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VOLUME 5 | NUMBER 1 | SPRING 2018

The Legal Framework for Video On Demand Regulation in Brazil

Fábio de Sá Cesnik and Gilberto Toscano


Fabio de Sa Cesnik-photo
Fábio de Sá Cesnik
Fábio de Sá Cesnik is an attorney and partner at Cesnik, Quintino e Salinas Advogados. He is the author of the book "Guia de Incentivo á Cultura" and president of the Committee of Media and Entertainment of the Institute of Lawyers from São Paulo. Fabio is a professor of law at Rio de Janeiro State University (UERJ) as well as other schools. You can contact him at cesnik@cqs.adv.br.

 
Gilberto Toscano-photo
Gilberto Toscano
Gilberto Toscano studied Law at University of São Paulo and did post graduate studies in Entertainment Law at Escola Superior de Direito da OAB/SP. He is a partner at Cesnik, Quintino e Salinas Advogados, a leading entertainment law firm in Latin America. Before that, he worked in legal and business affairs at O2 Filmes, Brazil's largest production company. Mr. Toscano assists talent, broadcasters, production companies, distributors, digital platforms and other companies. You can reach him at gilberto@cqs.adv.br.

 

Video on Demand (VOD) regulations in Brazil are governed by a complex net of laws, guidelines and regulatory bodies. In the past few years multiple agencies and other organizations have commissioned studies in an attempt to set a legal framework in place. These efforts have increased the discussion within the country regarding VOD regulation and taxation.

This series of events began when Brazil's Audiovisual Regulatory Agency (ANCINE) provided notice concerning the regulation of VOD. In March of 2017, the Secretariat of Accompaniment of the Economy of the Ministry of Finance stated that this notice had not presented sufficient information to justify regulation of the VOD market. These proceedings led to the creation of a group at Brazil’s Superior Council of Cinema to discuss how much VOD should be regulated.

The current market rate for VOD is determined by CONDECINE. CONDECINE is a "CIDE", a contribution by the audiovisual industry for the development of the sector itself, i.e. an intervention by the State into a specific sector of the economy. While there is no tax levied on the revenues of platforms, the model of taxation under CONDECINE currently forces VOD platforms to pay a flat fee per title presented on these platforms. These fees vary according to the length and format of each title. This is problematic for two reasons. First, studies show that this price is too high. Second, the level of taxation runs against public interest because it is dependent on the amount of content on the platform. Consequently, VOD platforms have an incentive to have less content available depending on how profitable the titles are. The amount paid may be reasonable for a recent blockbuster but excessive for an older and less prominent title.

CONDECINE was introduced in Medida Provisória with the intention of funding the development of the national audiovisual industry. [1] These policies were issued by Article 34 of the “Audiovisual Sectorial Fund.” [2] There are three types of CONDECINE. The first is on remittances abroad. [3] The second concerns telco companies [4] and the third is issued per title [5] which affects VOD platforms more directly.

The CONDECINE on remittances focuses on royalties from the exploitation of foreign cinematographic or video-phonography contents and their transmission on TV in Brazil. The company who licenses this content to companies in Brazil pays a flat tax of 11% on each payment of royalties from these Brazilian companies to the foreign company.

The CONDECINE on telco companies is based on the distribution of audiovisual content through paid TV services. It is an annual fixed fee for each type of service offered by the telco company. It is calculated based on the services provided such as the technology used and whether it is distributed on mobile.

Finally, the CONDENCINE per title occurs when a taxable event arises from the commercial exploitation of audiovisual titles in certain media within the Brazilian territory. The taxpayer, in this instance, is the holder of the commercial exploitation rights of the work in Brazil. [6] This type of CONDECINE is levied by a fixed fee per each type of work and per license in each market segment. It must be paid every five years or every year if the license is for advertisement. This fee varies according to whether the content is Brazilian or foreign, the market segment(theaters, home video, pay TV, free TV or “other segments” [7]) whether its purpose is advertising and the length of the content. ANCINE has defined “other segments” to include video on demand. [8] It is unclear to what extent ANCINE is legally authorized to define and create the concept of “other market segments.” Instead, a tax imposed on a new segment should have been implemented by law.

ANCINE’s current definition of VOD excludes free VOD (FVOD) and VOD supported by advertising (AVOD). [9] Digital Video Recorders like Replay TV and TIVO are also outside this definition because they are considered part of the pay for TV environment. However, ANCINE has not formalized this in any rule. As a result, SVOD and TVOD services are currently subject to taxation. There is little enforcement of this taxation because some VOD players could not pay it and it would prevent the growth of other VOD platforms. ANCINE’s existing system of taxation of CONDECINE is likely to limit the growth of VOD platforms in Brazil. They have been working to re-structure the system since the end of 2015 but this requires a law to be discussed and approved in the National Congress. [10] This could cause obstructions to the development of the VOD market as State intervention might result in unnecessary rules and levies.

In May 2017, ANCINE issued a document entitled Recommendations for the Regulation of VOD. It reaffirmed the principles stated in December 2016 and detailed its vision for taxation of VOD. First, they recommended that at least 20% of the total numbers of hours of a library should be comprised of Brazilian content and at least 50% of this Brazilian content should be independent. Second, Brazilian audiovisual content (including independent content) should be featured by promoting them in a “balanced fashion” in the interface of VOD services regardless of whether the platform provides user generated recommendations. Third, ANCINE recommended investing a minimum percentage of the annual gross receipts of VOD platforms in the production or licensing of independent Brazilian audiovisual content. This percentage should range from 0% for the first R$3.6 million in annual gross receipts to 4% for annual gross receipts exceeding R$70 million.

ANCINE further recommended indirect investment through the creation of a CONDECINE VOD pursuant to the following terms. First, any revenue arising out of the provision of services of audiovisual catalogues through VOD or user generated content platforms (UCG) constitutes a taxable event. Second, the owners of the copyrights who license audiovisual content to local VOD platforms should become the VOD and UCG platforms themselves instead of issuing licenses to companies to do so. Third, the tax base should be gross annual receipts. Fourth, the CONDECINE tax rate should be a percentage of these receipts. ANCINE also recommended that the same taxation system be adopted for the home video market (i.e. the tax is based on a percentage of revenues arising out of sales or rentals).

Since May 2017, some of the members of ANCINE’s Board of Managers have been replaced and currently comprehensive regulation of VOD does not seem to be a priority. On January 22nd, ANCINE announced it is working on a careful analysis of the impact of the regulation of VOD on the Brazilian market. This document should be ready for public consultation around June of 2018. However, the taxation of CONDECINE VOD is still important and remains an urgent subject on ANCINE’s agenda. Any regulations should be formalized in a law to be discussed and approved in Congress because sudden regulation can damage the market. We hope that this subject will be undertaken by our legislators soon.

 


[1] Presidência da República, Provisional Measure No. 2.228-1, Art. 32, (Sept. 6, 2001), http://www.planalto.gov.br/ccivil_03/mpv/2228-1.htm.

[2] Presidência da República, supra note 1, at art. 34.

[3] Presidência da República, supra note 1, at art. 32- 33, II.

[4] Presidência da República, supra note 1, at art. 32, II.

[5] Presidência da República, supra note 1, at art. 32, I, 25, 29.

[6] Presidência da República, supra note 1, at art. 35.

[7] Presidência da República, supra note 1, at art. 33, I.

[8] Normative Instruction No. 105, art. 21, para. 2, (July 10, 2012), https://ancine.gov.br/pt-br/legislacao/instrucoes-normativas-consolidadas/instru-o-normativa-n-105-de-10-de-julho-de-2012.

[9] Normative Instruction, supra note 7 at art. 1º, line XLVII.

[10] C.F.[Constitution] art. 61 (Braz.).


             
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