Les nouvelles obligations de financement des plateformes VOD
Sébastien Lachaussée, Frédéric Goldsmith  & Elisa Martin-Winkel

Sébastien Lachaussée, Frédéric Goldsmith & Elisa Martin-Winkel

New funding obligation for VOD platforms

The major audiovisual reform presented at the end of 2019 by the former French Minister of Culture Franck Riester announced among its flagship measures a contribution of platforms to French audiovisual and cinematographic production. Following COVID 19 pandemic, the schedule was turned upside down, and legislative reform was replaced by an ordinance and a decree.

In this context, in October 2020, a draft decree and a public consultation were released pertaining to the obligations of on-demand audiovisual media services (VOD and SVOD platforms) regarding their contribution to the financing of the production of audiovisual and cinematographic works.

Draft decree was amended following the public consultation and sent for opinion to the French audiovisual council (CSA), on the one hand, and notified to the European Commission on December 18, 2020, on the other hand. It is understood that publication of such decree is envisaged during the spring of 2021 after examination by the French Council of State.

Last draft decree organizes the contributions of platforms to audiovisual and film production as detailed below, a crucial issue for the sustainability of film and audiovisual funding where the health crisis has reinforced the migration of consumer to VOD and SVOD platforms. We are trying hereunder to extract the main points.  

A – SVOD Platforms

Following the public consultation, the draft decree was simplified and only provides for two annual contribution rates (against three initially with three broadcasting deadlines) and SVOD platforms shall devote a part of their net annual turnover in France from the previous financial year to expenses contributing to the development of the production of European or original French-language cinematographic and audiovisual works, equal to or greater than:

   -25% when the platform offer at least one feature-length cinematographic work each year within a period of less than twelve months after its theatrical release in France;

   -20 % in other cases.

It is to be noted that no time limit is foreseen with regard to the broadcasting of a cinematographic work by a SVOD service after its theatrical release, but only a distinction according to whether its made available on the platform before or after twelve months after its theatrical release. This leaves the task of setting such deadline in the agreement on the media chronology. It should be pointed out that the timeframe for making a SVOD service available to the public has been very advanced compared to the first version of the decree that mentioned 25 months instead of 12.

It is further provided that:

   -For services not established in France, the net annual turnover of the service taken into account is that generated on French territory.

   -When the publisher of the SVOD platform is part of a distribution group, the publisher’s turnover is evaluated at at least 50% of the revenue collected by the distributor from users if this specific service is the subject of a subscription.

   -When the user of the service benefits, without being able to waive them, from additional services of another nature that do not require a specific subscription (e.g. Amazon), the agreement to be negotiated with the CSA fixes the share of the turnover which must be taken into account in view of the economic value of the service within the offer and the uses of valuation in this area. In the absence of agreement with the CSA, whole turnover is taken into account;

   -The agreements and specifications shall determine the shares of the contribution devoted to cinematographic works and audiovisual works respectively, without one of these shares being less than 20% of the total contribution or without the share devoted to cinematographic works being less than 30% of the total contribution if the contribution is of 25% of the turnover. This minimum does not apply if the service makes less than ten programs available annually.

   -For the share of the contribution devoted to cinematographic works, only the expenses incurred for the exploitation of these works in France are taken into account. These expenses are identified in the contracts and their valuation cannot exceed 75% of all the expenses incurred when expenses are incurred for operations in other territories.

   -For the share of the contribution devoted to audiovisual works, expenses are taken into account when they are incurred for the exploitation of the work in France or in other territories in which the service is operated

   -At least 85% of the expenses devoted to the contribution to the development of production shall be reserved for original French-language works.

In addition, the agreement with the CSA specifies the conditions of access for rights holders to data relating to the exploitation of their works and in particular to their viewing.

B – VOD Platforms

Services other than catch-up television and SVOD shall devote each year:

   -at least 15% of the net annual turnover from the previous financial year resulting from the exploitation of cinematographic works to expenses contributing to the development of the production of European cinematographic works, of which at least 12% to expenses contributing to the development of the production of original French-language cinematographic works;

   -at least 15% of the net annual turnover from the previous financial year resulting from the exploitation of audiovisual works other than those mentioned in the first paragraph of Section V of Article 1609o B of the General Tax Code to expenses contributing to the development of the production of European audiovisual works, including at least 12% to expenses contributing to the development of the production of original French-language audiovisual works.

C – Other provisions 

Decree further provides:

   -An exemption of the financing obligations for on-demand audiovisual media services which generate a net annual turnover of maximum EUR 5 million and whose audience is no greater than 0.5% of the total audience in France in the category of on-demand audiovisual media services to which they belong.

   -A lower contribution obligation of the platforms as follows: For service publishers whose net annual turnover is less than EUR 10 million proportions are reduced by one quarter. For the first application of the provisions to a service publisher, the proportions shall be reduced by half for the first year and by one quarter for the second, understood that this exemption is not applicable to service publishers whose offer has been marketed for more than three years from the entry into force of the Decree.

   -A definition of the expenses taken into account such as notably: pre-purchase of exploitation rights, investment in producer shares, financing of writing and development work, the purchase of exploitation rights etc. However, for SVOD platforms which achieve a net annual turnover of more than EUR 50 million, pre-purchase of rights shall be of 75% of the financing obligation for audiovisual works and 60% of the financing obligation for cinematographic works (amount to 80% in the case of a service making films available less than twelve months after their theatrical release).

   -A definition of works deemed as independent production and notably: exploitation rights acquired on an exclusive basis for a territory are limited to 12 months (cinema) and 36 months (audio-visual work) ; limitation to a marketing mandate for cinematographic works or no marketing mandate for audiovisual works; absence of participation in the capital / in the votes of the production company.

   -At least three quarters of the pre-purchase of cinematographic works shall be devoted to the development of independent production of European works

   -At least two thirds of the pre-purchase of audio-visual works shall be devoted to the development of independent production of European works

   -Insertion of diversity clauses in the specifications with the operators, the terms of which are to be negotiated.

D- Increased roles of professional agreements

The decree also provides for a strengthened role for the agreements concluded between the service publisher and one or more professional organisations in the cinematographic or audiovisual industry including, for the part of these agreements which directly affect their interests, professional organisations and collective management bodies representing the authors,. Thus, they can indeed be taken into account in the agreements concluded by the CSA or the specifications for:

   -stipulate that the contribution of the service publisher to the development of production can be defined globally, for cinematographic works and for audiovisual works respectively, for several on-demand audiovisual media services or for television services provided by a same group ;

   -derogate (within limits) to the proportion of the obligation which must be reserved for original French-language works or to independent production ;

   -increase the share of expenditure devoted to dubbing, subtitling or to the training of authors;

   -promote the audiovisual or cinematographic heritage;

   -allow a a right to revenues to the benefit of the service publisher in respect of works taken into account under the obligation;

   -allow to postpone part of the contribution over the following financial years.

Ordinance No. 2020-1642 adopted to transpose the Audiovisual Media Services (SMA) Directive into the French 1986 law on freedom of communication for the part requiring legislative changes, organizes the subjugation of foreign television and on-demand audiovisual media targeting French territory to the contribution regime for the production of cinematographic and audiovisual works, which until then applied only to French publishers.

Accordingly, CSA will be responsible, once the SMA decree is promulgated, to conclude the necessary agreements with the platforms. In lack of such agreement, CSA will notify the platform concerned of the extent of its obligations under the contribution to production and the conditions of access by rights holders to data relating to the exploitation of their works. In this regard, Mr. Roch-Olivier Maistre, President of the CSA, told the Senate that the entire system should be operational « from the end of the first half of 2021« .

Ordinance also provides that, under certain conditions, a work cannot be taken into account under the contribution to the development of the production of cinematographic and audiovisual works when the CSA notes that contracts concluded for its production are not compatible with the provisions of French intellectual property code pertaining to the protection of the moral and economic rights of authors. Note that the draft decree as transmitted to the European Commission can still be amended.

In particular with regard to the modalities of integrating the decree into the French chronology of media as provided in article 28 of the ordinance, government left 6 months to the professionals to reach an agreement on the final text.

Thus, decree n ° 2021-73 of January 26, 2021 set March 31, 2021 as the deadline for renegotiating the professional agreement of September 6, 2018 relating to the chronology of the media, at the end of which government may, in the event of failure of negotiations, temporarily establish the duration and terms of the operating windows which do not result from the law.

Future French SMA decree seems to guarantee the contribution of French and international platforms to the production of French, European and independent cinematographic and audiovisual works.

In this sense, organizations representing cinema producers (API, SPI, UPC), as well as those representing filmmakers (ARP, SRF) declared themselves “generally satisfied with this major political arbitration, which creates a solid regulation paving the way for balanced negotiations between the film industry and platforms, mainly American. This decree will allow them to contribute to creation in the same way as the historical broadcasters of French cinema. « 

We now have to wait for the return of the European Commission and the results of the negotiations of inter-professional agreements, notably pertaining to the French chronology of the media before discovering in the spring the final model to be implemented. In this sense, Canal + already expressed its disagreement with the text which harms its economic model. In any case, we will need at least a year of application of the decree to analyze its effects on French audiovisual and cinematographic productions.

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