Sizzling!

European content is hot across the globe, Jay Stuart reports, even as the region faces challenges at home.

It has been a good many years since politics and regulation loomed so large over European TV. At the dawn of the ’90s, the thrust was toward further integration. The EU’s ambitious and intrusive Television Without Frontiers directive, with its quotas on non-European programming, was broadly welcomed by many producers as a needed bulwark against the inflow of American shows.

Fast-forward to 2017 and the trend has been reversed to potential disintegration, as epitomized by the U.K.’s Brexit decision. The latest EU regulation currently under discussion for the television space—involving a digital single market—is being viewed suspiciously by many in the industry as potentially harmful. But, more on that later.

Ironically, as Europe faces internal challenges, the international market is becoming more accessible for European program-makers.

In light of the growing international profile of successful European shows, the idea that the region still needs programming quotas—the directive mentioned above was extended to the internet ten years ago—can appear to be a quaint illusion from a bygone era. But quotas are by definition more about quantity than quality, and the fact is that non-European imports easily account for more than half of TV series on European channels, according to the European Audiovisual Observatory. From 2009 to 2013, the share of non-European fiction on private channels increased in Germany, Sweden and the U.K., three countries associated with thriving program production.

Let’s be clear at the outset that Britain, because of the obvious commonality of language and culture with the U.S., and a long track record of international success, is an anomaly in any discussion of European production. The television business is certainly one area where defining Brits as Europeans—while of course still a legal and political reality, as important as that is—remains a bit of a fiction creatively, especially in scripted, where British companies have excelled for years.

“What’s driving the international market are audiences who want better-quality product,” says John McVay, the chief executive of the U.K.’s Pact. “Markets are developing, and people are better educated and more aware. There’s a rush to the top rather than to the bottom. Viewers want big-budget drama, and big-budget factual as well.”

Louise Pedersen, the CEO of all3media International, notes, “Now that audiences are seeing the best from everywhere, they’re becoming more exacting. It feels like continental Europeans are a bigger factor in the program market. Shooting in English has been a break­through for them.

The Germans and French have wonderful writers and directors, and they have of course already been making fine shows, but broadcasters can be more broad-minded when the programs are in English. I welcome that. All competition is good.”

QUALITY MATTERS
Alexander Coridass, the president and CEO of ZDF Enterprises, agrees that demand for quality is a primary driver in the global market and that this is encouraging European producers to make better shows and to take more risks.

“It’s about talent, creativity, non-mainstream productions and success with global audiences,” Coridass reports. “We are seeing that there is an ongoing trend to produce high-quality drama where top-notch storytelling is the paramount goal. Germany is just a canvas for these new types of sophisticated narratives and programs. Ku’damm 56 and Deutschland 83 are good examples of series that have the power to travel the world and find their audiences everywhere.”

ZDF Enterprises is involved in many projects with Italian, Belgian, Central European, French, British and Spanish partners, to name a few. “As a European company at our core, we take pride in our strong Eurocentric lineup and in the fact that we specialize in bringing European-produced high-quality programs to media outlets around the world, and we will continue to invest in European products.”

ECONOMIC MUSCLE
To a large extent, quality boils down to investment. The capacity of continental European producers is basically in proportion to the size of their TV markets. That means Germany is first by a big margin. Total German television and video revenue will grow to $14.59 billion by 2020, according to PwC. Second-place France will reach $9.61 billion by the same year.

Tim Mutimer is CEO of Banijay Rights (formerly Zodiak Rights), whose 20,000-hour catalog includes the likes of big-budget Canal+ flagship drama Versailles, sold in more than 135 territories, and Norwegian political thriller Occupied, which is actually in three languages (talk about risk!).

“Production budgets in Europe have increased, and more shows are being commissioned than ever before,” he says. “And, of course, success breeds success with breakout shows from across Europe becoming international, including hits such as The Killing and our own dramas Public Enemy from Belgium and The Returned from France. We have a strong sales team based in London, Copenhagen and Paris. Having a presence in the latter two markets means that we are able to monetize the strong Nordic and French-produced programming in our catalog.”

He points to a big development in the media landscape that has enabled the launching of such hits: SVOD. “The growth of SVOD and digital means there are more opportunities for content to find its way to expanding audience numbers.”

Henrik Pabst, managing director of Red Arrow International, zeroes in on that point. “There’s no simple answer for the higher profile of European programming these days,” he says. “One major factor has been the positive impact of the big SVOD platforms. They have distributed European content in the original language, so audiences have become more accepting of subtitles, and local shows stand a better chance of traveling.”

Pabst continues, “Europe also has great talent. Previously the business was very U.S.-driven. That has changed. Now we can create co-produced scripted programs that work locally in the U.K., France and Germany, for example, and nowadays even the U.S. is tapping into European talent.”

RULES & REGULATIONS
Any discussion about IP, windows and rights very quickly bumps up against the complex edifice that is European regulation. And this year is a special one for television regulation. Media is the single biggest current area of work for European institutions in 2017. The industry is happy to see that the issue of portability will apparently be resolved, to allow people to continue to watch content on their devices from subscriptions based in their home countries as they move around Europe. More worrying are proposals to extend the principles of a single market in satellite and cable to cover online rights. That principle means that rights cleared in one country are cleared for the entire single market. This undermines the business model of territorial exclusivity.

“Online is effectively television,” says Grégoire Polad, the director general of the 33-member Association of Commercial Television in Europe (ACT). “We have already embraced a total video environment. That’s what TV is now. Our aim is to continue to foster great content on any platform. We are moving toward a pan-European licensing system. That would help the very large players like Google and Amazon, but it would mean less diversity and less investment in content. We want to be sure that we can produce and that we can reach addressable homes that enable us to monetize content.”

Two issues, inextricably tied together, are at work. One is copyright regulation. The other is the issue of contractual agreements, the subject of a current investigation focused on Sky. To simplify a complicated scenario, the European Commission wants to clear the way to allow so-called passive sales, meaning that content providers like Sky would not be allowed to refuse to provide their services to customers anywhere in Europe. In principle, this would not be a huge problem if a provider could geo-block individual programs in countries where the rights were not cleared. In effect, it could say, Yes, you can get our channels, but you can’t have Game of Thrones because we don’t have the rights in your country.

BORDER PROTECTION
“The problem is that the change in copyright rules could eliminate the ability to geo-block,” Polad says. “But it’s difficult to see the copyright issue in isolation because the rules on contractual agreements are not known.”

Polad continues, “Public broadcasters have been pushing to open the market so that their channels can be more easily carried on platforms throughout Europe. This works better for them because they tend to produce more of their own content and are less dependent on premium licensed programming than pay-TV and other commercial operators are. But the fact is that they invest a lot in production and produce a lot of quality programming themselves. The financing of European content is 40 percent public TV, 40 percent commercial TV and 20 percent from funding bodies. So while the new regime might help public-service broadcasters clear rights, it would hurt them as rights holders. So be careful what you wish for.”

The timeline for all of this is very much up in the air. The Council of Ministers keeps kicking the contractual freedom question down the road. It’s unlikely anything will happen before 2018.

A portability regulation that allows subscribers to take their channels with them from their home markets sits well with Red Arrow’s Pabst. “But geo-blocking is still a necessity: a world where geo-blocking is not permitted means that we will all have a problem, and the financing would become almost impossible if one does not go with a global player.”

ZDF Enterprises’ Coridass supports online regulation that ensures fair competition and consumer and personal data protection, irrespective of nationality or place of residence. “This can create opportunities for new start-ups and allow existing companies to expand in a market of over 500 million people [in the EU]. However, there are still a lot of issues to be resolved before we get there, such as protection of copyright.”

THE BREXIT CONUNDRUM
European media regulation is just one of many factors at play. There is also the unsolved puzzle of Brexit.

Adam Thomas, lead analyst for global TV markets at London-based consultancy Ovum, observes, “The big immediate threat from Brexit comes from uncertainty. Despite some efforts by the U.K. government to provide some clarity, this has not been delivered with any great confidence. So uncertainty will continue to impact spend on media by consumers, advertisers and investors alike.”

“The core question about Brexit is to what extent European regulations will continue to apply in the U.K. We won’t know this until we see what the future agreement is and we understand how much of EU law that’s incorporated into U.K. law the British parliament wants to keep or undo,” ACT’s Polad says. “Remember that there is a quota regime in operation in Europe. British productions might no longer qualify as European, so they would lose market share in Europe. That’s almost a mechanical effect. They might also lose access to direct and indirect European funding.”

Brexit could also affect portability—the idea being that when you take Sky from the U.K. to Spain on your device, it’s still being consumed in the U.K. and thus in Europe. But if the U.K. is no longer in Europe, then that would no longer be the case. Brexit could also impact the country of origin of satellite channels. As things stand, dozens of European broadcasters are based in the U.K. and reach their markets from there.

“The fact is that the audiovisual sector is so important for the U.K. that it might be one area where the position of remaining in Europe might prevail to a great extent,” Polad adds.

According to Ovum’s Thomas, this could impact investment. “Production investment in particular, which often comes from several different sources, is likely to be affected until a framework for cross-border investment and taxation is clarified,” he says. “From a U.K.-specific perspective, a weakening currency should benefit exports, and with the U.K. being a big net exporter of content to most countries, there will be some positives there. But that scenario comes with the potential for a negative impact on content importers.”

Because British content is popular across Europe, proposals to create a digital single market could become even more complicated following Brexit. “If new trade agreements are required in order to keep selling U.K. programming, then this implies that there will be new time-consuming negotiation and bureaucracy involved,” Thomas notes. “If the licensing process becomes significantly more onerous, then there is a possibility that demand for U.K. programming could be hit as a result.”

ZDF Enterprises’ Coridass predicts, “As far as content production and distribution is concerned, I feel that Brexit will make business abroad more complicated for companies in the U.K. Naturally, Brexit came as a big surprise for us as well. At the moment, it is still difficult to say whether this will be rather beneficial or rather detrimental to our business. We see both opportunities and risks in Brexit. In any case, the U.K. will remain an important partner in all our lines of business. So we’re looking at things in a professional and relaxed manner and will evaluate the consequences as soon as the real facts of Brexit have been negotiated. And this might still take a while.”

WAITING GAME
Pabst is sanguine about Brexit. “It could mean that Europe gets smaller, but we have invested in the U.K. because of the creativity, and that will not change. I do not see immediate consequences.”

From his perspective, Pact’s McVay says that he doesn’t see any short- or medium-term challenges from a production point of view. “If you are a broadcaster based in the U.K. depending on country of origin to access Europe, maybe you’ll have problems. But that’s not the case for program-makers. The U.K. is a signatory of the [European Convention on Transfrontier TV], which is recognized by the EU’s Audiovisual Media Services Directive. That means our programs qualify as European works, even if the U.K. is no longer part of the single market.”

McVay believes that “the only possible threat would be the imposition of tariffs or non-tariff trade barriers. It’s very hard to see how that would happen because it could actually damage European broadcasters, whose audiences are fans of our shows. If you’re a Danish broadcaster that can’t have Midsomer Murders anymore, that’s going to hurt. At the end of the day, U.S. movies and TV shows don’t have any special access to the single market and they do quite well. We have co-production treaties with European countries. Most of these are about feature films, but we are working to press for trade agreements covering television.”

He also cites British television’s reputation globally. “We are not perceived as European. We are seen as Brits. That’s good for us, because British television is seen as one of the best R&D labs for television on the planet. Many American executives get the British overnights so that they follow the new shows that are bubbling up that might work in their market. The unique British experiment between commercial television and the BBC has tended to drive quality. There’s a lot of competition. We are a market with relatively few channels. For a program to get a prime-time slot, it has to be pretty good.” There’s another factor at work, McVay continues. “We don’t have any public money for cultural objectives. We only have tax credits and you can only access tax credits if your program has been commissioned. A producer can’t ask for help for a project ahead of time because of its supposed cultural value, as in other countries. That imposes market discipline on British producers.”

A number of British producers are represented by all3media International, where Pedersen says the focus is on “bold creative ideas rather than the formulaic. Our program Fleabag is an illustration of what I mean, with a strong female voice and a sense of humor. The Missing season two does something different by progressing the story of a missing child into the story of a child who’s returned.”

The examples cited by Pedersen reflect the extent to which European production is becoming more international—both have landed in the U.S. European players are becoming more global operationally—and more American. Red Arrow Entertainment Group, for example, has 19 different companies in seven countries. Nine of them are based in the U.S.

COMING TO AMERICA
“We are always pleased to have U.S. partners on board” as co-producers, says ZDF Enterprises’ Coridass. “This is a vital part of our business, but it is at least as important to make projects happen with other partners—Australians, Chinese, Japanese, Brits and continental Europeans. The success of German miniseries and Scandi noir and German-Australian teen live-action series shows that projects can be sold to the U.S. without any financing by American partners.”

Of course, it depends on the size of the budget. “For a larger project, it may be important to have American financial partners on board, but most of our projects are still financed within Europe to date,” Coridass explains.

Red Arrow’s Pabst says it’s not always necessary for the U.S. to be involved. “But, it depends,” he says. “It’s a matter of taking things project by project. If we can get a U.S. company on board, I’m delighted as long as the DNA of the project has not changed. The bigger the show, the more important that is. Europe can only cover a certain proportion of a big budget, and the American financial contribution is important.”

“If you are seeking a substantial co-production partner, it is helpful to have a U.S. partner deliver a significant percentage of the budget,” says Banijay’s Mutimer. “However, it isn’t always vital. For instance, our drama hit Versailles was funded in Europe and sold to Ovation and Netflix for the U.S.”

The good news for producers and distributors is that the demand for quality is not likely to diminish. As audiences around the world become accustomed to seeing exceptional programming, the race to the top will continue. For viewers and producers able to make quality shows, the outlook for Europe has never been better. The biggest challenge may be a matter of scale and timelines. “The incredible demand for high-quality content, from more and more sources, is really putting pressure on producers to speed up their delivery times,” says Ovum’s Thomas. “So there will very likely come a time when, eventually, the ever-increasing demand for production volume cannot be met.”

Isn’t that the sort of industrial challenge that the European single market is, or was, supposed to remedy?

Pictured: Banijay Rights’ Versailles.