The American video streaming service Netflix has completed the first phase of its European expansion, with launches in France, Germany, Austria, Switzerland, Belgium and Luxembourg. More than 63 million broadband households in these six European countries can now subscribe to Netflix, for €7.99 a month.

However, Netflix has not been universally welcomed in Europe. Some State-subsidised local media franchises in France, where Netflix was launched on September 15, have expressed concern that the service will erode the French “cultural exception”.

Local French telecommunications operators, including SFR and Free, are refusing to host Netflix on their set top boxes – as they do for rival French streaming services – because they have not agreed to Netflix’s financial terms. However, Bouygues and Orange (the latter of which is owned by France Telecom) have both agreed to a deal with Netflix for it to be included on their set top boxes.

The service will nevertheless face competition from French rivals such as the country's leading pay TV operator, Canal+, or even from Numéricable whose streaming service also launched on September 15. For its part, Canal+ already owns the French rights to “House of Cards,” which, paradoxically, is financed by Netflix, and has just gone into partnership with the American TV company, HBO, in an attempt to head off competition from Netflix, which has 50 million subscribers worldwide.

Prior to the arrival of Netflix in France, the French broadcast authority (“CSA” – Conseil supérieur de l'audiovisuel) encouraged French television groups to respond to its imminent arrival in France by creating a competing offer, pending a pan-European regulation.

The President of the CSA (Olivier Schrameck), also first chair of the Union of European Broadcasting Regulators (ERGA), used his position to press for a “Netflix regulation” at the European level.

The French film, TV and video-game industry is a €16.2 billion business, representing nearly 1% of the country's gross domestic product. The industry also accounts for 340,000 jobs, or about 1.3% of French employment, according to a 2013 study commissioned by the government.

To nurture and protect the film and television industry, France has created over the years an elaborate set of funding programs and protections. Among them, a portion of the revenue generated by films, TV and video-on-demand (VOD) services is collected by the government to fund production of more French films and television programs. In addition, there is a very strict timetable for releasing films to DVD (not less than four months) and to broadcast TV (up to three years). French law also requires at least 40% of programming on TV and radio to be in French and made in France.

Executives from Netflix negotiated with French officials for months over some of the regulations before implanting its European headquarters in Amsterdam. Meanwhile, the French film producers’ association has accused Netflix of “fiscal dumping”, claiming the company is deliberately avoiding local taxes paid by national television channels and streaming services, which subsidise French films, by setting up its European headquarters in Amsterdam. They also complained that, by doing so, Netflix would be able to exempt itself from France's film tax requirements and French-language quotas.

The move followed strong demands from French operators in general arguing that foreign competitors, such as Netflix and Amazon, located outside the country, could escape taxation. As a result, the CNC (Centre national du cinéma et de l’image animée), in line with certain legislation requiring companies to pay tax (notably VAT) in the countries where they provide services rather than where they are based, extended the tax imposed on video-on-demand (VOD) and subscription VOD (SVOD) operators to those that are based abroad. In consequence, those operators with annual sales of €10 million and above will be required to pay a 2% levy, starting January 2015.

Nevertheless, despite objections from French television companies and film-makers, the French government has allowed the American video-streaming giant to invade, as long as it adopts certain rules which protect French culture and creativity. Netflix has thus agreed to finance a new French mini-series next year, based on the “House of Cards” franchise.

The VOD market in France is currently worth around €245 million a year, while Netflix already earns a turnover of around €300 million in the European countries in which it already operates since 2012 (United Kingdom, Netherlands, Denmark, Finland, Ireland, Norway and Sweden). Neflix’s objective is for 10% of French homes to receive its services in the next 2-5 years. This would provide it with annual revenues of around €300 million in France alone.