Commission ends dig into studios' TV deals
The European Commission has dropped its probe into an alleged cartel for pay TV prices operated by the Hollywood heavyweights, including Disney, Warners, Fox, Sony, MGM and DreamWorks.
But the org is continuing its investigation into practices by NBC Universal and Viacom’s Paramount — the only two studios that have refused to drop a contentious “most-favored nation” clause from their contracts with pay TV outlets in Europe.
That clause gives the studios the right to enjoy the most-favorable terms agreed between a pay TV company and any one of them.
At stake here is not so much whatever monetary penalties might be inflicted upon U and Par as good relations with a Continent where Hollywood has significant and growing corporate interests.
The seven Hollywood majors comprising the Motion Picture Assn. jointly raked in some $1.125 billion in pay TV revenues from Europe in 2003, up just 2% from the previous year. (DreamWorks, which also has long-term deals with pay channels across the Continent, is not an MPA company and is not included in that total.)
As a general rule, the majors do apply similar formulas (based on box office grosses) for determining the theoretical value of their movies in any given territory abroad.
Over the last few years, the Hollywood companies have had to readjust their projections downward as payboxes across Europe either faltered under lackluster take-up by customers or merged.
In Germany alone, all the majors redrew contracts last year with the sole remaining player, Premiere, at fees some 30% lower than they were getting in the late ’90s.
In that respect, the EC complaint is several years late in addressing the issue of high prices for Yank movies. Those prices are now based on much-lower subscriber guarantees and a less-steep sliding scale of rising fees.
How similar the deals are from major to major is hard to ascertain. Generally, the Hollywood company providing the biggest slate of pics and the most $100 million-grossing movies in any year rakes in the most money from any foreign TV outlet. (Lately, that’s probably been Warner Bros. thanks to the Harry Potter, “Matrix” and “Lord of the Rings” franchises.)
According to an EC statement Monday, the half-dozen companies have all quietly scrapped the controversial clauses that applied when they license the TV screening rights to their movies or series.
Speaking in Strasbourg, France, EC competition commissioner Mario Monti said, “We believe these clauses have the effect of aligning the prices of the broadcasting rights,” in effect using their collective muscle to get a better deal from pay TV channels.
In essence, the EC is alleging, any increase in prices wrangled by one major during a renewal of a deal with a paybox would in theory be applicable to the deal of any other major with a paybox when it comes due.
The studios disagree with the EC’s analysis, claiming they are in such fierce competition abroad as to virtually rule out any collusion in pricing. (Unlike the theatrical and homevideo revenues of its member companies, the MPA does not publicly release the revenues generated from international free and pay TV deals.)
In a statement, Disney maintained that the clauses were neither illegal nor anticompetitive — but it was dropping them to avoid a costly debate over redundant terms. The company insisted that it had never exercised its rights under such clauses.
Brussels sources suggested that the pressure may now mount on Universal and Paramount, the two holdouts, to follow the lead of the other majors.
However, Paramount Pictures exec VP Bruce Tobey said in a statement, “We are confident that the most-favored nation provisions in our agreements do not restrain competition.”
Minimally more accommodating, a statement from NBC Universal read: “It is our belief that the provisions in our agreements with pay TV operators are appropriate and lawful. We regret that the commission does not share our view. These consensual provisions have been utilized by studios and platforms alike to facilitate the negotiation of complex licensing agreements. We will continue to give this issue serious consideration.”
No studio exec Stateside with direct knowledge of the majors’ pay TV contracts would speak on the record.
One pointed out, however, that a 1997 European Union probe into supposed anticompetitive practices by the joint Universal-Paramount-MGM theatrical distribution entity UIP, essentially exonerated UIP from wrongdoing.
At that time, the pay TV units of those three companies were already acting independently in the marketplace and no problem was raised at the EU about anticompetitive practices or problems with most-favored nation clauses (which were already in place in most contracts).
Monti said that he was “confident that the two American congloms will reflect on their position, especially after today’s announcement. Certainly our case on them, our investigation on them, goes on.”
What exactly would be the repercussions on these two companies if they don’t drop these clauses from their contracts is unclear. Both have long-term deals with payboxes across Europe.