Late last month, Australia passed a new law forcing streaming platforms to bankroll local content just to stay in business. And they’re not alone—Brazil, Canada, and the European Union are all following suit with similar rules. Disguised as support for domestic entertainment industries, these mandates are really a global shakedown of predominantly American streaming services, making them foot the bill for content worldwide. If more countries keep copying this playbook, the real losers won’t be Hollywood—they’ll be everyday viewers, who face higher costs and fewer choices.
Local content quotas have a major flaw: the more countries that enact similar mandates, the less commercially viable locally produced intellectual properties (IP) becomes, as their audience outside of their home country gets constrained. The logic is simple. Content quotas force platforms to ensure that a certain percentage of their catalogues consists of local content. So, if they have a 10 percent quota mandate, one of every 10 IPs in a platform's catalogue must be local content.
Consider the case where two countries enact these quotas. While an IP from country A is considered local in country A, it is considered foreign in country B. Thus, if a platform brings a show or movie produced in country A to its catalogue in country B, they could exceed that ten-to-one proportion and fall into noncompliance in country B. In other words, the IP produced in country A now has limited export potential as it would be considered "foreign" in every other country with a similar regime. Ultimately, locally produced IP will be limited to their local audience for distribution, reducing their commercial viability and stunting their growth potential. This would make these locally produced IP less likely to become worldwide hits.
These quotas are also harmful for consumers, especially in early stages of their implementation. Producing a movie or a show takes significant time from planning to producing to ultimately releasing. As a result, when these quotas are enacted, platforms cannot just turn on a switch and increase the amount of locally produced content in their catalogue. Even if they acquire already released IP, the negotiation and procurement process will still take a significant amount of time. Thus, platforms are forced to look in the other direction. If they cannot increase their local content, they must cut their foreign offerings to comply with the mandated proportion. Therefore, platforms ultimately must deprecate their service by reducing their catalogue of foreign movies, removing a key competitive feature of streaming services versus other analog services like over-the-air television.
The minimum investment mandates also become increasingly onerous as they continue to add up and often ignore the economic realities of the streaming industry, where companies usually operate with tight profit margins. These mandates force companies to invest a certain percentage of their local revenues into certified funds or directly into projects that boost local production. With those percentages ranging from 5 percent in Canada to almost 20 percent in France, these mandates can become a tremendous cost burden for streaming platforms. While industry leader Netflix operates with a profit margin in the 20 percent range, companies like Disney or Warner Bros Discovery—the company behind the HBO Max service—operate their streaming services with a single-digit profit margin or even at a loss. Imposing a 20 or even 5 percent cost increase through these mandated investments can become unsustainable for an industry that operates with such tight margins, especially as more countries enact similar measures.
The Trump administration has already taken notice of these hostile regulations in Australia. They should continue to pressure foreign governments to reverse course. Proactive diplomatic efforts have proven effective in the past in regions like Europe with other regulations such as the Digital Markets Act or the Digital Services Act. The administration should aim to include the streaming industry in this conversation. American companies should not be used by foreign governments as a cash cow to bail out their local entertainment industries. The administration can and must nip this phenomenon in the bud.
