NFLX Netflix Inc

By Natalia Drozdiak and Sam Schechner 

BRUSSELS--The European Union's executive body on Wednesday proposed legal changes that could force Netflix Inc. and other online-video providers to help finance European-made films, a first step by the bloc to update its digital rules to account for rapidly growing Internet platforms.

In its proposal updating the region's audiovisual media and TV rules, the European Commission said member states can require on-demand services established in a different European country to fork out cash to finance production of its domestic film and TV content. The financial contributions would only be based on the revenue generated in the imposing country, the EU said.

"The way we watch TV or videos may have changed, but our values don't," said EU Digital Commissioner Günther Oettinger. "We also want to ensure a level-playing field, responsible behavior, trust and fairness in the online platforms environment."

The proposed changes have a potentially significant financial impact for companies such as Netflix, whose European headquarters are in the Netherlands, but which may now have to contribute between about 15% and 26% of its French revenue to France's government-enforced system to support film and television production.

Other EU countries including Italy, Spain and Belgium also have financing requirements for broadcasters and distributors, but none are as big as France's.

Netflix has signaled its opposition to such a change. "[T]he focus of European audiovisual media policy should be on incentivizing the production of European content and not imposing quotas," the company wrote as part of a public consultation last year on the new rules.

"We appreciate the Commission's objective to have European production flourish, however the proposed measures won't actually achieve that," a Netflix spokesman said Wednesday.

France, which has been pushing the EU to impose stricter rules on Web companies, has for several years been pressing for a way to force firms like Netflix to contribute to its system for promoting film and TV production, looking to compensate for declining revenue as viewers migrate away from traditional TV.

When Netflix launched in France in 2014, the government tried to convince the company to set up a French unit that would be subject to French cultural taxes. Instead, Netflix has pursued a strategy of making original programs on its own outside of government obligations. It just debuted a new political drama named "Marseille," starring Gerard Depardieu.

The commission's proposal is a long way from being the final word. Before it is formally adopted, it will likely be amended by national governments and the European Parliament, a process that can take many months or even years.

Under the proposed changes, the commission also said web platforms with a large catalog of videos would also be required to protect minors from harmful content and protect citizens from incitement to hatred. It would also require on-demand services to ensure that at least 20% of their content is European. The share of European films for both Netflix and Apple's iTunes is already at 21%, according to the EU.

Wednesday's announcement is the first move by the EU to impose new rules on Internet platforms after it scrapped previous plans to regulate an array of web companies under one sweeping piece of legislation.

The move to regulate big Internet platforms in a piecemeal way is a partial victory for companies, which have lobbied against the idea of big transversal rules--arguing that such a move could lead technology firms to curb investment in Europe.

But the strategy also could lead to more fragmentation of rules across the EU. France, for instance, is currently in the final phases of deliberating a new "Digital Republic" law that could create some France-specific regulations for Internet platforms. In one recent draft, they include a requirement for firms to turn over information on users to tax authorities.

The EU says it will address any problems arising from disruption by web platforms in its various proposals, including new copyright and telecoms rules due in the fall. The commission will decide this year if any other rules to address platform issues are needed, beyond those already in the pipeline.

That's how we're going to reach our goal of a level-playing field--for traditional broadcasters, for telecoms operators on one side and for new services on the other," said Mr. Oettinger, adding that he was confident web platforms would still be able to succeed in the EU despite any new rules.

The commission said it would also investigate issues raised by businesses, who have accused some platforms of unfair terms and refusing firms access to essential business data or promoting their own service to the detriment of the third-party supplier. The EU will determine by spring of next year whether more action is needed, it added.

The commission also called on web platforms to abide by existing rules and to indicate more clearly which search results are sponsored and to tackle practices such as fake or misleading online reviews.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam Schechner at sam.schechner@wsj.com

(END) Dow Jones Newswires

May 25, 2016 10:15 ET (14:15 GMT)

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