Territoriality Regulation

Will the proposed Regulation on Country of Origin licensing of certain online transmissions reduce transaction costs for cross-border licensing?

No transaction cost problem to address

The European Commission justifies the introduction of the Country of Origin principle for ancillary online services to a broadcast with the high transaction costs for the acquisition of rights for their online services when they are offered across borders”.

However, the European Commission’s Impact Assessment acknowledges that the EC has no quantitative data to verify this assumption. As such, the Commission has based its proposed policy actions on an inexistent fact base and ignores the results of the Charles River Associates economic study that it commissioned for the Impact Assessment.  This study found only small or negligible transaction costs.

In contradiction with the EU Better Regulation Guidelines, found within the EC’s own Work Programme for 2017, the Commission acknowledges that “due to the limited availability of data, both the costs and the savings of the Commission’s proposal could not be quantified.”

Extending a legacy legislation developed for a specific technology more than two decades ago (satellite technology in the early 1990s) is simply not fit for purpose for the online environment.

Will the proposed Regulation on Country of Origin licensing of certain online transmissions increase consumer choice?

Negative impact on social welfare and consumer choice

Studies conducted by Charles River Associates, Oxera, and Analysis Mason conclude that policy changes to limit rightholders’ ability to license content on a territory-by-territory basis could negatively affect social welfare and would decrease, rather than increase, consumer choice.

In the long run, we would see the European audiovisual industry experiencing a reduction in production, and a negative effect on cultural diversity. Consumers would have to pay more as prices would align with the spending power of the more affluent consumer markets in the EU (GDP per capita in PPS varies widely across the EU (Eurostat).

How will the proposed Regulation on Country of Origin licensing of certain online transmissions affect the value of rights?

Significant reduction in the value of all licensed rights

The Commission claims that its proposal would respect the contractual freedom to license rights on a territorial basis, and, thus would not affect the value of rights. In reality, it is very difficult – even impossible – for producers to contractually limit the exploitation of rights via technical means in respect of one of their main financing partners, the public service broadcasters.

This is especially true because the rights affected by the proposed Regulation are often negotiated together with the exclusive primary rights, and are licensed to the broadcaster directly in a package with the primary television rights. In terms of bargaining power, the producer will mostly be forced to accept the terms demanded by the public service broadcaster for e.g. the catch-up rights.

Does the proposed Regulation on Country of Origin licensing of certain online transmissions respect territoriality?

The territorial nature of copyright is removed

The proposed Regulation extends the principle of Country of Origin to “ancillary online services” of broadcasters, by stating that the acts of communication to the public and of making available “are deemed to occur solely in the Member State in which the broadcasting organisation has its principal establishment”.  This implies that, when broadcasters make available catch-up or simulcasting services online without geoblocking, they would not be infringing copyright law, even if they have only cleared the rights for the Member State of establishment (“buy 1, get 28”).

The Proposal therefore effectively removes the territorial nature of copyright in this context by creating automatic, de facto, pan-European license.

Does the proposed Regulation on Country of Origin licensing of certain online transmissions guarantee contractual freedom?

No guarantee of contractual freedom

Recital 11 of the proposed Regulation states that “through the principle of contractual freedom it will be possible to continue limiting the exploitation of the rights affected by the principle of country of origin”.  Recital 11 could, however, have no practical effect, as the EU competition authorities are – in parallel with the Proposal – questioning contractual arrangements and geo-blocking obligations on broadcasters.  Contractual freedom is therefore not guaranteed.

What market impact will the proposed Regulation on Country of Origin have on licensing of certain online transmissions?

Damage to release scheduling

The Commission argues that its proposal would have a very limited market impact because it only applies to broadcasters’ online ancillary services.  However, if a “country-of-origin rule” is applied to broadcasters’ online services, the first market to offer the content online in the European Union will undermine the release schedules of all the other markets. This will diminish the value of exclusive licenses in those other markets. It will therefore have a directly negative impact on investment in production, marketing and distribution.

Will the proposed Regulation on Country of Origin licensing of certain online transmissions have an impact on the quality of content and on the final user experience?

Damage to high-quality content

Territorial licenses and exclusive rights enable the industry to raise funding to invest in production, marketing and distribution, thereby offering a tailored and valuable user-experience. If less funding is available following the undermining of the territoriality principle, production budgets will inevitably shrink, lowering production quantity and quality. Ultimately, European audiences will lose out.

Cross-Border Access

How will imposing cross-border access through legislation affect the availability of content?

Less consumer choice

As stated by the 2014 Charles River Associates economic study, the Analysis Mason and the Oxera Studies of May 2016, in all legislative cross-border scenarios for the Digital Single Market (other than portability) consumers and industry will be worse off than currently. The consequences are less access, less circulation and less availability of content and services.

Will imposing cross-border access through legislation have an impact on the funding of content?

Less investment

Producers and broadcasters invest large sums upfront with no guarantee of any return on their investment, which is why they need exclusive territorial licensing to cover the costs and to have a real chance of recouping their investment. Undermining the value of exclusive licenses will decrease upfront investment and thus reduce local productions and European co-productions. Cultural diversity will suffer and European creators, as well as European audiences, will be the first to lose out.

Could forcing cross-border access through legislation put an end to piracy?

More piracy

Cultural and creative content represents the livelihood of millions of Europeans. The creative sectors have worked hard to make content easily and legally available.

Disrupting the current licensing and rights market would lead to less exclusivity for distributors and – with that – a reduction in the choice, and actual content, available to consumers. As a consequence, the loss of tailored local offerings at tailored price points may actually lead to more piracy.

Geo-Blocking Regulation

Will broadening the scope of the Geo-blocking Regulation to cover copyright content benefit consumers?

Consumers will lose out

When preparing the proposal, the European Commission explicitly excluded copyright-protected content from the public consultation. This was done for good reason. For copyright-protected content, banning geo-blocking practices risks causing a reduction in the diversity of offerings in many creative sectors – the opposite of what we all want to achieve. It would curtail the freedom of services to adapt terms and offerings to local market conditions, and would put pressure on services to unify prices upwards.

Creative works have different cultural and economic values in the various EU Member States.  Extending the scope of the Geo-blocking Regulation to copyright works would remove the ability to adapt to the varied purchasing powers of different consumers within the EU. As a result, consumers would have to pay more, as prices would align with the spending power of the more affluent consumer markets in the EU.

Extending the scope of the Geo-blocking Regulation to copyright content puts the range and diversity of legal offer at risk, with inevitable negative economic consequences for the sectors in question, and for European audiences. If realized – this would run entirely contrary to the EU’s long history of measures to promote cultural diversity, as well as the DSM objectives of achieving jobs and economic growth.

One example is e-books. The offer of this product to consumers across borders would drastically decrease, if the legislation were to be imposed. Booksellers make their own investment decisions on the basis of potential profitability, based on facts, figures and – above all – market trends.

Will broadening the scope of the review clause of the Geo-blocking regulation to audiovisual benefit consumers?

Negative impact on cultural diversity

The inclusion of audiovisual services in the Regulation’s review clause calls into question the EU Acquis in this area and is in total contradiction with the 2006 Services Directive. It also contradicts the long established position of the European Parliament to preserve and enhance cultural diversity. It will negatively impact territorial exclusivity and on-going investments. It will also impair future financing, promotion and distribution throughout the Digital Single Market. It is our firm belief that the Portability Regulation is the right tool to help increase audiences’ enjoyment of creative content, while preserving the principle of territoriality. Ill-conceived and inconsistent changes to the material scope of the Geo-blocking Regulation risk undermining this.