Comprehensive Impact Assessment: The Effect of a 100% Tax on Non-American Films and Netflix Operations

Introduction

This impact assessment analyzes the hypothetical scenario in which the United States imposes a 100% import tax on all films and series that are not 100% produced in the USA. The study examines in detail the potential short-term, medium-term, and long-term effects of this tax on Netflix's operations, the global streaming industry, and content production. The analysis covers potential cost-reduction strategies for Netflix, proposes alternative incentives to the tax for supporting domestic production, and explores potential market entry routes for non-American producers in the new situation.

The analysis is based on the latest available financial data, industry reports, and research on the impact of protectionism on cultural industries.

1. Short-Term Impacts (0-6 Months Following Tax Implementation)

1.1. Financial Impacts

  • Immediate Cost Increase: A 100% tax would practically double the acquisition or production cost of non-American films for the US market. Given that more than half of the content budget goes to international sources (source: Ampere Analysis, Variety, 2024-2025), this would potentially represent an increase of more than 50% in the total content budget if Netflix were to maintain its current offering in the USA. With an estimated 2025 budget of $18 billion, this would mean an extra tax burden of over $9 billion for the US market alone, which is unsustainable.
  • Profitability Plunge: The profitability of Netflix's US business would drastically decrease, likely turning into a significant loss.
  • Cash Flow Problems: The tax would represent an immediate payment obligation, potentially causing severe cash flow problems.

1.2. Content Offering Impacts

  • Mass Removal of Content: To avoid the tax, Netflix would be forced to almost immediately remove all films and series from its US offering that do not meet the 100% US production criteria. Estimates suggest this would affect more than half of the library (approximately 55-60%, based on an estimated 60% international Originals ratio (Omdia, 2023) and licensed non-American content), including popular international Originals series (e.g., Squid Game, La Casa de Papel, Lupin) and licensed international films. (Of course, this would only apply if the hypothetical law were to be enforced retroactively.)
  • Shrinking and Homogenization of Offering: The library would drastically shrink (from approximately 7400 to less than 3500 titles) and become heavily US-centric, losing its global appeal and diversity, which is one of Netflix's main distinguishing features.
  • Cessation of New Acquisitions: The acquisition or production of non-American content for the US market would practically cease due to the prohibitive costs.

1.3. Subscriber Impacts

  • Significant Subscriber Loss (Churn): A massive churn of US subscribers is expected due to the drastic reduction in content offering and the disappearance of popular international titles.
  • Pressure to Increase Prices and Its Impact: Although Netflix might try to pass on the costs to subscribers, a drastic price increase (reflecting the scale of the cost increase) would likely only further accelerate subscriber loss, especially given the increasing market competition.
  • Negative Brand Image: The measure and its consequences (content reduction, price increases) would severely damage Netflix's brand image in the USA.

1.4. Summary - Short Term

The implementation of a 100% tax would have a catastrophic impact on Netflix's US operations in the short term. It would create a financially unsustainable situation, drastically reduce and impoverish the content offering, leading to massive subscriber losses. The company would be forced to take immediate and drastic steps to survive.

2. Medium-Term Impacts (6-24 Months)

During the adaptation period following the tax implementation, Netflix would need to implement significant strategic changes.

2.1. Business Model and Finances

  • Strategic Focus Shift (USA): The US business would be forced to radically transform. The main emphasis would shift to 100% US-produced content, both in Originals and licensed categories.
  • Revaluation of International Markets: Since the tax only affects US imports, Netflix would likely place even greater emphasis on international markets to maintain growth. International revenues and subscriber bases would become even more critical.
  • Pricing Strategy Review (USA): Netflix would have to decide whether to drastically increase US prices due to the remaining but more expensive to produce/acquire (mainly US) content, or accept significantly reduced profit margins/losses in the USA. A combined approach is more likely: moderate price increases and cost reduction (e.g., fewer but more expensive US content).
  • Increased Advertising Revenue: In the USA, the cheaper, ad-supported tier would become even more important for revenue generation and retaining price-sensitive subscribers.
  • Reallocation of Investments: Within the content budget, a drastic reallocation would occur: funding for international productions intended for the US market would cease, and these funds (or a portion thereof) would be redirected to US productions.

2.2. Content Strategy and Production

  • Ramping Up US Production: Netflix would need to significantly increase the volume of US-produced Originals content. This would come with challenges: increased competition for production capacities and talent, driving up costs. It is questionable whether Netflix could replace the volume and quality of lost international content in the short/medium term with purely US production.
  • Fate of International Originals (US Market): Existing and future international Originals content would likely not be available in the US offering due to the tax. These would be distributed exclusively in international markets.
  • Licensing Strategy (USA): Netflix would aggressively try to license US-produced films and series to fill its library. This would also be a cost-increasing factor due to increased demand.
  • Decrease in Content Diversity: The US offering would become homogenized, losing the diversity provided by global content. In the long run, this could reduce the platform's appeal even for US viewers who have become accustomed to international content.
  • Decrease in Creative Risk-Taking: Due to higher US production costs and a shrinking market, Netflix might become more cautious in content development, favoring projects that seem like "safer" investments but are potentially less innovative.

2.3. Competitive Environment

  • Advantage for Competitors: Streaming services that already rely more heavily on US content (e.g., platforms of traditional studios) would gain a relative advantage in the USA.
  • Realignment of Market Share: Netflix's US market share would likely decrease due to the shrinking content offering and/or price increases.
  • Global Competition: Globally, Netflix could remain strong, but the weakening of the US market could negatively impact the overall financial performance and investor perception of the company.

2.4. Summary - Medium Term

In the medium term, the 100% tax would force Netflix into a drastic strategic shift in the US market, involving a forced ramp-up of domestic production and the exclusion of international content. This would likely lead to a decreasing US market share, lower profitability (or losses), and a homogenization of the content offering. The company's focus would shift more strongly towards international markets.

3. Long-Term Impacts (2+ Years)

The long-term consequences of the tax extend beyond Netflix and could affect the entire global industry.

3.1. Global Streaming Market and Content Flow

  • Market Fragmentation: The tax would likely lead to a partial isolation of the US streaming market. Global platforms like Netflix would be forced to pursue different content strategies in the USA and the rest of the world, leading to a decrease in global content flow and market fragmentation.
  • Relative Shrinkage of the US Market: While the USA is currently a key market, its appeal could diminish in the long run due to the shrinking and homogenization of the content offering, as well as potential price increases. International markets would clearly remain the engine of growth.
  • Retaliation Risks: Such a drastic protectionist measure would likely trigger countermeasures from other countries (e.g., taxes or quotas on US film exports), further damaging global film trade and the export revenues of the US film industry (see, for example, the history of trade disputes).

3.2. Content Production and Innovation

  • Realignment of Global Production Hubs: While US production might ramp up in the short term to meet local demand, in the long run, international production hubs (Europe, Asia, Latin America) could become more valuable, especially in supplying non-US markets, due to high US costs, a shrinking creative space (lack of international influences), and potential quality compromises.
  • Decrease in Innovation and Diversity (USA): Protectionism often leads to reduced competition and insularity (several studies, e.g., ECIPE, ResearchGate on the Korean example). The content offering in the US market could become homogenized, with less experimentation and genre diversity, potentially leading to a decline in viewer interest in the long run.
  • Weakening of American Soft Power: The film industry is one of the most important tools of US cultural influence (soft power). Limiting the inflow of international content and potentially offering a less appealing domestic selection could reduce the global cultural appeal of the USA.

3.3. Netflix's Long-Term Strategy and Position

  • Strengthened Focus Shift: Netflix would likely further strengthen its international focus. The US market could increasingly become a (albeit still large) but more problematic and less growing region in the company's portfolio.
  • Competitiveness: Globally, Netflix could remain strong due to its established international network. However, in the USA, it would have to contend with the changed market conditions in the long run, likely with lower market share and profitability.
  • Possibility of Structural Transformation: In an extreme case, if the US market became persistently unprofitable, the separation of Netflix's US and international businesses could also be considered.

3.4. Impact on Non-American Producers

  • Inaccessibility of the US Market: The US market would practically close to most non-American productions due to the prohibitive tax.
  • Decrease in Global Collaborations: The tax would hinder international co-productions and the flow of global talent.

3.5. Summary - Long Term

In the long term, the 100% tax would likely result in a more fragmented global streaming market, where the US market becomes more isolated and potentially less innovative. While it might stimulate US production in the short term, it could damage the global competitiveness and cultural influence of the US film industry in the long run. For Netflix, this would mean a revaluation of international markets and a strategic repositioning of its US business.

4. Cost Reduction and Adaptation Strategies for Netflix

Netflix would need to implement a multi-pronged strategy to mitigate the impacts of the 100% tax.

4.1. Content Strategy and Production Transformation (US Focus)

  • Intensive Ramp-Up of US Production:
    • Reallocation of Investments: Complete redirection of the budget for international productions intended for the US market to 100% US-produced Originals content.
    • Cost-Effective US Production: Seeking new production models within the USA (e.g., relocating to states offering tax incentives, utilizing virtual production technologies, fostering emerging talent).
    • Long-Term Partnerships: Forming strategic agreements with US production companies and studios to secure capacity and potentially reduce costs.
  • Rethinking Licensing Strategy (USA):
    • Focus on Domestic Licenses: Licensing exclusively 100% US-produced films and series for the US market.
    • Aggressive Negotiations: Renegotiating existing and new licensing agreements with rights holders.
    • Review of Exclusivity: Seeking less expensive, non-exclusive licensing deals for US content.

4.2. Financial and Business Model Adaptation

  • Pricing Strategy and Packages (USA):
    • Differentiated Pricing: Introducing new, higher-priced premium tiers for the more expensive, purely US offering, while strengthening lower-priced tiers (e.g., ad-supported).
    • Revenue Maximization: Maximizing advertising revenue in the ad-supported tier.
  • Strengthening International Expansion:
    • Increased Investment: Increasing investments in content production and marketing in international markets (Asia, Latin America, Europe).
    • Prioritizing Local Content: Further strengthening Originals content tailored to local needs in international markets.
  • Cost Control:
    • Operational Efficiency: Reviewing operating costs (marketing, administration in the USA).
    • Technological Investments: Investing in cost-reducing technologies (e.g., AI).

4.3. Legal and Advocacy Steps

  • Intensive Lobbying: Strong lobbying efforts to repeal, modify, or obtain exemptions from the tax.
  • Legal Challenges: Examining the possibilities of legally challenging the tax (e.g., violation of international trade agreements).
  • Industry Collaboration: Cooperating with other affected stakeholders for joint advocacy.

4.4. Summary - Strategies

Netflix would need to implement a complex strategy that includes a radical transformation of its content strategy in the USA, adjustments to financial models, increased reliance on international markets, and active legal and political advocacy.

5. Alternative Incentives to Strengthen Purely American Film Production (Instead of the 100% Tax)

To avoid the negative impacts of the tax, several alternative, market-friendly incentives exist to support domestic production.

5.1. Objectives and Principles of Incentives

  • Objective: To increase the volume and quality of domestic film production, create jobs, stimulate local economies, and improve the competitiveness of American cultural products.
  • Principles: Market conformity, transparency, minimization of competition distortion, maintenance of international cooperation, respect for creative freedom.

5.2. Proposed Alternative Incentives

  • Financial Incentives:
    • Enhanced Federal Tax Credits: Higher (e.g., 30-40%+) refundable or transferable tax credits for productions meeting the "100% Made in USA" criteria (examples: incentives in numerous US states, Canada, UK, India).
    • Direct Grants: Creation of targeted funds for the development and production of 100% US productions (especially independent, documentary, cultural films).
    • Harmonization of State Incentives: Federal supplementation/coordination of existing state incentives.
  • Infrastructure and Service Support:
    • Infrastructure Development: Investments in the construction/modernization of studios and post-production facilities.
    • Preferential Location Use: Reduction/elimination of filming fees on federally owned land.
    • Support for Training Programs: Funding of vocational training programs.
  • Administrative Facilitation:
    • Simplified Permitting: "One-stop shop" for federal filming permits.

5.3. Advantages of Alternative Incentives

  • Positive incentive instead of punishment.
  • Maintenance of market competition and consumer choice.
  • Avoidance of international conflicts and retaliation.
  • Targeted economic stimulus and job creation.
  • Support for innovation and global collaboration.

5.4. Summary - Alternatives

Numerous effective and market-friendly incentives exist to strengthen purely American film production, which – in contrast to a punitive import tax – could support the domestic industry without causing severe damage to consumers, streaming services, and the USA's international cultural relations.

6. Opportunities for Non-American Producers for US Distribution (Netflix) Under the 100% Tax

Under the 100% tax, non-American producers would need to develop new strategies to access the US market.

6.1. The Challenge: Circumventing or Mitigating the Tax

The main challenge is that the 100% tax makes traditional licensing models economically unviable. Solutions must focus on structures that legally allow distribution without the burden of the tax levied on the full production cost.

6.2. Potential Strategies and Opportunities

  • Establishing a US Subsidiary and Local Production:
    • Structure: Non-American producer establishes a US subsidiary (US Sub Co) that contracts with Netflix as a US company.
    • Operation: Productions are structured to meet the "100% Made in USA" criteria (majority of budget spent in the USA, American crew, filming/post-production in the USA).
    • Advantage/Challenge: Avoids the tax but requires significant investment and adherence to "Made in USA" criteria.
  • Structured Co-productions with American Partners:
    • Structure: Formal co-production agreement with a US company (potentially Netflix itself).
    • Operation: The agreement specifies contributions, rights, and production process to achieve "Made in USA" status.
    • Advantage/Challenge: Cost/risk sharing but finding a partner and sharing control/rights can be difficult.
  • Licensing Formats and Scripts (Remake):
    • Structure: Only the format/script/IP is licensed, not the finished film.
    • Operation: Netflix or its partner produces the local version 100% in the USA.
    • Advantage/Challenge: The remake will be US-produced, but the original producer loses creative control, and the license fee may be lower.
  • Special Production and Distribution Agreements with Netflix:
    • Structure: Complex agreements to structure the production process and rights to minimize the taxable import value (e.g., emphasizing service provision).
    • Advantage/Challenge: Tax base can be reduced, but legal complexity and uncertainty of acceptance exist.
  • Focus on International Markets (Through Netflix):
    • Strategy: Concentrate on leveraging Netflix's global network in non-US markets.
    • Advantage/Challenge: More predictable model but forfeits the US market.

6.3. Summary - Opportunities for Producers

The 100% tax would drastically transform the US market entry strategies of non-American producers. Models requiring a US presence (subsidiary, co-production), format licensing, and complex, legally carefully structured agreements would become prominent. These require significant strategic and financial adaptation.

7. Summary and Conclusions

The introduction of a 100% import tax on films and series not 100% produced in the USA would have radical and overwhelmingly negative consequences for both Netflix and the broader film and streaming industry.

  • In the short term, the tax would impose a catastrophic financial burden on Netflix, leading to a drastic reduction in content offering and massive subscriber losses in the USA.
  • In the medium term, Netflix would be forced to fundamentally rethink its US business model and content strategy, focusing heavily on domestic production while strengthening its international positions. This would likely be accompanied by a decreasing US market share and profitability.
  • In the long term, the tax could lead to a fragmentation of the global streaming market, isolation of the US market, and potential innovation lag. It could damage the global competitiveness and cultural influence of the US film industry, while international production hubs could gain importance.
  • Netflix and non-American producers would need to develop complex adaptation strategies, including relocating production, establishing new business structures (e.g., subsidiaries, co-productions), and format licensing. For Netflix, intensive lobbying and industry collaboration against the tax would be crucial.
  • Alternative incentives to the tax (e.g., enhanced tax credits, grants, infrastructure development) would be much more effective and less damaging tools for supporting purely American-made films, maintaining market competition, consumer choice, and international cultural relations.

Overall, the 100% tax would be an extremely risky and likely counterproductive protectionist measure with negative impacts far outweighing any perceived benefits.

8. References (Examples)

  • What's on Netflix (netflixlibrarybythenumbers2024, foreigncontent articles)
  • Statista (Netflix content spend, library size data)
  • Ampere Analysis (Content spending breakdown, Originals share)
  • Variety (Content spending figures)
  • Omdia (Originals production location data)
  • ECIPE (Protectionism studies)
  • ResearchGate (Protectionism studies, e.g., Korean film industry)
  • Kearney, NCSL, Wrapbook, Good Jobs First, EP, Motion Picture Association, Production Service Network (Film production incentive examples)
  • Yahoo Finance / Argus Research / Morningstar (Netflix financial insights, analyst reports - via API)
  • The Economic Times, SAGE Journals, FilmTake, Forbes, Wikipedia, Reddit (Contextual information from web search)

Author's Note: The author of this article is Ferenc Gyuricza, a European independent filmmaker currently trying to sell his feature-length animated Sci-Fi film, "Your Past Is Your Future."