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.
The whole debate about “suppressing borders” to online film viewing will only have any possibility of success if it is combined with a structural support to an evolution of the current chain of value and the whole European film industry source of income.
February is an essential month in the movie industry calendar. For a few days, the Martin-Gropius-Bau, an elegant XIXth century building which survived Berlin’s historical dramas, becomes the most important film marketplace in the world.
At the European Film Market, which runs parallel to the Berlinale, hundreds of films from all over the world are sold to film distributors, also from all over the world. In the market corridors, or in the large bars of international hotels, tens of agreements will turn film projects into a viable reality.
Indeed, Europe is here the main player both on the selling and the buying side, but not the only one. And what is sold here? Well, leaving aside co-production deals, this is essentially a market of distribution rights within a particular territory.
Film sales agents, authorized by the films’ rights holders contact distributors, and do what humans have been doing in markets for many centuries.
Films we have never heard of; films which are only known, if at all, in their country of origin, or which are already a hit in the domestic box office; films which may not be fully finished or which are little more than a script and a production plan; titles of all sort of budgets and genres are sold to distribution companies on a national basis, for these companies to make them available to theatres; or to include them in an online catalogue, or… : it would be long to describe here all the possible deals and formats these agreements can take.
What is important is that, as a result of those deals, as in any business, someone will be putting money at risk betting on the success of a movie; someone will start to recover part of an investment thanks to a good sale; someone will obtain the final amount allowing the film to become reality: “pre-sales” are in many cases an way of financing the film itself.
Once the market is over, distributors from small, midsize or large companies will return home with some titles in their bags and the rights for their theatrical and/or online distribution (and even other options nowadays) within a particular country.
Once back, they will spend time and money, in the form of advertisement targeted to the particular audience and in the language of the country where the film is to be released.
Many months or a couple of years later, leaving aside piracy, some of those movies will fall into total oblivion. But others that started their commercial life in Berlin may have won some awards here and there, or may have been very successful at the box-office.
Then, viewer’s demand for them will grow; people will look for those titles online… only to discover that the film is not available for viewing in that particular country.
Geo-blocking, that is the word. Online catalogues are territorial, even within the EU, and what is perhaps already available in one member state is blocked for you as soon as the platform’s software discovers that your IP belongs to the other side of the border.
What? Outrageous‼ Wasn’t the EU supposed to be a single market? Is that only true for the offline world? This is a truly anti-European practice! Well, wait a minute. This is not the result of an evil plan against consumers.
This is just the natural consequence of those deals which started at the ground floor of the Martin-Gropius-Bau, or any other film markets in Europe and abroad. It is just the result of a complex business model which sustains the very existence of that film you want to watch.
If someone paid for the film rights in Belgium, that company naturally expects to recover that investment in the Belgian box-office or through a Belgian web platform.
And that would be complicated if the Belgian audience can watch online the film from the online distribution made possible by someone who purchased the online film’s rights for Austria or for Ireland. It could even be possible that a movie is already online in Ireland, before even having been released in theatres in Antwerp or Brussels.
The European Commission wants to change this state of things. Commissioner Oettinger travelled to Berlin on February 9 to proclaim again that message before an audience of 700 film professionals.
It was his first direct contact with the film industry in his political career:
“I want more choice for consumers. They should also benefit from the advantages of digitalization and be able to shop for more films across-borders”.
This is the mantra constantly repeated by EU Officials, even by Junker himself. As they sometimes make it sound, their ideal world is a European digital single market where consumers can watch what they want when they want from any country. It sounds so nice. But who will be paying for that? To whom? How?
Too often those same officials forget to say that it is also the Commission’s responsibility to ensure in such an idealistic scenario, viewers can keep watching European content. That is also their obligation, both political and legal obligation according to the Treaties.
A similar consideration can be applied to many Members of the European Parliament (although MEPs are certainly free to have an anti-European political agenda or one that attacks European interests if they wish so).
That means that the whole debate about “supressing borders” to online film viewing will only have any possibility of success if it is combined with a structural support to an evolution of the current chain of value and the whole European film industry source of income.
This is not about protecting old business models per se: everybody and everything must be adapted to the online world and to new habits of consumption. The current “media chronology”, for example, which sets the mandatory timing for movies consecutive windows from the theatrical release to laptop downloading or TV broadcasting, must be reviewed.
It is definitely too rigid. And so can be reviewed other issues, as it is the case for the situation of films which are just not available at all in one country as the demand is too small there, but are fully available somewhere else in Europe.
Those and other aspects will need to change, and the industry knows that. But who has the capacity to buy the distribution rights of a film for the territories of 28 Member states at the same time? Who can manage and care about those theatrical releases of one title from Palermo to Gdansk, dubbed or subtitled in Polish, Italian and all the other languages?
Can that be done with one single uniform marketing campaign? And can it be done simultaneously? The replies to those questions easily lead to the names of a few non European companies, and to the film titles those companies would be ready to invest in.
In other words: for too many people it is Europe’s cultural diversity that can be at risk here, if the current scheme of contracts and investments and payments, which keeps the industry alive, is just killed through the EU’s Official Journal before the European film industry has been transformed and alternative ways of monetising film production and film distribution have been put in place.
Innovation can bring – it is bringing already – new opportunities to those who risked their money for a beautiful film to exist in the first place. It is so interesting that almost at the very moment that Commissioner Oettinger was talking at the first floor of the Ritz Carlton hotel in Berlin, Netflix made the announcement that it is opening its service in Cuba, and promised to include a large amount of Cuban movies in its U.S. catalogue (and when possible in other countries).
This will not reach a wide audience in Cuba for now (according to the International Telecommunications Union the country had 5,360 fixed broadband subscribers in 2013 out of a population of about 11.3 million), but the symbol is there.
In approximately three years, an audience of tens of millions of viewers, in the US and abroad (and a few Cubans among them), will have access via Netflix to some of the best European films resulting from deals closed in Berlin in February 2015.