Geo-blocking implies restrictions on competition in the single market and creates an incentive for consumers to turn to unauthorised sources of copyrighted materials. So why the European Commission is back-pedalling on the commitment to suppress it?
Those of you who have read the recently leaked version of the European Commission’s communication on copyright (due for publication in December 2015) must have been surprised by the absence of the word ‘geo-blocking’.
We all remember that peculiar promotional video ahead of the publication of the Digital Single Market strategy, when Vice-President Ansip disappointingly could not watch the Dutch documentary forwarded to him by First Vice-President Timmermans because of ‘geo-blocking’.
Where has all this initial excitement gone?
We will not speculate on the reasons behind this lapse, but it remains an indisputable fact that restrictions on cross-border access to audiovisual content are a common practice, and that not all European consumers are equally able to access online audiovisual services in their home countries.
Perhaps the first example that comes to mind is Netflix, and our first question is: why should a Lithuanian consumer be prevented from accessing the French or English services of this very popular US media company?
However, geo-blocking is not a Netflix problem: it is a single market problem.
A problem with two facets:
Firstly, geo-blocking implies restrictions on competition in the single market, caused by the fragmentation stemming from the licensing models prevalent in the physical world. These models are in turn (en)forced in the online environment through technical and contractual measures.
And secondly, geo-blocking has a negative impact on the development of quality and affordable offers, thus creating an incentive for consumers to turn to unauthorised sources of copyrighted materials.
We will briefly take a look at these two issues.
1. A competitive single market for audiovisual content
A few months ago, when the Rugby World Cup 2015 kicked off, BEUC wrote a letter to the European Commission concerning exclusive licensing agreements between Rugby World, the organiser of the tournament, and local broadcasters of the matches.
This case raised questions as to why consumers in some EU countries are forced to purchase a cable or satellite subscription to watch the matches, often paying for a premium package, rather than being able to simply enjoy the tournament through the on-demand online services of distributors in other countries.
A similar question arose when the European Court of Justice delivered its landmark ruling in the Premier League case (C-403/08).
The Court considered that exclusive territorial clauses in sport broadcasting contracts could amount to restricting competition in the single market.
This decision plays a very important role in the evolution of the current debate, which juxtaposes the freedom to contract (or to license) under copyright law with the principles of non-discrimination and competition in the single market.
The objective of Article 101 of the TFEU, upon which the ECJ based its decision, is to make the single market a reality for EU citizens by bringing down the artificial walls that restrict competition and reduce consumer choice with the sole purpose of maximising profits.
We have also seen the impact of (absolute) exclusive territorial clauses in the pay-TV sector, for example. Consumers in many countries are not satisfied with the offers that are available locally, but it is not possible for them to subscribe to an online IPTV provider established in a different member state.
This is why BEUC decided to intervene as a third interested party in DG Competition’s ongoing antitrust investigation on cross-border pay-TV services (case AT.40023).
2. A pre-condition for tackling piracy is the provision of quality legal offers to consumers
The second aspect to consider within the geo-blocking debate is the impact of this practice on the availability of legal offers for consumers.
According to a recent study by the European Observatory on Infringements of Intellectual Property Rights, 80 per cent of consumers – unsurprisingly – preferred affordable legal offers to downloading from unauthorised sources. BEUC’s members also confirm this preference.
For example, the ‘España no es Pirata’ campaign by our Spanish member OCU discovered that only 6 per cent of surveyed consumers would not pay for a movie that is still in the cinemas, and only 8 per cent said that they would not pay for a movie that was released last year.
The music sector provides a good example of how addressing consumers’ expectations could help to reduce unauthorised downloading.
Data provided by one music industry showed that the introduction of streaming music offers in Norway has “virtually eliminated piracy” there.
Of course, the music industry is different from the audiovisual sector. The issue of cross-border licensing of music has already been addressed with the harmonisation of multi-territorial licensing, a path that has not been followed by the audiovisual sector.
Both industries plead for stronger enforcement policies to tackle copyright infringements. This was to some extent echoed by the European Commission, first in the 2014 IPR enforcement action plan, and more recently in the Digital Single Market strategy through the so-called ‘follow-the-money’ approach.
However, when discussing copyright enforcement, it is important to consider – as rightly stated in the leaked communication – that many consumers do not have access to affordable and quality legal offers in their countries.
This is because there is currently a two-tier single market in the EU: countries where consumers have access to quality audiovisual online services, and countries where they simply don’t.
This fundamental inconsistency must be seriously addressed through a combination of measures. First of all, by tackling geo-blocking in order to allow consumers to seek legal offers across the EU, especially when such offers are not available domestically. And secondly, by creating incentives for the development of audiovisual services in each member state.
At first these two measures may seem incompatible: why tackle geo-blocking if ultimately what we want to do is develop local services?
We need both approaches for a simple reason: it will never be possible to ensure that all audiovisual content is licensed in all member states’ territories.
As we want to maintain Europe’s cultural diversity, it is important to allow right holders to sell their contents across member states, adding value to domestic offers through local adaptations and competitive content aggregators.
But, this does not imply that consumers should be confined exclusively to the offers available in their own countries.
Will ‘portability’ improve the situation?
In December, the European Commission will also come out with a ‘portability’ proposal. However, portability is not the same as cross-border access.
The aim of the Commission’s proposal is to allow consumers who have legally bought a subscription to a streaming or on-demand music or film service to access that content when travelling – or even temporally living – abroad.
Ultimately, this proposal is directed mainly at consumers who already have access to online local content, so there will be a de facto exclusion for consumers living in member states where online offers are not yet developed.
In any event, although this proposal is important and urgently needed from a consumer perspective, we must bear in mind that it is just one piece of the copyright jigsaw puzzle.
What is the solution? Can copyright and competition law be reconciled?
BEUC’s suggestion for solving the problem of geo-blocking in the online environment combines existing copyright rules for satellite services in the Satellite and Cable Directive with the well-known concept of ‘passive sales’ of EU competition law.
We provided details about how to address this issue in our response to the public consultation on the review of this Directive. In a nutshell: this regulatory solution would consist of extending the existing model applied to satellite services (the so-called ‘country of origin principle’) to cover the online distribution of content.
This would imply that an online distributor should not be able to refuse a consumer who tries to access an online audiovisual service from another member state on the grounds of contractual territorial exclusivity.
Such a reform would indeed require the adaptation of current contractual practices between right holders and local distributors of online services. However, the potential negative outcomes on the creative sector should not be overstated, for the following reasons:
– The extension of the country of origin principle to online distribution will not prevent right holders from selling their content on a country-by-country basis. This is because local content adaptation will be still necessary for consumers who want to watch content with local subtitles or in their local language.
– The extension of the country of origin principle to online distribution does not need to result in a pan-European licensing system. It is important to clarify that the aim of this exercise is to prevent consumers from being blocked when trying to access online content from another member state. Thus, the objective is to prevent contractual and technical restrictions to ‘passive sales’, rather than to provide a means for distributors to target consumers outside of their territory of exclusivity.
– The extension of the country of origin principle to online distribution will not affect Europe’s cultural and linguistic diversity. The claim that consumers who are able to purchase the audiovisual content they want from across Europe will stop consuming local audiovisual services is unfounded. Recent data reveals that consumption patterns in traditional distribution channels like cinema remain stable, and that local television is still the most used medium for watching audiovisual content.
On the contrary, Europe’s cultural diversity will be strengthened because consumers will be able to discover other European cultures through just one click. 70 per cent of the European market is already dominated by Hollywood productions, and one of the structural weaknesses of the film industries in Europe is the difficulty in reaching a broader audience beyond national borders. Thus, addressing geo-blocking will be an important step in bringing European productions closer to consumers across the EU.
To conclude: In the forthcoming copyright communication we will see whether the Commission is willing to put a stop to geo-blocking in the digital environment.
We know that a solution is possible, and that the required surgical intervention in the copyright framework is much smaller than widely believed.
There is still a great deal of resistance to be faced, and many questions to be answered but, like Al Pacino said in his inspirational speech in Any Given Sunday, “inch by inch, play by play” we will get there.
Copyright levies have existed in national legal systems for almost 50 years since first being introduced in Germany. However, instead of evolving alongside consumption behaviours and new means of distributing copyrighted content, copyright levies have become a burden for consumers, retailers, manufacturers, authors and thereby ultimately for the Digital Single Market as a whole.
A compensation scheme for private copying?
Copyright levies were designed to compensate rights holders for the ‘losses’ incurred by reproductions of works within the terms of the private copying exception recognised in international treaties and in the European Union’s Copyright Directive.
The act of copying was considered detrimental to the economic interests of rights holders, as it would be practically impossible to grant permission to lawful acquirers to carry out such acts for their own non-commercial and domestic use.
As such, the purpose of the system is to provide compensation and not remuneration. Authors are remunerated by way of the licences legally acquired by users according to and conditional on the distribution rights negotiated with their representatives.
Furthermore, the Copyright Directive is ‘device neutral’ concerning the means by which the private copying is carried out. It does not require a device-based levy system. However, European legal provisions do require any compensation scheme for private copying to take into account the application of technologies (‘Technological Protection Measures’ or TPMs) regulating users’ possibility to actually and legally carry out the act of copying.
A case of consumer detriment
From a consumer perspective, copyright levies constitute an unfair and outdated system for compensating rights holders for what amounts to a legitimate use of legally bought content.
Consumers expect to be able to make copies in order to make the content interoperable by way of converting the file to another format or simply transferring the downloaded file between devices. The same applies to back-up copies which consumers make of content carried on their computers and personal servers in order to protect the content against data loss.
However, the consumer concerns around levies extend beyond this and compromise the very functioning of the Single Market. The consumer detriment caused by existing systems of copyright levies can be attributed to three principal sources:
1. Territorial discrimination
National copyright levy systems differ substantially from country to country. In the 22 EU Member States who have adopted such a compensation scheme, there are inconsistences regarding the tariffs, the manner of calculation, the media or equipment affected and the beneficiaries.
For example, the French consumer association UFC-Que Choisir reported that in 2012 French consumers paid 4.8 times more in levies than the European average.
In a Single Market which should benefit all consumers equally, is it not unfair that some must pay more for an act which corresponds to their own legitimate expectations?
More fundamentally, these differences affect the free circulation of goods subject to copyright levies as national laws apply differently with the manufacturer or retailer having to clear these taxes in every Member State wherein the products are marketed before transferring these costs to the consumer.
2. Lack of transparency
In most cases, consumers do not know what copyright levies are, whether they are included in the purchasing price nor what they stand for.
Currently, there is inconsistency among retailers and manufacturers when it comes to informing consumers about copyright levies. Even within the same country and for similar products, there is an asymmetry of information given to consumers when it comes to levies (see picture below). Although the Consumer Rights Directive implemented in 2014 requires that consumers are informed of the “total price of the goods or services inclusive of taxes”, there is no obligation to provide a clear breakdown of the copyright levy rate.
Consumers have an incontrovertible right to know what they are paying for, especially if such a tax embodies the uses which consumers are entitled to make of the content they have legally bought.
3. Double payment
Current European systems of copyright levies apply irrespective of the uses consumers make of devices or blank media. They are sold and levied under the presumption that consumers will make private copies of copyrighted content and that this will cause economic harm to rights holders.
When consumers purchase online content, the cost of making private copies is already included in the purchasing price. This is controlled in different ways, for example by linking access to the content to a specific account or by the application of TPMs enforced in contractual clauses which restrict the consumer’s usage of the content.
Therefore, when consumers buy copyrighted content online they would be also paying for the possibility to exercise the private copying exception although they have already paid for this when purchasing the device. This amounts to a case of double payment by consumers for the very same act of private copying.
Copyright levies are not fit-for-purpose in the digital economy
Technologies themselves are suppressing the need to count on a ‘levy-like’ compensation scheme. The more digital content consumers are able to acquire in the form of licensing agreements, the less need there is for private copy compensation as rights holders would be directly remunerated and compensated at the same time. Therefore, the future of copyright levies must be a phasing-out.
Today and tomorrow’s technology will lead us to a Copernican revolution about the way consumers access and use digital content and so legislation must keep up with such changes while safeguarding the interests of creators and those subsidising the system: consumers.
The way forward – Life after Vitorino’s recommendations
In January 2013, the European Commission published the recommendations resulting from the stakeholder mediation process on private copying and reprography levies, also known as the Vitorino recommendations, in which various sectors were invited to give their views on different issues, including those mentioned above.
This document represents a first step towards thoughtful, considered reform of the current media-based compensation scheme. However, changes must occur at the heart of the European legal instrument legitimising national levies systems: the Copyright Directive.
Although it seems to be difficult to imagine the phasing out of copyright levies in Europe in the short-term, EU decision makers must urgently take legislative measures to balance the interests of the different parties concerned, including consumers.
Therefore, it is necessary to:
a. Establish harmonised criteria to define the harm suffered by rights holders for the act of private copying, whilst maintaining the possibility for Member States to decide alternative compensation mechanisms.
b. Clarify that certain acts of private copying are within the consumer’s legitimate expectations and cause minimal harm to rights holders therefore shall not trigger the application of copyright levies.
c. Make it mandatory to disclose a clear breakdown of the copyright levy rate in the retail price of the product (in those countries which have opted for such compensation schemes).
Like in the worst nightmare of Gregor Samsa, copyright levies have failed to transform themselves into a system which could have actually contributed to the development of the European cultural identity.
If decision-makers do not want copyright levies to become the ‘ungeheuren Ungeziefer’ of EU copyright law, they cannot miss the opportunity to make a real change in the forthcoming reform. After all, even the most unattractive caterpillar can always turn into something beautiful.