PARIS -- Netflix is set to follow iTunes and Google's footsteps: The service will launch in Gaul in the fall but will be headquartered Luxembourg in order to avoid the heavy French regulations.
Netflix's other European headquarters -- U.K., Ireland, Scandinavia and the Netherlands -- are also located in Luxembourg, a country boasting advantageous tax laws and incentives.
French VOD platform like FilmoTV and Canalplay Infinity, which have annual revenues exceeding 10 million Euros, must inject 15% of their revs in European films and 12% in French movies.
Google and iTunes nab the bulk of VOD sales in France but they don't contribute in local content and pay a 7% VAT (instead of 19.6% VAT) since they are headquartered in Luxembourg.
Over the last few months, Netflix execs met with French officials to discuss the launch and how local regulations would apply to the U.S. company if it chose to operate from Gaul. In a recent interview with Le Figaro, Culture minister Aurelie Filippetti said the French government, who's been facing intense lobbying from local film guilds, had no leverage to have Netflix stream its content from France and comply to all its regulations from abroad.
The real deal-breaker for Netflix choosing a headquarter in Gaul were the investment obligations rather than the tax laws, according to French newspaper Les Echos.
Indeed, Netflix could end up paying French taxes even if it's headquartered in Luxembourg: The European Union members have recently voted to obligate service providers to pay sales tax based on point of consumption/payment, rather than point of distribution, starting on Jan. 1.
Netflix will now certainly be looking for a French broadband partner to distribute its content on a wider scale.
"Given the strength of IPTV in France (France is one of the leading markets globally in terms of IPTV uptake), Netflix would be advised to explore partnership opportunities with the local IPTV operators, so that it can use their existing scale to build reach," said Richard Broughton, senior analyst at IHS Screen Digest.
As previously announced, Netflix initiated discussions with Orange, which counts more than 10 million internet subscribers in France, last month. However, insiders claimed Orange wouldn't sign a deal with Netflix if the service chose to be headquarted in Luxembourg.
Gaining access to strong local content with mass appeal in France will be the main issue for Netflix in Gaul, per Broughton.
"Many territories which Netflix has launched into have had strong preference for US content, or at least a less well developed local content sector - Canada, U.K., Ireland are all English-speaking markets, while many consumers across the Nordics and Netherlands are well used to English-language content, or subtitled content," the analyst explained.
And as Broughton pointed out, in France, the catalogue would have to include a higher proportion of locally-originated content - films/TV shows. That might prove a challenge if the service doesn't invest in content as does pay TV giant Canal Plus, which operates the VOD platform CanalPlay Infinity.