Oh, France. You hate new things. You hate foreign things, particularly American things (or so you like to say). You hate business. Of course you’re going to hate Netflix.
Netflix is currently expanding around the world, and it wants to set up shop in France. The company has said it has aggressive expansion plans in Europe, and the French press has reported that executives from the company have met with President Hollande’s staff twice. To Reed Hastings I say: good luck, you’re going to need it.
Since the era of Jean-Baptiste Colbert, Sun King Louis XIV’s Minister of Finance, the French economy has functioned as a government-managed oligopoly. Consumers exist to reward friends of the state. This is why France’s socialist government has sicced tax inspectors on virtually every significant US tech company that has a presence in France (Microsoft, Google, Facebook…), and created rules preventing Amazon from offering free shipping on certain orders, to protect bookstores from competition, nevermind that it makes it harder for actual people to buy and read books, which one would think would be the goal of a cultural policy.
The taxes, regulation, and protectionist mindset that make doing business in France a nightmare are well-known. But there’s something else. Netflix is not just coming in as a foreign, innovative American company, thus presumed untrustworthy. It is wandering into another minefield: what the French like to call l’exception culturelle, the cultural exception. In the story France tells itself about itself, France is exceptional because it is so cultured. What does that mean? It means that the French government supports French movies and TV shows and other cultural products, and mandates that a certain percentage of programs on TV and radio be French.
This is actually one of the least offensive parts of the French compact. After all, French cinema does produce a regular smattering of masterpieces and, looking at the rest of Europe, it’s hard to believe that this vitality would be there without government support, however wasteful and occasionally corrupt.
But the way this all is funded is through a set of taxes paid by French TV networks. Basically, if you want to operate a TV network in France, you are mandated by law to also become a movie producer and set aside a percentage of your profits to produce movies. Does Netflix count as a TV network? Netflix has described itself that way before; its French competitors—and the French government (which, if you’ve been paying attention, is the same thing)—certainly think it should count as one for those burdensome rules. France’s culture minister has said that the government would not accept Netflix as a “stowaway” in the French market. They might, for example, set up shop outside France’s borders, offer their online service from there, and not be bound by French rules. But is the alternative for Netflix to set up a film-producing company in France especially for France?
There’s another problem for Netflix: net neutrality. In France, the important technology companies are not the internet services companies—they are the telcos. The biggest one, Orange, used to be a state company. The state is still a major shareholder and usually picks the CEO. The current CEO, Stéphane Richard, was previously chief of staff to then-Finance Minister Christine Lagarde (Colbert lives!). Orange has also made it clear that it views itself as having a future in media. Telcos don’t like that Netflix sucks away their bandwidth even as it threatens their business model. In the US, while the government is certainly not immune from regulatory capture, there is no national broadband company. In France, the ISP Iliad/Free already deliberately slows down YouTube’s traffic.
France has been in a bad place for 30 years. Slow growth, mass unemployment. Countries that go into this kind of funk become resentful and fearful of foreigners and new things. This will be the mindset that Netflix will have to navigate.
Now, none of this means no one will buy Netflix. That’s the big paradox. In this matter, it’s as if there were two Frances. You have the sort of Platonic France—the idea of France, the one lived by the upper-middle classes, the cultural world, and government elites, where people eat fancy food, dislike anything vaguely American and write off the internet (still, yes, today) as a fad, and spend their time sitting at cafés sipping on espressos. Then you have the France that actually exists, where the most thriving restaurant company is McDonald’s and 8 of the 10 top-grossing movies last year were made in Hollywood. French people, like people everywhere else, are fine with innovation that makes their lives easier.
Netflix’s value proposition, with the cheap subscription, the good-enough content, and the convenience of being able to watch whatever you want on whatever platform, will surely appeal to plenty of French consumers.
I just don’t envy the endless headaches Netflix France’s management team will suffer.