It took barely two months for French cinema’s landmark new financing deal with Canal+ to encounter its first serious threat.

In July, Canal+ signed a five-year agreement committing EUR €980 million to French and European film production between 2028 and 2032. As France’s leading private financier of cinema, Canal+ is one of the central pillars of a tightly regulated funding system that has helped sustain one of Europe’s healthiest domestic film industries.

Now the French government wants to double VAT on pay-TV subscriptions from 10% to 20%. Canal+ says the change could cost it as much as EUR €200 million per year and has warned that it would respond by raising prices, cutting costs and reducing its financial contributions to film, television and sports.

If those numbers sound suspiciously familiar, they should. The proposed tax hit of up to EUR €200 million annually is almost exactly equal to Canal+’s average annual cinema commitment of EUR €196 million.

More importantly, Canal+ appears to have planned for precisely this possibility. The July agreement reportedly contains a clause allowing the company to suspend its film-financing commitments if the VAT rate increases. That is one rather substantial escape hatch.

France’s cinema model has long depended on an intricate system in which broadcasters, exhibitors, streaming services, taxes and public support feed money back into local production. It works remarkably well, but the Canal+ dispute illustrates how interconnected that system has become. The government may see a higher VAT rate as additional revenue from pay television. French producers may see EUR €980 million suddenly becoming considerably less certain.