• Media

    Inside the AVMSD revision. Should Netflix & Co. be worried?

    The proposed revision of the the audiovisual media services directive (AVMSD) is expected to be opposed by online service providers and kindred spirits. Here's why. As part of the digital single market strategy (which is just over a year old now), The Eu [read more]
    byEmma Brown | 15/Jun/20167 min read
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    The proposed revision of the the audiovisual media services directive (AVMSD) is expected to be opposed by online service providers and kindred spirits. Here’s why.

    As part of the digital single market strategy (which is just over a year old now), The European Commission published six proposals on 25 May. A keenly awaited file among these, is a revision of the audiovisual media services directive (AVMSD).

    This is the legislation that governs national rules on all audiovisual media content. This is not just about television, it also includes online portals and on-demand services.

    The AVMSD has taken various forms over the years whilst adapting to the ongoing changes to the technological environment. Since the initial adoption of the Television without Frontiers Directive back in the 1980s the idea has been to create a harmonised single market for audiovisual content whilst ensuring some key principles.

    These include technological neutrality, freedom of reception and retransmission and flexibility for Member States to provide more detailed and stricter rules than specified in the AVMSD.

    Market developments, notably the rise of the online world, made it necessary to revisit the rules and amend the framework. With the last revision, the Directive was renamed and extended to include not only the traditional television content but also non-linear services (such as “on-demand” and internet services) providing television-like audiovisual content. This would now include providers like Netflix.

    The proposal adopted on 25 May by the Commission has proposed several controversial changes such as the rules of prominence, advertising time limits and protection of minors.

    The changes to the scope indicate video-hosting portals, such as YouTube, will be included as it proposes adding the following:

    –  a definition for ‘video-sharing platform services’ to the scope
    (Article 1 a bis in the draft),

    –  the wording ‘videos of short duration’ to what constitutes a programme
    (Article 1 b in the draft),

    –  a definition of a video-sharing platform provider as a media service provider
    (Article 1 d bis in the draft),

    –  a provision specific to video-sharing platforms.

    This is something that has previously not happened due to editorial responsibility not being part of the remit.  However, this proposal does seem to be in line with comments from the Juncker Commission about tackling the barriers between online and offline providers.

    The EU is aiming to create a single, pan-European market encompassing all digital services and thus it is unsurprising that the rules for online services are to be reinforced.

    For instance, the Commission proposes a common quota at EU level, taking account of the fact that many member states have already been implementing their own national quotas for European works. For instance, in Spain and Austria, there is an obligation to reserve 30% and 50% (respectively) of their “on-demand” services catalogues for European works.

    In the current AVMSD, a 10% share of the content broadcast must be European works. According to the leaked document, this has now changed so linear (television) and non-linear services providers must ensure that 20 % of their catalogues are European works. A report by the Commission from 2010 demonstrated a high share of European works in catalogues across Europe.  For instance, Denmark reported in 2009, 88.9% of its on-demand catalogues consisted of European works.

    In addition, the proposal sees a provision where Member States will be able to impose financial contributions to “on-demand” services for local content – a sort of European content tax.

    The providers will be required to contribute financially to the production of European works, including direct investment in content or contributions to national funds. What this means in practice remains to be seen.

    However, it begs the question of whether this will be an alternative to offering a specific share of European works in catalogues. Will the documented approach by Czech Republic and Italy  become the ‘get out of jail free card’ for some providers?

    The proposed Directive also allows Member States to oblige “on-demand” service providers to target audiences in their territories, but established in another Member State, to make such financial contributions on the revenues made in the targeted Member State.

    Albeit in this case, the provider would only be required to contribute if it was not subject to an equivalent contribution in the Member State it is established in.  For example, if Netflix maintains its headquarters in the Netherlands but is not obliged by the Dutch government to offer a financial contribution for the production of European works, and at the same time also targets a Belgian audience, Belgium could potentially seek a fiscal contribution from Netflix.

    Netflix and other internet services captured in the scope, fear this proposal will damage their business model. Many platforms and portals pride themselves on having algorithms which tailor content according to the consumer’s taste. If a company has to financially invest in the production of European works and make these readily available on its platform, a personalized service will no longer work.

    Additional requirements which may cause a stir include:

    – stricter rules on protection of minors for television and on-demand services and specifically measures for on-demand services to put in place age-verification tools such as encryption and PIN codes,

    – a possible daily limit of advertising between the hours of 7.00 – 23.00 and  Member States are recommended to develop co- and self- regulation codes with regard to advertising certain foods and drinks.

    A clear focus from the Commission is the protection of vulnerable people, this can be seen by the provision in the draft which calls for stricter rules for programmes to ensure the physical, mental and moral development of minors is not impaired.

    In addition, the Commission has reinforced the current provision to protect minors from unsuitable marketing communications of food high in fat, salt/sodium and sugars as well alcohol beverages.

    This has in the past placed the onus on Member States to take measures, but with the continued emphasis on health and ensuring the safety of vulnerable groups, is the Commission setting up a framework to provide European rules?

    Brussels should prepare to expect a stream of online service providers and kindred spirits to rally against this new proposal. Stormy audio-visual waves are ahead!


    photo credits: Jonas Smith
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  • Media

    Digital convergence in Europe: market trends and policy challenges

    In light of the sharp increase in video content and online entertainment the audiovisual market has changed dramatically over the past years, posing new complex challenges for European policy makers and regulators. The traditional approach based on distin [read more]
    byAugusto Preta | 24/Jun/20158 min read
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    In light of the sharp increase in video content and online entertainment the audiovisual market has changed dramatically over the past years, posing new complex challenges for European policy makers and regulators. The traditional approach based on distinctive markets seems to be inadequate to encompass this new competitive environment.


    The market trend

    The growth of internet-based video is mainly driven by two factors. The first one is the broadband deployment that allows video to be smoothly transmitted and widely distributed.

    The video, which represents already more than 50% of traffic on fixed networks in Western Europe, is expected to increase exponentially on mobile networks growing almost 20 times between 2011 and 2016, at an average annual rate of 80%.


    Schermata 2015-06-23 alle 17.32.05


    The second factor is the increase in demand for quality services which provides a strong incentive in producing HD and Ultra HD (4K) contents, which are bandwidth hungry.

    Consequently, the market scenario exhibits the following features: viewers ask for more and more video quality content, manufacturers want to distribute such content on as many platforms as possible and the rights holders are finally conscious of the opportunities of the broadband delivery, also for valuable contents, once they are properly rewarded.

    Accordingly, new players enter the market and provide VOD services, implementing various business models: “advertising video on demand” (AVOD), which includes services such as Hulu or Dailymotion; “subscription video on demand” (SVOD), which includes services such as Netflix and Amazon Prime; “transactional video on demand” (TVOD), which has a “pay as you go” pricing scheme (iTunes); and Freemium VOD model, which allows all users to have a limited free tier, and pay service offerings on higher tiers (Hulu Plus).


    Schermata 2015-06-23 alle 17.32.43


    All this will require more and more performing networks, able to deliver such contents on many platforms, and leaves open questions on issues related to traffic management and quality of services, which are a primary component of the current debate on net neutrality.

    In the US, the first two video entertainment services occupy 50 % of the bandwidth in peak time, and Netflix alone exceeds 30%.

    For this reason, in the US SVOD providers are expected to benefit even more from this migration. Such services have indeed gained in popularity at the expenses of pay TV, whose subscribers have declined over the past two years. Consumers are abandoning traditional pay TV subscriptions, subject to cord-cutting, while SVOD services try to impose themselves as premium channels, with original and exclusive content.

    In Europe, the industry witnesses a more complex competitive structure. The global market leader Netflix is trying to extend its dominance launching services in 13 countries in the last 3 years. At the end of 2014 Netflix reached 14 million subscribers, with a higher penetration in UK and North of Europe, the countries where it initially started. Other international OTT services like Amazon Prime are also popular in some of the main EU countries (UK and Germany).

    Telcos and broadcasters also invest in this market. Telcos, especially in countries where IPTV is more developed (France above all), have begun to extend their OTT VOD offer. For example, SFR (FR) launched a VOD service for mobile and tablet, Deutsch Telekom (DE) the multiscreen service EntertainToGo, KPN (NL) a multiscreen TV service on its own 4G network.

    The broadcasters, especially after the economic crisis and the saturation of their core business, are now investing in this sector and pay-TV operators in particular have all their established VOD service, ready to compete with that of OTT players.

    All this considered, in Western Europe, according to ITMedia Consulting last report “Video on Demand in Europe: 2015-2018“, total revenues coming from VOD services are expected to reach €3.58 billion at the end of 2018, from €2.14 billion estimated at the end of 2015, with an average annual growth of 22%.


    Schermata 2015-06-23 alle 17.35.43


    Above all, the revenues of the SVOD model are the one expected to grow most: in 2018, SVOD will count more than 50% of the total VOD revenues, with an average annual growth of 34%, thanks also to the expected Netfilx’s expansion in the rest of Europe (e.g. in Italy and Spain from October 2015) and the increasing competition coming from payTv broadcasters. 


    Policy challenges

    As shown above, the audiovisual market has thus changed dramatically over the past years, posing new complex challenges for policy makers and authorities.

    First of all, the trade-off between more competition or more concentration has to be taken into account. If, on the one hand, the existence of network effects, economies of scale and sunk costs (programming, rights) increases barriers to entry against “native” internet operators; on the other hand this seems no longer sufficient to ensure competitive advantages to former analogue incumbents.

    This trade-off refers in particular to the ability of established industries, such as telcos and media, to keep their acquired positions based on natural monopolies or oligopolies.

    The question here is whether the evolution itself driven by the internet economy generates a greater level of competition, providing the maximum efficiency of the market in terms of consumer welfare, or if it is only a transfer of revenues and market power from the former incumbents to the succeeding ones.

    All suggest, however, that the traditional approach based on distinctive markets seems to be inadequate to encompass this new competitive environment.

    As a consequence, the traditional antitrust market definition should be reviewed in the light of the great changes of the competitive framework, starting from the distinction between free TV and pay TV markets.

    In this view, economic theory on two-sided markets may be useful to explain how platforms interact simultaneously with different groups of agents, exploiting the cross-group externalities and thereby correlating previously separated markets.

    As of ex-ante interventions, the quest for balance between the highly regulated TV (and audiovisual) sector and the internet is highly debated. A possible solution might be to adopt symmetric regulation between the two (level playing field).

    On the other hand this proposition is not easy to pursue. For example, must carry/ must offer obligations, pluralism requirements, quotas on audiovisual EU and national production and so on may be hard to extend to the new environment.

    A “light touch” regulation instead might be more effective in order not to lose the high levels of innovation that has fostered competition in the internet economy, thereby enhancing consumer welfare.

    In addition, the geographic market definition of audio visual services is typically at the national level. However such boundaries between nations might soon be questioned by the global nature of the Internet players.

    In this view the market definition, which is at the moment different between regulation and competition regime (see figure 5), should hopefully be harmonized in order to be coherent and avoid conflicting decisions in the new sector.


    Schermata 2015-06-23 alle 17.38.35


    In conclusion, in this changing environment, regulators and antitrust authorities are likely to play a substantial role. Their determination, through ex ante and ex post interventions, will have a great influence on the sector development and will significantly affect in Europe the speed of the transition process to the convergence.



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  • Media

    The challenge to geo-blocking and the film industry in the EU

    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 inco [read more]
    byIgnasi Guardans | 20/Feb/201510 min read
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    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.

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