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Broadcast television ratings have soared in many countries while the population is eager to learn more about the pandemic and its effects and video streaming has become the daily norm for millions and politicians left and right have turned to use the channels for timely communication of their agenda as well.
Physical meetings and social gatherings are being replaced by video calls and online delivery has replaced white table cloth at restaurants around the planet. Classrooms are now entirely virtual and the globe’s exams are now being stored in the cloud instead of dusty drawers.
Suddenly, media and its underlying infrastructure has become apparent and evermore necessary and, despite the sudden and massive increase in demand, saturation has been relatively controlled.
Right before the pandemic started, Mexico had already been struggling with the negative effects of a series of economic measures that have started to erode the popularity of President Andres Manuel Lopez Obrador.
Early in his presidency, in October of 2018, Lopez announced the cancellation of the construction of Mexico City’s new international airport, a world-class design that was already 30% in the works and USD5 billion already spent and which cancellation not only costed an additional USD9 billion in severance payments to contractors, bond defaults and litigation but which started to decrease trust of global investors and started to negatively affect the value of the Mexican Peso, all while international aviation experts, airlines and financiers alike advice in favour of continuing the construction, which Lopez instead replaced with the reconversion of a military airfield that lies more than 90 minutes away from the city and which was ultimately proven by not viable nor economically feasible by such experts.
Later, Lopez announced the construction of a USD6 billion to USD8 billion train in the southernmost part of Mexico in the Yucatan peninsula, which environmentalists, tourism experts, transportation gurus and financiers have opposed and pre-announced to be financially and geologically unfeasible too.
Lopez’ crusade continued with the announcement to build a USD8 billion oil refinery, while several other refineries in the country remain underutilised and while the demand for oil and its global price has plummeted.
Right before the COVID-19 pandemic hit Mexico, Lopez announced the unilateral cancellation of the construction of a USD1.5 billion brewery plant by Constellation Brands, alleging scarcity of water resources in the area, contradicting the global company’s studies and plans.
While all the above unfolded, the Mexican government, on several fronts and at different levels, has aimed to regulate and impose taxation to online platforms, from ride hailing to hospitality, also resulting in the cancellation of business plans of global micro-mobility players like Grin, Lime and Mobike.
The business environment under the Lopez administration has transformed from an energized and entrepreneurial stance to a cautious and tense situation.
The underdogs or perhaps now dominant players of the new media scenario, the kings of media streaming have proven resilient and have steadily grown their market share in Mexico to a base of some 8.3 million subscribers, with Netflix as the clear leader with over 80% of subscribers, followed by Claro Video with around 15%, Amazon Prime with 9%, Blim with somewhere around 3% and HBO Go with 1.5% according to the Statista and Parrot Analytic reports of late 2018.
And, not unexpectedly, Lopez’ political party, which practically controls the majority in the Federal Mexican Congress, put forward a bill to regulate video on demand platforms and impose VAT to platforms operating from abroad, however, further imposing a highly criticied minimum of 30% of Mexican content quota for all platforms, even if provided from abroad, and also imposes the need for an authorization from the Mexican regulator, which further would subject the platforms to a series of regulatory requirements, including consumer protection, content rating, etc.
As this article is written, the bill has been approved in commissions by the Mexican Senate and is pending to be voted by the Senate plenary. If approved, it would then be passed to the lower house for voting.
Besides the regulatory burden on dubbing, advertising, content classification, child and audience protection, consumer protection,and additional taxation, the bill has the potential to dramatically alter or artificially reduce the platforms’ content catalogue and potentially, the content production business in Mexico. Online platforms with a subscription video on demand service will have to make sure that at least 30% of their repertoire available in Mexico is local content.
Arguably, providers with existing production capability and expertise in Mexico could have a head start advantage but the effect could also create a secondary market of illegal distribution platforms, VPN-type bypass/circumvention or the significant slowdown of growth of global platforms that cannot justify local production costs for a single market.
The effects could also be a general increase in cost, and therefore difficulty of access by the majority, as the platforms struggle to comply with the additional regulatory burden and liability, compounded with the compliance with the content quota requirements.
Pandemics and a Future with Significant Changes for
As I write this article, the world is battling with a global pandemic which has resulted in a massive change of patterns in mostly every nation. Media has played a significant role in keeping citizens abreast on the propagation of the disease and on the measures recommended to contain the spread of the pandemic. On the other hand, media has also become one of the key elements of entertainment and social survival during a quarantine that has forced the entire globe to stay indoors.
Sergio Legorreta G. heads Dentons’ Mexico Venture Technology practice encompassing technology, media, communications, intellectual property and life sciences and co-chairs Dentons’ Venture Technology and Intellectual Property in Latin America and the Caribbean. Sergio focuses on representing disruptors, innovators and leading players in the technology, communications, media, entertainment, transportation, fashion, apparel and retail industries on regulatory matters, operations, expansion, brand enforcement and anti-counterfeiting, venture investments and on all strategic aspects of business operations from a legal perspective. Sergio is also heavily involved on entrepreneurship and emerging company advisory with major incubators and accelerators.
Sergio Legorreta G.