European Union’s Antitrust Probe May Explode the Continent’s Business Model

European Union Meeting Could Change Europe's
Courtesy of HBO

Later this month, when Margrethe Vestager, the European Union’s antitrust commissioner, sits down with representatives of the Big Six Hollywood studios and Europe’s leading pay TV operator, Sky, the result of the discussion may well affect the model upon which the continent’s film and TV business has been built.

The European Union wants to open digital commerce for the 500 million people who live in its 28 member countries, and Vestager asserts that the exclusive contracts that the studios have signed with Sky for the U.K. are anti-competitive.

On the face of it, the issue is fairly dry, dealing with the idea of “passive sales” — in which a consumer from one territory seeks to buy unsolicited products or services from a seller in another territory — but the way the matter is decided will affect pay TV operators, broadcasters and streaming platforms across the continent, and may also have serious consequences for the film and TV industries as a whole.

It is the commissioner’s view that consumers all across Europe should be able to watch Sky’s U.K. service for, say, “Games of Thrones,”  but enabling that would introduce, by the back door, a pan-European system of licensing.

For Sky, such a development would fit its long-term goal of operating across the continent, but it would undo the system by which producers can sell their rights country-by-country, and by which they maximize the value of their product.

“The fundamental problem with (the EU’s) initiative is that if you push it forward, it breaks down the whole licensing model, and therefore the whole value chain on which this industry has been built, because the value in content is created — to a large extent — by the restrictions placed on it,” says Guy Bisson, research director at Ampere Analysis.

6 Hollywood studios: Disney, NBCUniversal, Paramount Pictures, Sony, 20th Century Fox and Warner Bros. are part of the antitrust case.
28 EU members: The EU is a lucrative bloc for rights-sellers.

This dismantling of national borders is the long-term objective of the EU’s Digital Single Market strategy.

Ignasi Guardans, a partner at law firm K&L Gates in charge of EU policy matters (and a former member of the European Parliament and former director of the Spanish Film Agency), says that the best way to understand the situation is to compare it to a military campaign. The European commissioners are fighting to achieve the same long-term objective — to create a unified market — but are deploying different divisions to reach that goal: The antitrust regulator is one such division in this army.

Another front in the war is the EU’s recent proposal for “portability,” which would give consumers who subscribe to a streaming platform in their home country the right to access that content from another country on a temporary basis.

Geo-blocking, which prevents consumers from accessing products across national borders, is the target of another EU action that applies to e-commerce as a whole. Guardans says the end of geo-blocking is inevitable, but that audiovisual products may get an exemption.

Yet Vestager’s antitrust action may, inadvertently, diminish competition in the long term.

Benoit Keane, a Brussels-based competition lawyer active in the media sector, sees clear risks for smaller pay TV operators, broadcasters and digital platforms if the EU is successful.

“As a creative content owner, the idea that you could provide content to much smaller players in smaller countries on an exclusive basis may no longer be tenable, because essentially they (would be) competing against very much larger players in larger states,” Keane says. “As a result, they may end up feeling that they are not getting the protection they need to be able to survive in the market.”

The antitrust action, Keane says, could create a pan-European licensing system, in which only a few global or Euro-wide players can feasibly bid for rights.

It may take years for the Sky antitrust case to reach resolution; the studios and Sky could challenge the commissioner’s ruling in the European Court of Justice.

But the case is certain to create anxiety in TV and film markets. “Given the uncertainty,” Keane notes, “licensing contracts now have to factor in a potential change in the model.”