights. However, in practice, these regulations mainly benefit the industrial actors who take control of the law, grant almost no royalties, except to the most recognized creators, or even never pay the main remuneration promised to creators. Relations between sponsors and the least recognized creators take place outside written contracts, in a logic of the informal economy that is very important in India. Working for a sponsor acting on behalf of a prestigious company such as Amazon or Netflix can confer a prestige that can be earned elsewhere. This is one of the interests of industrial players in presenting themselves as “creative”. In any case, the deployment of OTT as well as mobile advertising financing offers leads artists to mobilize and refer to international standards or what appears to be international standards.

10.3. Conclusion

By way of conclusion, still provisional at this stage of the research, some elements of the answer to the question initially asked can be put forward. The transformations linked to the deployment of digital platforms, particularly OTT offers, are indeed important. They accompany a progression of globalization with a redistribution of cards between actors to the benefit of transnational as well as national actors, mainly telecom operators. They revive regulatory issues with tensions between, on the one hand, the desire to maintain economic or moral and political regulations in place at the national level and, on the other hand, calls for developments that claim to be due to globalization or international standards. While it is clear that industrial and regulatory frameworks are being disrupted, the challenges for content and in particular the production of national content are still difficult to grasp. When the situation is more stable, the analysis of offers by socio-economic models will certainly provide a better understanding of current trends.