A Greek Tragedy in the Making For Europe’s AV

By Blair Westlake*

In 2015, the European Commission (EC) set in motion what film, TV producers, and broadcasters alike consider to be a serious erosion of their right to exploit content on a territory-by-territory basis in the European Union by mandating cross-border access to audiovisual (AV) content and services, known as the European Commission’s Digital Single Market strategy.

In 2013, the European audiovisual industry generated revenues of approximately 83 billion euro (U.S.$103 billion), of which about half of that was spent on content.

It has been common practice for content to be licensed exclusively by a territory or country because this typically yields the highest license fees and return on investment for producers (generally, a premium is paid for exclusive rights by a licensee, instead of a licensor having to line up multiple non-exclusive licenses).

Similarly, broadcaster and cable/satellite programmers gravitate to exclusive content and pay the premium associated with such rights, as a key means of differentiating their service from rivals.

Producing films and TV series is one of the riskiest of businesses. Each new series or film is an entirely new product — effectively a “prototype.” Content creation is a unique business, like no other industry in the world, with few companies returning significant profits to its shareholders.

In the U.K., the British Film Institute estimates that between 2003 and 2011, less than seven percent of independent films were profitable. Most content is funded by the success of a few “hits.” Likewise, most funding arrangements require commitment of funds up front — before the cameras ever roll. Less funds in the system means more risk, and marginal content will suffer most and likely never be made.

A study jointly undertaken by consultancies Oxford, U.K.-based Oxera and London-based Oliver & Ohlbaum (May 2016) found that if the changes proposed by the E.C. become law, the industry will be exposed to considerable losses in the short run. The study concluded that producer revenue losses would be up to 8.2 billion euro (U.S.$10.24 billion) per year, output reduction of up to 48 percent for TV content, and up to 37 percent for films and consumer welfare losses up to 9.2 billion euro (U.S.$ 11.49 billion) per year.

Consumers would be worse off through a combination of two main effects:

Less access to content, and/or higher prices: consumers, particularly those in lower-income E.U. member states, would have less access to content and/or would have to pay higher prices than they do now;
Less content being made: undermining the current system of exclusive and territorial licensing would reduce investment in content, resulting in less content being produced.

The E.U. also wishes to permit and require “portability” of online services between E.U. member states. This would mean that consumers would be able to access their home AV subscriptions during trips abroad. Currently, such access is restricted in many cases because AV service providers agree with rights holders that they will offer content only in the geographic areas for which they have purchased the content rights — through various means of geo-blocking.

Stan McCoy, president and managing director, MPA Europe, Middle East and Africa (a unit of the Motion Picture Association of America or MPAA), explained for VideoAge the issues for his organization’s member companies, noting that “producers of all sizes need to be able to control how they license their works as this is how we adapt to new technologies and other changes. We have been working with all European producers and creators to demonstrate that our ability to license content on an exclusive territorial basis is fundamental to the sustainable financing and distribution models that underpin the commercial viability of all audiovisual content. This approach is good for consumers and for the industry and its jobs and continued growth. Exclusive territorial licensing allows the industry to respond to audiences’ demands, it delivers consumer choice, and it is the foundation of Europe’s leadership in cultural diversity and digital content services.”

In discussing with VideoAge the threat the proposed changes will mean for his member companies, Grégoire Polad, director general of the Brussels-based Association of Commercial Television (ACT) in Europe underscored that, “to invest in original content the audiovisual sector needs absolute territorial exclusivity as an incentive. Exclusivity is enforced via geo-blocking. Geo-blocking rests on two pillars: territoriality of copyright and contractual freedom. The combination of the pay-TV case and the Broadcaster Regulation proposal (aka ‘SatCab’) would lead the audiovisual sector in Europe to ruin, by removing the only two legal means necessary to uphold investment.”

Tastes for content, availability, and cost of broadband required to access over-the-top (OTT) content, preferences for viewing content by means such as DVD, Blu-ray, OTT, satellite, free-TV, pay-TV, etc., and incomes, vary by country. Applying one rule for the 28 E.U. countries adds unnecessary and unproven risks to an already challenged industry facing daunting changes from technology.

In a January 22, 2018 speech by E.C. Com-missioner Mariya Gabriel on building the European digital economy and society at the DLD (Digital, Life, Design) conference in Munich, she asserted that “for digital natives like me and you, it is simply a senseless situation that digital borders in Europe still stop us from buying goods, services or content online. This is a discrimination that we do not have in the physical world. Equally, your digital subscriptions should be available whether you are at home or travelling. And everybody should be able to access the television and radio programs of their choice while following copyright rules for the 21st century.”

She continued: “Here is the good news: we have proposed solutions to all these issues. And guess what? Yes, they are all part of that digital single market strategy. Some proposals have already been accepted. Others are still under discussion, and we now need the speedy support of all stakeholders and member states, to contribute constructively and make the borderless digital market a reality.”

There is one year remaining before the E.C.’s current term ends. Officials are heads-down to seal agreements on bills before the Commission. Negotiations are underway as VideoAge goes to press. Negotiations will ultimately require votes and approval to ratify discussions into laws. The impact of changes proposed by the E.C., were they to become law, will likely make a profound impact on content quality, volume and most importantly, on the consumer for whom the content is produced.

Fewer choices and higher prices rarely, if ever, prove to be a ‘win’ for consumers. That may well be what consumers face depending upon what the E.C. adopts.

* Blair Westlake has been an executive in the media and technology industries for more than 35 years. He spent 20 years at Universal Studios, in various roles, including as chairman of Universal TV and Networks Group. He was a corporate vice president, Media & Entertainment, for Microsoft, based at its Redmond, WA headquarters for 10 years. Westlake is a principal in the media consulting firm MediaSquareup, and has consulted for CenturyLink and T-Mobile. He serves on various boards, including the Kingdom of Saudi Arabia’s Public Investment Fund’s Entertainment Investment Company.