



This article offers an analysis of one small-nation market’s perspective on the current and expected changes of digital distribution and its intermediaries. It demonstrates how key stakeholders in the Czech audiovisual distribution sector are reacting to regulatory processes at the EU level and how they are reconsidering their existing business practices, strategic plans, and structural positions vis-à-vis new global trends and competition in the evolving sphere of digital distribution. The article is not a full- edged analysis of the Digital Single Market’s (DSM) potential impacts: instead, it considers DSM as just one factor in the strategic thinking of stakeholders, a factor that functions as a catalyst and a focal point in both business operations and policy-making.




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Cinéma & Cie. Film and Media Studies Journal
Localize or Die: Intermediaries in a Small East-Central European On-Demand Market
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2017-10-01
2021-10-06
2017-10-01
2024-02-14
Cinéma & Cie
Petr Szczepanik
2017/10/01
Charles University
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Localize or Die: Intermediaries in a Small East-Central European On-Demand Market
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17
Localize or Die: Intermediaries in a Small East-Central
European On-Demand Market
Petr Szczepanik, Charles University1




Abstract

    This article offers an analysis of one small-nation market’s perspective on the
    current and expected changes of digital distribution and its intermediaries.
    It demonstrates how key stakeholders in the Czech audiovisual distribution
    sector are reacting to regulatory processes at the EU level and how they are
    reconsidering their existing business practices, strategic plans, and structural
    positions vis-à-vis new global trends and competition in the evolving sphere of
    digital distribution. The article is not a full-fledged analysis of the Digital Single
    Market’s (DSM) potential impacts: instead, it considers DSM as just one factor
    in the strategic thinking of stakeholders, a factor that functions as a catalyst and
    a focal point in both business operations and policy-making.


  Virtually all key stakeholders in European screen industries have been involved
on some level in a heated debate over the last two years, ever since the Juncker
Commission (hereafter, ‘the Commission’) announced its strategy for the EU
Digital Single Market (DSM).2 From an outside perspective, it would seem
that most traditional players remain united in opposition to the DSM and are
consequently voicing their strong criticism via professional associations that have
been lobbying both national and EU policy-makers. These associations perceive
DSM as an existential threat, and they have worked hard to minimize the impact

1
  This work was supported by the Czech Science Foundation [project reference 17-13616S] and
by the European Regional Development Fund [project ‘Creativity and Adaptability as Conditions
of the Success of Europe in an Interrelated World’, No. CZ.02.1.01/0.0/0.0/16_019/0000734].
2
  See European Commission, ‘Shaping the Digital Single Market’, <https://ec.europa.eu/digital-
single-market/en/policies/shaping-digital-single-market> [accessed 28 August 2017]. Within
the framework of the strategy, the European Commission proposed, among others, three key
regulations and directives between 2015 and 2016 to eliminate or reduce barriers to the cross-
border portability and availability of digital content: 1) the proposal for a regulation on ensuring
the cross-border portability of online content services in the internal market (COM[2015] 627); 2)
the proposal for a regulation on the exercise of copyright and related rights applicable to certain
online transmissions of broadcasting organizations and retransmissions of television and radio
programmes (COM[2016] 594); 3) the proposal for a directive on copyright in the Digital Single
Market (COM[2016] 593).

                                                         Cinéma & Cie, vol. XVII, no. 29, Fall 2017
                                         Petr Szczepanik


of what they see as a risk to their established business models and practices: the
potential undermining of the territory-by-territory licensing system. However,
this image of seeming unity begins to fracture as soon as we move our examination
to the more specific local and intrasectoral levels.
   This article offers an analysis of one small-nation market’s perspective on
the current and expected changes with regard to digital distribution and its
intermediaries. It demonstrates how key stakeholders in the Czech audiovisual
distribution sector are reacting to regulatory processes at the EU level and how
they are reconsidering their existing business practices, strategic plans, and
structural positions vis-à-vis new global trends and competition in the evolving
sphere of digital distribution. The article is not a full-fledged analysis of the
DSM’s potential impacts: instead, it considers it as just one factor in the strategic
thinking of stakeholders, a factor that functions as a catalyst and a focal point in
both business operations and policy making.
   Digitalization has contributed to significant transformations in audiovisual
distribution, but it is also locked into a relationship with and influenced by
established practices and business models in home video, broadcasting, and
cinema exhibition, as well as the established viewing habits related to them.3
Commentators often focus on issues of the shortening or merging of distribution
windows, online piracy and informal economies, or the supposed disappearance
of traditional intermediaries and their replacement with direct-to-consumer
approaches.4 Using the Czech Republic as a case study, I concentrate on the
changes that are directly or indirectly connected to the socio-economic and
structural features of media industries in small EU countries (i.e. countries with
small markets, populations, and languages).
   Recent literature on small-nation media has demonstrated that the size of
a market has an impact on its key institutional and cultural characteristics.5 It
is presumed here that these specific features make small-nation media systems
more dependent on decisions made elsewhere and vulnerable to foreign market
dynamics and competition, as well as to structural changes like globalization and
concentration. A nation’s smallness limits its resources and business opportunities
(e.g., the shortage of creative talent and capital, small audience market, and
advertisement investment) as well as policy options. However, EU media policy
does not take these limitations into account sufficiently.6 The Estonian media


3
  See Virginia Crisp, Film Distribution in the Digital Age: Pirates and Professionals (Basingstoke:
Palgrave Macmillan, 2015), p. 56.
4
  See e.g. Digital Disruption: Cinema Moves On-line, ed. by Dina Iordanova and Stuart Cunningham
(St. Andrews: St. Andrews Film Studies, 2012).
5
   See e.g. The Cinema of Small Nations, ed. by Mette Hjort and Duncan Petrie (Edinburgh:
Edinburgh University Press, 2007).
6
  Josef Trappel, ‘Small States and European Media Policy’, in The Palgrave Handbook of European
Media Policy, ed. by Karen Donders, Caroline Pauwels and Jan Loisen (Basingstoke: Palgrave
Macmillan, 2014), pp. 239–53. See Trappel also for the discussion of how ‘small country’ is defined
in relevant literature.

34
     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


scholar Indrek Ibrus recently claimed this vulnerability is made even more visible
by the Commission’s DSM initiative, because of ‘the limited degrees of freedom’
small states are granted in directing their own audiovisual policies.7
   Critical media industry studies face many challenges when analysing the DSM,
since the whole set of legislative measures is extremely complex, still evolving,
and places screen industries in a broad context of international trade of digital
goods and services. After observing or attending various kinds of consultation
sessions and meetings held by different policy-making and cultural institutions
on both the national and EU level, I was pushed as a scholar to revise my
understanding of what screen industries are by including a number of previously
unaccounted agents. I have also had to revise my understanding of the work that
distributors actually do today: to accept that they have assumed more complex
roles, including involvement in rights aggregation, digital curating, and internet
television.
   This study is based on ten semi-structured interviews with some of the
major players in the on-demand market and covering all the relevant business
models. The interviews focused on the respondents’ business models, strategies
and practices, and on the challenges they associate with the DSM strategy.8 I
am primarily interested in the way they reflect on their changing distribution
practices, and more specifically on the new intermediary roles they have assumed
with regard to the on-demand market. For the sake of this study, I understand
digital distribution intermediaries in a broad sense as content-related services
(content aggregation services and, in the realm of the informal economy, user-
uploaded content platforms),9 rather than media infrastructures (such as ‘content
delivery networks’ or ‘software infrastructure’), which also fulfill extremely
important, albeit often ‘invisible’ intermediary roles.10


7
   Indrek Ibrus, ‘The EU Digital Single Market as a Mission Impossible: Audio-Visual Policy
Conflicts for Estonia’, International Journal of Digital Television, 7.1 (2016), 23–38.
8
   The interviewees were first asked to describe their business model, their position on the cross-
border accessibility of audiovisual content in the EU (with the focus on their company, the national
production, and the role of territorial exclusivity), and their position on the principles of the DSM
strategy. Since the DSM strategy is still being reshaped and their awareness of it was uneven, they
were also presented with alternative model scenarios of the key legal norms. At the end, each
respondent was given opportunity to articulate the most acute problems her/his business faced.
The sample consists of executives of the companies Seznam.cz, Bontonfilm, CinemArt, Aerofilms,
Doc Alliance Films, Prima, Česká televize, O2 Czech Republic, Banaxi Limited, and Film Europe.
The interviews were conducted in late 2016 and early 2017 by myself and my colleague Pavel
Zahrádka, with whom I co-wrote an analysis of these stakeholders’ perspectives on DSM — See
Pavel Zahrádka and Petr Szczepanik, ‘Business Practices of Czech Audiovisual Distributors and
Their Attitudes toward the Digital Single Market Strategy: Challenges, Risks, and Opportunities’,
in The Cambridge Handbook of IP Law & Policy in Central & Eastern Europe, ed. by Mira T. Sundara
Rajan (Cambridge: Cambridge University Press, 2017) (forthcoming, submitted manuscript).
9
   See Gilles Fontaine and Patrizia Simone, VOD Distribution and the Role of Aggregators
(Strasbourg: European Audiovisual Observatory, 2017), p. 33.
10
    For a discussion of invisibility or ‘transparency’ of these infrastructural intermediaries, see
Joshua Braun, ‘Transparent Intermediaries: Building the Infrastructures of Connected Viewing’,

                                                                                                  35
                                        Petr Szczepanik


Video-on-Demand in the Czech Republic: Market Context

   Before presenting the analysis of qualitative data derived from the interviews,
observations, and policy documents, it is necessary to present a short overview of
the national on-demand audiovisual market in the Czech Republic and its basic
socioeconomic characteristics. Similarly to other European countries after 2010,
on-demand services represent the smallest, but the fastest-growing segment of
the Czech audiovisual market, with SVOD (subscription video-on-demand)
being the most dynamic type of on-demand services in terms of consumer
revenues. While the Czech Republic’s share of the EU on-demand market is
relatively low (in 2014, SVOD revenues were highly concentrated to the biggest
EU markets: 47% in the UK, 23% the Nordic countries, 11% Benelux, 7%
France, and 6% Germany), its compound annual growth rate is high (115% for
SVOD between 2010 and 2014).11 This growth is expected to continue in the
upcoming years. While Czech VOD consumer revenues increased from €0.4 to
€11.8 million between 2010 and 2014, the Commission’s assessment indicates it
will reach €55,3 million in 2017.12 Although there are no official national statistics,
an experienced CEO estimates that VOD revenues currently account for almost
50% of the shrinking physical video market, thus gradually compensating for the
losses the home entertainment business suffered in previous years.13
   The Czech on-demand market structure shows a clear division between
international and domestic services, between mainstream and arthouse portals,
and between long- and short-format, ad-supported videos. Mainstream VOD
portals tend to be associated with other kinds of commercial services and cater
to a pre-established base of consumers: the largest ones include Voyo (a SVOD
owned by the largest domestic private TV network ‘Nova’ and serving in part
as its online archive), O2TV (a transactional VOD of a major telecom operator),
and Alza Media (an ancillary service of an internet-based retailer). Niche
portals represent the second type of national on-demand services: the TVOD
Aerofilms is linked to the strongest arthouse theater chain/distributor, while
the SVOD DAFilms is a publicly subsidized documentary platform (founded
as a partnership between seven European documentary festivals). The leaders


in Connected Viewing: Selling, Streaming, & Sharing Media in the Digital Era, ed. by Jennifer Holt
and Kevin Sanson (London and New York: Routledge, 2014), pp. 124-143; for CDNs see e.g.
Max Dawson, ‘“Level Who?” Digital Distribution’s Mysterious Middlemen’, in Media Industries
Project, 21 March 2011 <www.carseywolf.ucsb.edu/files/Dawson_NetWorth.pdf> [accessed
28 August 2017]; for a broader discussion of ‘media infrastructures’ see Signal Traffic: Critical
Studies of Media Infrastructures, ed. by Lisa Parks and Nicole Starosielski (Urbana, Chicago, and
Springfield: University of Illinois Press, 2015).
11
   Laura Croce and Christian Grece, Trends in Video-on-demand Revenues (Strasbourg: European
Audiovisual Observatory, 2015), pp. 10-11.
12
   See ‘Impact assessment accompanying the Proposal for a Directive of the European Parliament
and of the Council amending Directive, 2010/13/EU.’ Bruxelles, 25 May 2016.
13
   Jan Hanzlík, ‘Z VOD se stal životaschopný byznys. Rozhovor s Ondřejem Kulhánkem’, Iluminace,
29.2 (2017), 105–13 (p. 106).

36
     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


among international VOD portals are HBO GO, iTunes, Netflix, and Google
Play. The last, extremely dynamic group consists of AVOD (advertising-based
VOD) portals or short-format internet television.
   The DSM strategy has been presented, among other things, as an answer to
the notoriously low levels of cross-border availability of European audiovisual
content, especially of European films. As the Commission stated in 2015, ‘less
than 4% of all video-on-demand content in the EU is accessible cross-border.’14 A
recent study showed that EU films are available on VOD in only 2.8 EU countries
on average (and 50% of them are available only in one EU country), compared
to 6.8 EU countries in the case of US films.15 In the Czech Republic, the national
orientation of the entire audiovisual industry seems even more significant than
the EU average. Only 13% of 81 VOD services available in the country (in 2016)
are non-national,16 while 36% of respondents in a Eurobarometer study claimed
that ‘they would not be able to use or understand the content offered in other
Member States’ (the fourth highest percentage in the EU and the highest among
the EU-13 countries). There is also a relatively low interest in content from other
EU countries in Czech Republic.17 The on-demand market’s national orientation
is in accord with other media industries. This can be illustrated, for example,
by the relatively high market share of Czech films in theatrical exhibition,18 or
by statistical estimates showing that the largest Czech search engine and web
platform Seznam.cz is a European exception in terms of being able to compete
with Google in its domestic market. Although Google recently surpassed it in
terms of full-text search, Seznam — exaggeratedly dubbed ‘the only company in
Europe that is beating Google’ — is still stronger in other parameters, such as
news and email.19
   In terms of the origins of audiovisual content, VOD catalogues available
in the country differ significantly between international and Czech platforms.
While iTunes’ and Netflix’s Czech catalogues offer a below-EU-average share
of both European and national titles (16% and 14% for EU28 titles, 2% and

14
   Communication from the Commission to the European Parliament, the Council, the European
Economic and Social Committee and the Committee of the Regions, ‘A Digital Single Market
Strategy for Europe’ (COM[2015] 192), 6 May 2015.
15
   The difference is even greater in terms of cinema distribution: 2.6 countries for EU films and 9.7
for US films. See Christian Grece, How Do Films Circulate on VOD Services and in Cinemas in the
European Union? (Strasbourg: European Audiovisual Observatory, 2016), p. 23.
16
   Bruno Zambardino, AVMSD Reﬁt or Reform? Audio Visual Media Services in the Digital Era
(Bruxelles: I-Com, 2016), pp. 27, 29.
17
   Flash Eurobarometer 411: Cross-Border Access to Online Content (European Union, 2015).
18
   Almost 30% in 2016, see a statistical overview of the Czech Producers Association: Asociace
producentů v audiovizi, ‘2016: rok stabilizace financování kinematografie a rekordního zájmu o
českou produkci u diváků’, <www.asociaceproducentu.cz/prispevek/33> [accessed 28 August
2017].
19
   See Czech internet statistics <www.toplist.cz/stat/?a=history&type=4> [accessed 28 August
2017]; see also Lloyd Waldo, ‘Meet the Only Company in Europe that is Beating Google’, Start Up
Yard, 3 January 2014, <http://startupyard.com/meet-the-only-company-in-europe-that-is-beating-
google-seznam-cz> [accessed 28 August 2017].

                                                                                                  37
                                        Petr Szczepanik


close to zero for national titles respectively, in 2016/2017), domestic VOD
catalogues show a much more European/national orientation: 48% from the
EU28 and 11% of national origin in the catalogue of the ‘Nova’ network’s
SVOD Voyo.20 The largest national AVOD, Stream.cz, recently removed all
foreign content acquisitions in order to concentrate solely on its original Czech
production. The rapidly growing free online service of the Czech public-
service broadcaster Česká televize is also limited to its own originally produced
content.


Content Types

   Distributors operate in a number of various regimes corresponding to
differences with regard to types of content, the rights they are buying, and the
platforms to which they supply their titles. I distinguish the following ‘content
types’ exclusively in terms of corresponding distribution practices, not by their
internal characteristics.
   The first, most lucrative and most expensive category consists of major US
studios, who sell their titles directly or via European branches to individual
territories and for individual distribution windows. The majors operate in a
centralized and coordinated manner and sell different kinds of rights separately,
while local distributors have a very little bargaining power to influence the rules of
the game. When the majors decided to transfer theatrical rights from their long-
time local partner Bontonfilm to its competitor Cinemart in 2013, this altered
power relations in the entire field, and Cinemart replaced Bontonfilm as the
undisputed theatrical market leader. However, Bontonfilm retained DVD/BD
rights, which still represent its largest revenue source. Local cinema distributors
have little control over the majors’ licensing of VOD rights, and there is not
much room for local aggregators: with only a few exceptions, the studios manage
their digital distribution directly or via their local branches.
   The second category consists of US independents, who sell local distributors
‘all rights’ in a ‘bundle’ for both the Czech and Slovak markets (which are, from
a business perspective, considered one territory). The local cinema distributors
thus operate as aggregators of DVD/BD, television and VOD rights, too, with
television rights comprising a very lucrative part of the bundle.
   The third category are European and global arthouse titles that are similar to
the US independents, but differ in terms of negotiating licenses. Licenses are
negotiated on an individual basis at industry market fairs and festivals, and local


20
  Gilles Fontaine and Christian Grece, Origin of Films and TV Content in VOD Catalogues in the
EU & Visibility of Films on VOD Services (Strasbourg: European Audiovisual Observatory, 2016).
The Czech Netflix catalogue has grown rapidly in terms of volume since the company’s entry into
the local market in early 2016, but of a total of 3276 titles (in October 2017), only four were of
Czech origin. See <http://unogs.com> [accessed 17 October 2017].

38
       Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


releases often occur long after their original premiere. The local production of
DVDs and BDs has proven to be financially unprofitable for the most part, but
a small portion of these titles are sold to the domestic public-service broadcaster
(PSB) as well as to the local branch of HBO, and most appear on one or more
VOD platforms. Arthouse films need to be carefully selected and localized,
they require special expertise and sometimes special events (festivals) to build
sufficient audience interest, and thus local distributors are not very worried
about losing them to global players.
   Czech films (both fiction and feature documentaries) form the most diverse
category of content. Unlike foreign titles, they can be licensed either for the Czech
or the Czech-Slovak market exclusively, if not for selected foreign territories, or
even worldwide. Television rights are usually excluded from a bundle, because
producers deal directly with the PSB or private networks, pre-selling broadcasting
rights in exchange for some production or even development investment. (The
PSB Česká televize has been the most frequent co-producer of Czech films since
the 1990s.) VOD rights are usually traded as non-exclusive, and on a territorial
basis, with multi-territorial licenses for worldwide VOD distribution limited to
the titles whose commercial prospects abroad are relatively low. Direct-to-VOD or
day-and-date distribution is very rare: Czech producers insist on having a theatrical
release even with very low-budget films — even if it is only for a very short time
with very low revenues (only several thousand viewers per film is not unusual).
   Original short-format web videos, both fictional and non-fictional, comprise
a very specific content type. Stream.cz, the strongest national internet television
portal mentioned above, currently achieves very high numbers with its most
successful shows, primarily satirical comedies, thus effectively competing with
the most prominent programs of traditional broadcasters. Public reception has
praised its innovative programs for filling a gap in the programming of the PSB,
which has been wary of satirizing current political and social affairs. Copyrights to
short-format videos are fully controlled by the internet platforms that produced
them, which have shown no significant interest in cross-border distribution,
apart from to Slovakia.
   My examination of the local on-demand market revealed that the VOD
business includes some players that would not fit the traditional definition of
an audiovisual distributor: internet retailers, telecom operators, film festivals, a
search engine, etc. At the same time, VOD rights are traded by the traditional
cinema distributors and by broadcasters, too. In the following overview of the
key stakeholders, I focus exclusively on the local players, leaving aside operations
of global platforms that have so far provided only very weak localization of their
catalogues. Netflix, which launched its Czech service in 2016, currently offers just
over 130 titles with Czech subtitles and 10 with Czech dubbing,21 and is widely
considered a disappointment. However, there is one significant exception, which


21
     See <http://unogs.com> [accessed 17 October 2017].

                                                                                           39
                                          Petr Szczepanik


would require a separate essay for proper examination: HBO Czech Republic,
which is well-established on the local market (it debuted in 1994) and which has
supported its pay-cable business and the recent launch of its OTT service HBO
GO by producing high-end local programs, including the award-winning mini-
series Burning Bush, directed by Agnieszka Holland.


Traditional Film Distributors

   Bontonfilm is a well-established cinema distributor (founded in 1994) with a
10% share of the domestic theatrical market and has been a local leader in home
entertainment. Since the majors moved their theatrical rights to a competitor,
it has focused on DVD/BD production. However, revenues from this segment
have been steadily decreasing (by 35% between 2011 and 2014, in line with
the global trend), and Bontonfilm has decided to be more proactive in the on-
demand market. It became the strongest mainstream aggregator of VOD rights
with the largest library on the Czech and Slovak market.22 It tested its own VOD
portal, but determined that this development was too risky, and instead decided
to collaborate with almost all of the local platforms as well as some of their global
counterparts. Similarly to some of its local competitors (Bluesky, Bioscop), it signed
a direct aggregator contract with iTunes, which, unlike local VODs, stipulates
full exclusivity. According to Bontonfilm representative Ondřej Kulhánek, the
‘direct aggregation’ contract with iTunes allows for almost complete control over
release timing, pricing (within pre-set price limits), marketing, promotion, and to
a certain extent over the graphic design of the product page.
   Bontonfilm’s current distribution strategy aims at shortening holdbacks
between paid distribution windows as much as possible. Bontonfilm is still
obligated to respect a four-month holdback for first-run theatrical releases (due
to the traditionally strong negotiating position of theatrical chains), but then
the windows for DVD/BD and TVOD or EST (electronic sell-through) services
open simultaneously, followed several months later by SVOD, which converges
with pay-TV. The last window is FTA (free-to-air) television, followed in some
cases by AVOD — Bontonfilm has also established its own YouTube channel
‘KoukeYTe’ for older titles in Czech-language versions.
   Aerofilms, the strongest local player in the arthouse cinema sector (with a 3%
share of the total theatrical market), benefits from its vertical integration with
five prominent arthouse theaters and with an in-house TVOD platform Aerovod.
It typically purchases all-rights bundles for the Czech and Slovak markets and
effectively operates as a cinema distributor, exhibitor, VOD platform, and


22
  When a cinema distributor positions itself as an aggregator, this means that it compiles a catalogue
of digital rights, it processes the digital file for the online platforms according to their technical
requirements, and it can also provide marketing services and content curation. See Fontaine and
Simone.

40
     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


aggregator at the same time. It is also a national leader in ‘alternative content’
for theaters (for example, it organizes live transmissions from the New York
Metropolitan Opera), which accounts for 50% of its box office revenue.
   Co-owner and CEO of Aerofilms Ivo Andrle admits that in the beginning,
VOD was just a cheap and relatively undemanding way to test the digital market
for arthouse content. But in the last couple of years, revenues have boomed
without any significant further investment from his company: ‘We do much
more marketing work for theatrical releases than for VOD, but the internet
grows on its own, just because online audience behavior has changed.’ While
Aerofilms focuses its marketing campaigns on the exclusive event of the premiere
release in its theaters, VOD generates revenues steadily, without any specific
campaign. Aerofilm’s in-house portal Aerovod is growing rather slowly (700–300
transactions monthly after 5 years of existence), but VOD revenues have become
more significant in combination with revenues from other portals.
   The vertically integrated Aerofilms strategically focuses on cultivating a strong
brand presence and taking advantage of promotional synergy across distribution
channels: first by cultivating loyal audiences for its theaters, then using its unique
reputation as a reliable niche selector to sell its titles not only via its own TVOD,
but also to a number of other platforms. Its basic know-how and competitive
advantage consists of an intimate relationship with and deep knowledge of its
regular theatrical customers, who partly overlap with Aerovod’s online users. As
opposed to the ‘long-tail’ approach of more mainstream VODs, which is based on
exploiting vast catalogues of diverse titles, Aerofilms carefully cultivates a narrow
selection, intended to be followed by its audiences and business customers as a
whole. In this context, the in-house VOD portal is understood as not only an
extension of the theatrical distribution strategy, but also as an additional branding
instrument, serving to support B2B sales to other VOD portals. Andrle hopes that
having such a strong brand means that Aerofilms is better prepared for incoming
global competition and for the potential disruption of existing business practices
by the DSM.


Broadcasters

   Television networks moved into digital distribution in several different ways:
by establishing their own catch-up services, by partnering with IPTV (internet
protocol television) providers (mostly telecom operators), who introduced
time-shifting, or by launching standard VOD portals. Audience numbers in
this segment are booming, in line with the global development. Recently, online
viewing together with time-shift viewing represents up to 20% share of the total
audience of PSB’s TV series.23

23
      See     <www.ceskatelevize.cz/vse-o-ct/sledovanost-a-spokojenost/co-ct-nabidla-analyzy>
[accessed 17 October 2017].

                                                                                          41
                                    Petr Szczepanik


   All the leading local broadcasters are focused on the national market, with very
limited interest in cross-border digital distribution. The one exception is again
Slovakia, the only foreign market that requires no specific linguistic localization.
Slovaks can to a certain extent receive Czech FTA signals, but TV networks have
started limiting IPTV access to their programing because it clashes with territorial
licensing and coproduction agreements. In general, Czech broadcasters usually do
not engage in territory-by-territory licensing (with the rare exceptions of international
co-productions, e.g. with Arte), but instead choose between two kinds or rights:
either domestic or global, with the latter reserved for their in-house productions.
   As noted earlier, the strongest domestic commercial network Nova has
launched its own SVOD called Voyo, which builds upon the network’s well-
established brand presence and audience base and serves as both its online
archive and as a platform for independent Czech and foreign mainstream
films and TV series. It has the largest domestic catalogue with over 2000 titles,
including a proportionately large selection of recent Czech titles, and offers
additional services like the live-streaming of sports transmissions.
   The Czech PSB Česká televize employs its own free, partly advertisement-
supported streaming portal ‘iVysílání’ as a potentially unlimited catch-up
service. However, all non-internal acquisitions are excluded from the catch-up,
while co-productions with independent producers have only limited catch-
up. Independent co-producers can also negotiate to retain world-wide VOD
rights if they think their title has export potential. But the PSB itself is generally
uninterested in active cross-border distribution, because it is funded by the
license fee collected from domestic television-viewing households.


New Players

   I define as ‘new’ those players, who either emerged in direct relation to the
advent of digital distribution, or who entered audiovisual distribution as a result
of digitalization. The largest and the most influential group of new entrants are
telecommunication operators, who supplement their IPTV services with VOD
portals. The largest of these and the only strong local TVOD, ‘O2 Videotéka’,
is also the leader in the entire on-demand market (where the SVOD model
dominates). O2’s competitive advantage is based on having a large pre-existing
consumer base (over 220,000 customers), and on its direct contracts with
Hollywood majors. In its catalogue, O2 offers a mixture of Hollywood titles
and content supplied by local distributors or by Czech producers. Despite being
owned by an international financial group, O2’s TVOD is limited to the Czech
territory, and it does not declare any plans for international expansion. Some
retailers operate similarly to telcoms: offering their VOD services as a kind of
benefit to their customers. Although Tesco Czech Republic closed its VOD
portal in 2015, the electronics internet retailer Alza continues to offer TVOD/
SVOD as a supplementary service to its customers.

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     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


   The second group of new entrants are rights aggregators. The strongest
commercial standalone aggregator Banaxi, with historical background in brick-
and-mortar video rentals, operates its own SVOD portal. However, according
to its CEO Radek Přikryl, rather poor business results have led the company
to focus instead on B2B services to large telcoms and international electronics
producers, including passenger entertainment systems. Banaxi’s equivalent in the
arthouse sector is the aggregator Film Europe, which specializes in selling film
rights to theatrical distributors, broadcasters, and VOD platforms (including
global platforms), while at the same time operating its own internet television
channels. Its strategy is to build marketing campaigns around special events, most
prominently a festival called ‘Be2Can’, which specializes in presenting ‘selected
top-notch films from the world’s three most prestigious festivals.’24 Banaxi and
Film Europe differ from all the other stakeholders in that they are planning for
international expansion in the near future.
   Although several unsustainable services (mostly mainstream stand-alone
VODs) have already vanished and the on-demand market has matured over
the past decade, there are still some mavericks trying their luck in the digital
distribution business. The stand-alone VOD/internet television channel ‘Obbod’
was launched by a former energy entrepreneur, who chose to start his endeavor
with the production of an original web series in the early 2017, a strategy that
proved temporarily successful, with the most popular webisode attracting a
million viewers. Obbod operates as an SVOD focusing on Czech titles selected
from the libraries of large local distributors as well as the National Film Archive.
Its approach of mixing original short-format web series with acquisitions
consisting mostly of American feature films and its emphasis on localization thus
makes it a hybrid between internet television and VOD.25
   While add-on services generally appeal to broadly conceived mainstream
audiences, stand-alone services tend to be distinguished by niche content and
audiences, including alternatives to the mainstream.26 This is best illustrated by
the documentary SVOD ‘DAFilms’ initiated by Doc Alliance, a partnership of
seven European documentary festivals and operated as a publicly subsidized
platform. Although its revenues are still quite low, Doc Alliance has the
advantage of close relationships with a dedicated international community
of documentary producers, filmmakers, and festival-goers. Its potential and
ambition in cross-border distribution is thus logically higher than with all
mainstream VODs. DAFilms aims for global circulation whenever it is able to
acquire a multi-territorial license. Its catalogue currently consists of over 1500

24
   See Be2Can, ‘The Be2Can Manifesto’ <www.be2can.eu/en/about> [accessed 17 October 2017].
25
   ‘Kamil Ouška (Obbod): Jeden díl Vyšehradu má milion přehrání. Lavický je jako Cimrman’
Lupa.cz, 25 January 2017, <www.lupa.cz/clanky/kamil-ouska-obbod-jeden-dil-vysehradu-ma-
milion-prehrani-lavicky-je-jako-cimrman> [accessed 28 August 2017].
26
   See Elizabeth Evans and Paul McDonald, ‘Online Distribution of Film and Television in the
UK’, in Connected Viewing: Selling, Streaming, & Sharing Media in the Digital Era, ed. by Jennifer
Holt and Kevin Sanson (London and New York: Routledge, 2014), pp. 158–79 (p. 163).

                                                                                               43
                                        Petr Szczepanik


titles, and it regularly offers carefully curated programs (e.g., festival selections,
retrospectives) and organizes its own awards.
    As mentioned above, one of the most dynamic segments of digital distribution
is short-format video streaming, dominated by Stream.cz, an internet television
portal fully owned by the domestic equivalent of Google and the strongest Czech
platform, Seznam.cz.27 The recent boom in this last segment is seen by insiders as
a direct result of the development in the online advertising market over the last
seven years. The AVOD segment used to suffer from competition with linear TV,
which traditionally attracted a larger share of video ad spending. However, the
Czech Republic has had the highest online ad spending ratio per capita among
the EU13, and it continues to grow at a faster rate than TV ad spending.28 The
recent successes of Stream’s original series production, with its top hits reaching
hundreds of thousands of views, have made it a serious competitor to both
private and PSB networks. Short video streaming is the only formal-economy
segment of digital distribution where disintermediation, i.e. the disappearance
or collusion of traditional distribution windows and intermediaries (distributors,
exhibitors, and broadcasters)29 seems to be indeed taking place: the online
television portal itself acts as sole producer, distributor, and exhibitor of its own
content; and it also holds all copyrights. However, even Stream makes use of
traditional distribution channels: it launched its own smart TV app in 2014, as
of 2017 it is being integrated into the linear television programing of ‘Seznam.
cz TV’ (a HbbTV service of its mother company), and it is experimenting with
special theatrical premieres of its new series.


Informal Economy Channels

   The sector that Ramon Lobato has called the ‘informal economy’ — which
includes file-sharing platforms of various kinds — is very diverse and has many
links and overlaps with the ‘formal’ distribution channels.30 Its broad and
global offering of immediately accessible free content is extremely attractive
for users who are not used to paying for online video, especially in the context
of fragmented local markets. YouTube’s Content ID, a proprietary copyright

27
   For Seznam’s own estimate of its market share see <https://ec.europa.eu/futurium/en/content/
digital-single-market-perspective-only-european-competitor-google> [accessed 28 August 2017].
28
   The Czech Republic is among the nine EU countries where online advertising surpassed TV
advertising in 2015 — see Christian Grece, The Online Advertising Market in the EU (Strasbourg:
European Audiovisual Observatory, 2016), p. 18. Interviews with Stream.cz executives and
producers were conducted by my student Dorota Vašíčková for her thesis Stream.cz and Its Original
Series Production (Charles University, 2017).
29
   See Dina Iordanova, ‘Digital Disruption: Technological Innovation and Global Film Circulation’,
in Digital Disruption: Cinema Moves On-line, ed. by Dina Iordanova and Stuart Cunningham, pp.
1–32.
30
   Ramon Lobato and Julian Thomas, The Informal Media Economy (Cambridge: Polity Press,
2015).

44
     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


management system allowing rights-holders to identify and monetize user-
uploaded content, illustrates how an efficient ‘formalization’ of an informal
economy looks like.31 Local file-sharing platforms such as Ulozto.cz, on the
other hand, oppose the pressure to monitor user-uploaded content or to enter
into agreements with rights-holders,32 because this would destroy their business
model (which is based on providing file-hosting services under the ‘Safe Harbor’
framework, while profiting from subscriptions and advertising) and because
the expense of developing an equivalent of Google’s Content ID supposedly
exceeds their financial possibilities. As a consequence, there is an ongoing
fundamental conflict between them and the rights-holders, which is made clearly
visible in DSM-related consultations. The platforms’ proposals for legalizing
user-uploaded content generally transfer responsibilities for the identification
and policing of content to the rights-holders, and they are typically rejected for
this reason. The file-sharing platforms prefer to continue operating under the
‘notice-and-takedown’ regime, which rights-holders consider an unreliable and
insufficient form of protection.


The Digital Single Market from the Perspective of a Small Country

   The DSM-related consultations organized by the Czech Ministry of Culture
and the Ministry of Industry and Trade are an opportunity to observe how
the Commission’s regulatory proposals affect the strategic thinking of all the
stakeholders. My colleague Pavel Zahrádka and I took part in some of the
meetings (as consultants for the Czech Cinematography Fund), after which we
proposed an analysis of the local stakeholders’ attitudes toward key elements of
the EC DSM strategy.33 Here I will summarize briefly the key patterns specifically
linked to the small-nation market and the concept of cultural intermediation.
   Local distributors mostly restrict their operations to the Czech and Slovak
markets, and they are not interested in increasing the cross-border circulation
of their content. Some of them acknowledge that the DSM may be a legitimate
response to consumer frustration with digital barriers that limit legal access to
audiovisual content, and that the DSM is in line with the idea of a unified Europe.
They accept the necessity of certain minor elements of the strategy (mainly
the ‘portability’ principle allowing cross-border travelers to access their online
services abroad), but they do not welcome the long-term strategic goal of the DSM:
removing obstacles to the circulation of works and achieving ‘full cross-border


31
   For corporate statistics on Content ID see the new version of Google’s PR brochure How Google
Fights Piracy (July 2016).
32
   See the Article 13 on the ‘use of protected content by information society service providers’ in
the Proposal for a Directive of the European Parliament and of the Council on copyright in the
Digital Single Market, COM(2016) 593.
33
   See Pavel Zahrádka and Petr Szczepanik.

                                                                                                45
                                           Petr Szczepanik


access for all types of content across Europe’. If the most radical scenario of the
DSM is to be implemented (i.e. mandatory pan-European licensing replacing the
territory-by-territory system),34 the local distributors fear they would then lose the
segments of independent production to more powerful international competitors.
They believe that the all-rights bundles would be divided, license prices for certain
content types would increase (especially where natural language barriers do not
limit the potential market to the domestic territory), and the DSM would thereby
strengthen global competitors and oligopolies. It would complicate their vital
collaboration with Slovak partners, both in terms of cross-border cannibalization
of distribution windows and the loss of foreign co-production investment.
Production investment in Czech films and Czech majority co-productions would
be riskier if distributors lose territorial exclusivity.
   Stakeholders are not interested in what would theoretically be DSM’s key
benefits: whether ‘passive sales’ (accepting cross-border sales from outside
the licensed territory, without actively promoting or advertising the concerned
services)35 or saving on transaction costs through a decrease in the number
of licensing parties. This is because such costs supposedly do not play any
significant role in the process of distributing Czech titles – virtually the only
content category that they can hope to sell across Europe.36 They do not
consider the poor cross-border circulation of Czech audiovisual content to be
the result of the market barriers that the DSM addresses, but rather a product
of the local producers’ insufficient resources and lacking motivation to develop
internationally marketable products.37


34
   The DSM strategy declares its ‘ultimate objective’ of ‘full cross-border access for all types of
content across Europe’ can be achieved only via a ‘gradual approach’, because such a goal ‘needs
to be balanced with the readiness of markets to respond rapidly to legal and policy changes and
the need to ensure viable financing models for those who are primarily responsible for content
creation’. See COM(2015) 626, 9 December 2015. The Commission does not currently explicitly
propose obligatory pan-European licensing, nor a ban of territory-by-territory licensing. However,
opponents of the DSM are afraid that the proposal to extend the ‘Country-of-Origin’ principle
to online TV-services and the prohibition of geoblocking would mean a de-facto introduction of
pan-European licensing. See e.g. Audiovisual Sector Coalition Position Paper on the European
Commission Draft Regulation Applying the Country of Origin Principle to Licensing of Certain
Broadcasters’ Rights Online <www.europa-distribution.org/assets/AV-Coalition-Country-of-
Origin-Paper_November-2016.pdf> [accessed 28 August 2017].
35
   They do not believe there is significant interest in Czech films outside the Czech or Slovak
markets.
36
   Copyrights are typically aggregated in the hands of producers, which hypothetically allow
producers to grant distributors a multi-territory license; this is why distributors or broadcasters
could clear the rights within a single transaction. The Czech producers, however, still prefer
traditional territory-by-territory licensing, while direct deals with aggregators or platforms, granting
them multi-territory licenses, are an exception. (Only recently did a Czech producer pre-sell global
rights to Netflix in exchange for some production investment — the film will be released in the late
2017 under the title Milada.) This practice is in line with findings in other European countries — see
Gregor Langus, Damien Neven and Sophie Poukens, Economic Analysis of the Territoriality of the
Making Available Right in the EU (Bruxelles: Charles River Associates, 2014), pp. 96–97.
37
   For an industry analysis of Czech producers’ business models and the role of public subsidies in

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     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


   At the same time, local stakeholders are not as worried as their larger West-
European counterparts about losing their market share. The main reason for
their restrained approach is the belief that local market specificity and the
localization of content will play a crucial role in the on-demand market in the
near future. They are not preparing to compete with Netflix by expanding on an
international scale, but rather by taking advantage of their intimate knowledge
of local audiences — their habits, tastes and preferences — as well as the local
media infrastructure, legal system, and industry networks. It is not merely
the shared Czech language, but also familiar user interfaces and distributor
brands that — according to local distributors — account for the strong loyalty
of Czech online audiences. The confident attitude that national orientation
and specialization will help to compete with intensifying global competition is
typical not only for the add-on VOD services of telcoms or broadcasters, but
is even present among arthouse theatrical distributors. Niche distributors like
Aerofilms (whose strategy and brand is built on the cultivation of their own chain
of specialty movie theaters) or Film Europe (which does the same via several
small festivals specializing in award-winning films) feel more secure than their
mainstream counterparts like Bontonfilm or Cinemart, who are compelled to
search for new allies, to build their digital operations with the help of established
local VODs or under the auspices of iTunes, Google Play, and YouTube, rather
than establishing their own, stand-alone services. Mainstream distribution seems
to be more volatile than that of non-mainstream-oriented content. The common
knowledge among industry players is that local, mainstream, on-demand services
can survive only through add-on services that build on established consumer
bases, or through collaboration with global platforms.
   Seen from this perspective, the DSM, although still awaiting its final form,
is having quite a different effect than expected by its proponents. Instead of
expanding cross-border circulation, supporting cultural diversity, and stimulating
innovative business models, it is rather pushing local players to solidify their
national orientation as the most reliable survival strategy. Instead of harnessing
new opportunities for expansion and export, the main focus of local distributors
is pressing policy-makers to preserve the existing system and to implement more
efficient regulation of the informal economy. One possible explanation for this
centripetal tendency lies with the structural features and limitations of small-
country media markets outlined in the introduction to this article. While globally
circulating media products and services are developed with the resources of the
large markets and adapted to the tastes of large-state audiences (see for example
the composition of the local Netflix catalogue), small-nation media systems
tend to react by developing strongly localized content and services that do not
travel across borders. These are adapted to the limited local resources (including


limiting their motivation to market films abroad, see Petr Szczepanik et al., Studie vývoje českého
hraného kinematografického díla [A Study of Czech Feature Film Development] (Prague: Státní
fond kinematografie, 2015).

                                                                                                47
                                       Petr Szczepanik


public support), and thus not internationally competitive, but able to meet
the culturally specific preferences and behaviors of domestic consumers. The
prospect of weakening the principles of territory-by-territory licensing compels
local stakeholders to adhere to this strategy even more tightly. It seems that the
limited bargaining power of small countries has led proponents of the DSM
to disregard these specificities of small media markets, which may eventually
endanger the strategic goals of the regulatory framework.


Conclusion: Localizing Intermediaries

   The outlined descriptive typology of products, practices, and stakeholders
indicates that the advent of digital distribution has not erased traditional
intermediaries (with the exception of short-format internet television and informal
channels), but rather added new layers of intermediation. Instead of resulting in
the disintermediation of traditional players, it has expanded the spectrum of
intermediaries. Each of the ‘players’ fulfills a more complex intermediary role
than before: film exhibitors are providing much-needed publicity for subsequent
VOD releases; cinema distributors are assuming the function of aggregators of
digital rights; stand-alone aggregators are moving into various other business
activities such as internet television, passenger entertainment systems, or festivals;
there are a number of new entrants who have begun to play new intermediary roles
via their add-on online services (broadcasters, festivals, telcoms, retailers, search
engines, media groups, etc.). Thus, the process of ‘re-intermediation’ operates
not just through new intermediaries that are specific to digital distribution,
such as stand-alone aggregators,38 but across the whole spectrum of distribution
agents, including traditional cinema distributors and broadcasters.
   A market’s small size increases the importance of the state’s cultural policy
as an external factor of intermediation. Public institutions like the Czech
Cinematography Fund (with a special support scheme aimed at distribution),
the public-service broadcaster (which has launched a successful online service),
the National Film Archive (with its extensive plan to digitally restore the national
film heritage, with a broad portfolio of older Czech films), or other policy-making
institutions (responsible for implementing European regulatory frameworks,
including EU copyright reform) influence the way audiovisual content circulates
— more significantly than in the case of larger territories where free-market
principles function more autonomously.39 The regulatory proposals of the DSM
strategy have so far not led to any significant reconsiderations of the existing
business models in the Czech Republic: on the contrary, local stakeholders
who entered the domestic or European negotiation processes have articulated


38
   See Patrick Vonderau, ‘The Politics of Content Aggregators’, Television and New Media, 16.8
(2015), 717–33 (p. 720).
39
   See Trappel.

48
     Localize or Die: Intermediaries in a Small East-Central European On-Demand Market


a primary interest in serving the local market. They are pressing local policy-
making institutions to limit the strategy’s impact on the territory-by-territory
licensing system, although their opposition is not as strong as with their West-
European counterparts.
   The common denominator of most of these tendencies in both business
operations and policy-making is localization. Conservative consumer behavior,
the local language, well-established (non-audiovisual) commercial services,
special events and physical spaces, trusted tastemakers and selectors seem to
play more crucial role in digital distribution than the size of and access to a
VOD catalogue. The Czech Netflix catalogue currently consists of almost twice
as many titles as its largest local counterpart, Voyo, but this does not translate
to an advantage in terms of subscription numbers. This is also true with regard
to the under-regulated online environment where consumption of an unlimited
range of pirated content seems to be a widely accepted practice, and where
local file-hosting services play a crucial intermediary role.40 Local intermediaries
with specialized knowledge of the local market, legal system, and distribution
infrastructure, equipped with specialized skills for selecting and curating content
for local audiences, will — according to the key stakeholders — play a fundamental
role in digital distribution in the near future. They will be more important for
the survival of local distributors than more quantitative parameters such as the
scope of VOD catalogues. The most powerful of these intermediaries, which
control what we watch and when, are still traditional players: film distributors
and FTA broadcasters. Local stakeholders do not fear technological changes
and global competition as much as we might expect — what they perceive as a
greater danger to their localized business model is under-regulated online piracy
and, in the case of the PSB, the apparent unpredictability of local policy-makers
and their susceptibility to political pressures.41




40
   See Jakub Macek and Pavel Zahrádka, ‘Online Piracy and the Transformation of the Audiences’
Practices: The Case of the Czech Republic’, in The Aesthetics and Ethics of Copying, ed. by Darren
H. Hick and Reinold Schmücker (London: Bloomsbury Publishing, 2016), pp. 335–58.
41
   After the 2017 Czech legislative election, the fourth strongest party, the right-wing populist
SPD, proposed to nationalize all public-service media in the country, which was met with strong
resistance from the public-service management.

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