‘How to invest?’ That is the question

The investment obligations for VOD Providers applicable in Portugal following the transposition of Directive (EU) 2018/1808 which amends the Audiovisual Media Services Directive

Sara Mendonça
Abreu Advogados, Lisbon
sara.mendonca@abreuadvogados.com

Manuel Durães Rocha
Abreu Advogados, Lisbon
manuel.rocha@abreuadvogados.com

General Overview

Directive (EU) 2018/1808 of the European Parliament and of the Council of 14 November 2018 amends and updates Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (the ‘Audiovisual Media Services Directive’) in view of changing market realities, by aiming to:

• make certain audiovisual rules apply to video-sharing platforms, as well as to audiovisual content shared on certain media services;
• strengthen the promotion of European content;
• introduce flexibility in the restrictions applying to television;
• protect children and combat hate speech more effectively; and
• strengthen the independence of national regulatory authorities.

Among the amendments to the Audiovisual Media Services Directive there is the mandatory investment obligations in European and independent works for on-demand audiovisual media service providers (hereinafter ‘VOD Providers’), which must ensure a share of at least 30 per cent of European works in their catalogs and a prominent position for such works on the platform.

The amendments introduced by Directive (EU) 2018/1808 entered into force on 18 December 2018 and should have been transposed into the legal framework of EU countries by 19 September 2020, but only now, in 2022, they’ve started to be implemented into the Member States’ respective legal frameworks.

France and Portugal have taken the lead on the transposition and enforcement of the referred Directive into their legal framework and are now setting the tone for other Member States, regarding the applicability of investment obligations.

Applicable Legal Framework

In Portugal, the relevant legislation for investment obligations of VOD providers may be found in Law No 55/2012, 6 September (the ‘Cinema and Audiovisual Law’)_[1] and the new Decree-Law No 74/2021, 25 August (the ‘Regulation’), which regulates the referred law.

This Regulation just entered into force on 1 January 2022 and has been generating a lot of doubt regarding the eligible investments in local content, which we will attempt to clarify.

Scope of Application

The Cinema and Audiovisual Law outlines that VOD providers under the jurisdiction of other Member States are covered by the investments obligations, if they target Portuguese audiences and that it only covers VOD platforms, which offer certain formats (eg, films, series), excluding VOD providers with pornographic content and VOD providers with low turnover or low audiences in the Portuguese market (which are exempt from these investment obligations).

Therefore, the scope of application can be summarised as follows:

• services that include in their programming or catalogues the following works: long and short films, telefilms, creative cinematographic documentaries or creative documentaries for television and television series, including the genres of fiction, documentary and animation;
• operators that are under the jurisdiction of the Portuguese State, as defined by the Audiovisual Media Services Directive;
• operators under the jurisdiction of another Member State, but which target audiences located in Portuguese territory and obtain an income in Portugal.

General Rules regarding the eligible investment obligations

VOD Providers shall mandatorily allocate a proportion of their investment expenditure to develop, produce and promote European works, originally in Portuguese language, of independent production.

The investment obligation is exercised with total freedom of choice by the obliged party with regards to works and activities that are the object of said investment, being necessary to comply with the specific requirements laid down in the Cinema and Audiovisual Law.

As referred above, investment obligations are measures that apply to VOD providers established in other Member States, but which target audiences located in the Portuguese territory, in relation to the revenues they earn in Portugal.

VOD providers are required to invest a certain percentage of their relevant revenues in the production of European works with the objective of promoting cinematographic and audiovisual exhibition.

Part of this investment must be made in the development and/or production of European works of independent production originally in Portuguese.

For the purposes of compliance with the investment obligations, the following are considered to be European works:

• works originating in Member States;
• works originating in European third states party to the European Convention on Transfrontier Television of the Council of Europe, which are also works made mainly with the participation of authors and workers residing in one or more of these States and fulfilling one of the three following conditions:

• the production be by one or more producers established in one or more of those states;
• the production is supervised and effectively controlled by one or more producers established in one or more of those states;
• the contribution of co-producers of those states to the total cost of co-production is preponderant and the co-production is not controlled by one or more producers established outside those states.

• works co-produced within the framework of agreements related to the audiovisual sector, including the cinema sector, concluded between the Union and third countries and fulfilling the conditions defined in each of those agreements.

In geographical terms, not only are works originating from European Union Member States covered, but works originating from states that are party to the Council of Europe's European Convention on Transfrontier Television are also covered.

A work is considered to be ‘originally made in Portuguese’ when more than half of the dialogues are in Portuguese or in Creole languages with a Portuguese base.

A ‘work of independent production’ is defined as a cinematographic and audiovisual work produced by an ‘independent producer’ and meeting all of the following requirements:

• that the independent producer owns the rights to the work produced, with a clear contractual definition of the duration and limits of the broadcasting rights granted to the television operators, whereby, in the case of co-productions between independent producers and other operators, namely television operators, on-demand audiovisual service operators or distributors, qualification as an independent production work production depends, precisely, on that holding by the independent producer; and
• a work is produced with creative autonomy and freedom in the form of development, namely in what concerns the choice of studios, actors, means and distribution, being that, in the case of co-productions between independent producers and other operators, namely television operators, on-demand audiovisual service operators or distributors, decisions regarding production are adopted by agreement, having in mind the technical and artistic quality of the work.

We note that, for the purpose of this law, an ‘independent producer’ is considered a legal person whose principal activity is the production of cinematographic or audiovisual works provided that all of the following requirements are met:

• share capital not owned, directly or indirectly, by more than 12.5 per cent by a television operator or an on-demand audiovisual services operator, or more than 25 per cent in the case of several television operators or on-demand audiovisual services operators;
• a limit of 90 per cent of the total revenues, or in the last financial year or accumulated over the last three financial years, achieved with a single operator of television or on-demand audiovisual services.

Investment amounts

The amount of the investment shall be calculated according to the relevant income (of the year preceding the year of the obligation) of the VOD Provider.

Until 30 of April of each year the VOD Providers shall communicate to Instituto do Cinema e do Audiovisual (ICA) the following information:

• the amount of relevant income and the demonstration of its calculation;
• the option of the calculation basis or option for the fixed amount, where applicable;
• the amount to be invested;
• the option for the realisation of the obligation, annually or by cycles of two years;
• where applicable, the over investment and its application in the following year or cycle.

The investment obligations calculated on the income declared in the previous year must be paid by the end of January of each year.

Investment methods

The investment in the production of European works originally in Portuguese may be carried out through the following methods:

• financing of writing and project development work for European cinematographic and audiovisual creative works of independent production, originally in Portuguese, the Portuguese language requirement not applying in the case of co-productions with national participation under the applicable treaties;
• participation in the financing of the production of European cinematographic and audiovisual creative works of independent production, originally in Portuguese, the Portuguese language requirement not applying in the case of co-productions with national participation under the applicable treaties, through:

• acquisition of exploitation rights at the project stage;
• co-production;
• association to production, without co-ownership;

• acquisition of exploitation rights of European cinematographic and audiovisual creative works of independent production, originally in Portuguese, the Portuguese language requirement not applying in the case of co-productions with national participation under applicable treaties;
• restoration and mastering of films of supported works and other European works in Portuguese language, provided that two copies in accordance with the technical standards defined by this entity are delivered to the Cinemateca, IP;
• promotion of European cinematographic and audiovisual works (which applies to European works, not just works originally in Portuguese);
• own production or production of associated companies, purchase of commissioned works or investment in other European creative works._[2]

Thresholds and limits

The investment of VOD providers takes place in the foreseen modalities within the following limits:

• at least 30 per cent of the total investment amount shall be made in through participating in the financing of writing, project development and production of independent European cinematographic and audiovisual creative works, originally in Portuguese;
• the investment made through promotion of European cinematographic and audiovisual works may not exceed 20 per cent (up to 25 per cent) of the total investment;
• the cumulative investment in own production or in associated companies cannot exceed 30 per cent of the total investment.

The entities subject to the investment obligations that cannot, or do not, realise their mandatory investment, deliver to ICA, IP the investment amounts due and not realised, and the obligation is also considered fulfilled in this way.

Fee on audiovisual services on demand by subscription

In addition to the investment obligations, the Portuguese law also sets forth a fee applicable to on-demand audiovisual services accessible by subscription, which is charged to the respective operators.

The fee is due annually and amounts to one per cent of relevant income in Portugal, net of legally established deductions. Exemptions are provided for operators with low turnover or low audience figures.

Overall

The EU Directive and the respective Regulations in each Member State not only intend to develop and promote the European and local talent, such as producers, directors, screenwriters and actors, but also aim to secure a place for European content, in a field that is mostly ruled by American content.

In Portugal, the foreseen investment amounts are very reasonable and establish the minimum necessary to ensure the presence of European content amongst VOD providers’ catalogues. So far, although the amounts are not substantial, VOD providers have been able to meet their investment obligations.

Notes

[1]       As changed by Law No 74/2020, 19 November, which transposed Directive (EU) 2018/1808 of the European Parliament and of the Council of 14 November 2018 (AVMSD) into the Portuguese legal framework.

[2]       In the case of on-demand audiovisual services operators in subscription access mode, the works referred to herein must be works originally made in Portuguese, the Portuguese language requirement not applying in the case of co-productions with national participation under applicable treaties (bilateral or multilateral cinematographic or audiovisual co-production  treaties in force to which Portugal is a party).