The European Digital Single Market: Why Bigger is not necessarily Better

DSM

Bigger is better, right? More choice, economies of scale, lower costs. That at least is the approach the European Commission is taking with its proposed strategy for a Digital Single Market. But is bigger necessarily better? There is good reason to think that in the area of digital content, this is not the case.

The Commission rolled out its Single Digital Market initiative back in May of 2015, although its antecedents go back a couple of years earlier. Built around three “pillars’’, it sets out 16 action points, a number of which are of direct interest and concern to copyright based industries. There are some clear and understandable objectives of direct interest to consumers encompassed within the 16 points, everything from making cross-border e-commerce rules easier combined with more efficient and affordable parcel delivery to interoperable standards in e-health, transport planning or energy and the handling of personal data under the e-Privacy Directive. There are also several that have direct implications for copyright industries, including bringing in a “modern, more European copyright law” which among other things will aim at allowing for wider online access to works across the EU. The review is also looking at the Satellite and Cable Directive, geo-blocking and the audio-visual media framework including local content requirements.

There is a lot on the menu, with plenty of potential to get it wrong and arrive at unanticipated consequences. One needs to be very careful, especially in the area of content and copyright. At the present time, the Digital Single Market Strategy (DSMS) is undergoing extensive industry and public consultation in order to avoid repeating the failure of an similar earlier initiative that foundered over differences between and among stakeholders and member states. Many of those tensions still exist, with some of the larger and more established members of the EU, like France, Germany and the UK (assuming Brexit fails) more interested in protecting their indigenous content industries, while some of the smaller and newer members, who have less invested and less at stake in terms of domestic content or a domestic market, are pushing for removal of geo-blocking and licensing barriers that inhibit the unfettered movement of digital products. Initial proposals coming from the Commission regarding portability of content, styled as “widening access to content across the EU” and implying much greater cross-border access (with a possible concomitant dismantling of territorial licensing), have caused significant concern among the copyright industries. (Other elements of that package proposed changes to copyright exceptions combined with measures to fight piracy).

In a study released at the Cannes Film Festival in May titled, “The Impact of Cross-Border Access to Audiovisual Content on EU Consumers,” UK economic consultancy Oxera and media consultancy Oliver and Ohlbaum concluded that “If the European Commission introduces cross-border access measures which erode the territoriality of audiovisual rights in Europe, less content will get made and consumers   will be worse off overall”. The study cites the following statistics to back up this statement; producer revenue losses of up to 8.2 billion Euros, output reduction of up to 48% for TV content and 37% for films and consumer welfare losses of up 9.3 billion Euros. The impact would fall the hardest on the members of the EU in Eastern Europe (the newest members) followed by France, Spain, Italy and Scandinavia. Germany and the UK would still be affected significantly but somewhat less than other areas. According to media reports, the Commission official directly responsible for the DSMS claimed in an interview that the principle of territoriality will stay–the system will not be destroyed–although his goal is to make borderless access easier for EU consumers. That is hard to square with this statement on the Commission’s Digital Single Market website that boldly proclaims;

“It’s time to make the EU’s single market fit for the digital age – tearing down regulatory walls and moving from 28 national markets to a single one.”

Chris Dodd, former US Senator and Chairman and CEO of the Motion Picture Association of America (MPAA) stated in February that the MPAA would stand with Europe’s creative industries in support of concerns expressed about the implementation of the Digital Single Market concept. In his keynote address to the Berlin Festival, Dodd stressed the importance of the contractual freedom to license film and television on a territorial basis, a business practice that has underpinned film and TV financing in Europe and elsewhere. The Oxera study that highlighted the potential costs of undermining territorial licensing was funded by a group of twenty US and European companies and associations, ranging from 21st Century Fox, Viacom, NBCU and the MPAA to Entertainment One, Constantin, Sky and ITV, the Danish Producers’ Association, la Federation Internationale des Associations de Producteurs de Film (FIAPF) and the Bundesverband Audiovisuelle Medien (BVV), demonstrating the breadth of concern on this issue.

Another MPAA representative, Stan McCoy, President and Managing Director for the Motion Picture Association in Europe, used the concept of GMO modification, a highly sensitive issue in Europe, to make the point that tinkering with the DNA of the copyright industries could lead to long-lasting damaging results. In its initial proposals the Commission focussed on portability—the ability of Europeans to access content when travelling away from home in another member state. This itself raises problems of feasibility and implementation, but the Commission then went on indicate that its ultimate objective is full cross-border access to AV content. As the Oxera report points out, “such additional measures could, in effect, allow consumers to purchase services and access content from providers located in any Member State without the explicit consent of the local rights holder”. If portability and remote access are the main issues, there are surely better ways to achieve this than by blowing up the entire territorial licensing regime.

Hopefully a compromise will be found through the consultative process. The Commission has set the end of the year as the target date for finalization of its recommendations for the Digital Single Market. Translating these recommendations into legislation is a long and complicated process involving the Commission, the European Parliament and the European Council. All have to agree on the final language which, once passed by the European Parliament, then has to be adopted into law by each of the 28 member states. It could take years—years of uncertainty, which is not good for the industry.

One of the stated objectives of the DSMS is the creation of “hundreds of thousands of new jobs”. The content industry in Europe currently employs between 700,000 and 1.1 million workers and generates 97 billion Euros per year. It is an industry that relies heavily on the proven business techniques of market segmentation (to spread risk), exclusivity, windowing and other territorial and time-based licensing and contractual procedures to extract value in an industry that faces many financial, artistic and commercial uncertainties. By putting all this at risk in pursuit of a single market philosophy, the Commission could find that it has achieved just the opposite of what it intended, which it stated was to improve the circulation of online content, to offer more choice to European consumers, to strength cultural diversity, and to provide more opportunities for the creative sector. In fact, based on the findings of the Oxera report (page 5), a clumsy implementation could lead to the production of less content, with non- mainstream content more likely to be dropped, thus threatening cultural and language diversity within the EU. Meanwhile, some consumers would pay a higher price and/or be left with a lower-quality offering while others would be priced out of the market altogether.

That doesn’t sound like bigger is better. Better is better. Getting it right is what counts and hopefully the consultative process, and due reflection on the law of unintended consequences, will result in an outcome that is good for the creative industries in Europe and for European consumers.

© Hugh Stephens 2016. All rights reserved.

 

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