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Netflix Using Luxembourg for French Operations

3 Apr, 2014 By: Erik Gruenwedel

Netflix reportedly has decided to use its existing corporate headquarters in Luxembourg when launching subscription-streaming service in France (and possibly Germany) in the fourth quarter.

The decision — reported by French newspaper Les Echos — is in response to France’s strict regulations for video-on-demand content and value-added tax, among other issues.

Companies selling movies in France must contribute 15% of revenue to the development of European movies, and 12% to French cinema, in addition to paying a 19.6% value-added tax on VOD revenue.

Headquartering French operations in Luxembourg — which Netflix already does for SVOD services in the United Kingdom, Ireland, Holland and Scandinavia — limits the company to a 7% value-added tax and no mandatory film investment contributions.

Netflix ended the fourth quarter with 9.7 million international subscribers, which includes South America, Mexico and Canada. The international operations continue to hemorrhage money, losing $57 million on revenue of $221 million in the quarter.

Netflix is expected to generate upwards of 5 million French subscribers by 2020, according to investment bank Citi Group. In an interview with Le Figaro, France’s minister of culture and communication, Aurélie Filippetti, lamented Netflix’s decision, saying the company must win the hearts and minds of French consumers with more than a low price.

"If Netflix really has any interest in being cooperative with the world of cinema and French video consumers, it needs to develop local content to please the French public," Filippetti said.

With its French headquarters remedied, Netflix must still partner with an ISP to deliver its content to subscribers.

Netflix reportedly has been in talks with Orange, one of France’s largest telecoms (and ISPs) with about 10 million subscribers. CEO Stéphane Richard told Les Echos last month Netflix’s arrival in France would be disruptive to the pay-TV environment.

"Netflix has been in contact with pay-TV operators, and that is a good thing,” Richard said. “We do not know what is the distribution model they want. If it is an ‘over-the-top’ model as in the United States, or whether it is a model based on set-top box operators. I think they have not decided yet."

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