The vision behind the European Commission’s digital agenda is a “unified online market” of half a billion people to attract European Union-sized suppliers of “innovative online services across the different creative content/ entertainment sectors (audiovisual, music, e-books, video games)”. One immediate objective is to ensure “that European consumers can legally get the creative/entertainment content they want, whenever and wherever they want”.
It is true that the public internet is the only medium that can connect the 28 national markets of the EU, and that the free flow of digital content is impeded. For example, English speakers living in France cannot get access to Netflix, the video-on-demand (VOD) service available in the UK. Most Europeans living outside their home country or travelling cannot gain access to full versions of the catch-up TV services of their home country, as broadcasters block external internet-provider addresses. (A limited BBC iPlayer service is available outside the UK, on subscription from the iTunes stores serving 18 EU markets.)
Last month, José Manuel Barroso, the president of the European Commission, emphasised forcefully: “Isn’t it a paradox that we have an internal market for goods, but when it comes to digital we still have 28 national markets?” This fragmentation of the European online audiovisual market is due, says the Commission, to the prevailing practice of territorial licensing.
But bigger hurdles than licensing stand in the way of the creation of a unified online market for audiovisual content. Unlike the United States, a natural barrier in the EU is the presence of 24 official languages. Most consumers prefer entertainment in their own language. Income levels vary widely, and they correlate with the rates of adoption of the high-speed broadband connections essential to consume audiovisual content online. There is also wide variation in the willingness to pay for audiovisual content and in the adoption of e-commerce enablers, such as payment systems.
Nevertheless, the supply of TV-like VOD services is substantial in the EU. According to data from the European Audiovisual Observatory in May, the EU is served by 3,087 TV-like VOD services, including channels of the YouTube and DailyMotion platforms. Each connected consumer with a recognised means of payment has the choice today of legally purchasing pay-per-view events on iTunes, which serves all EU markets individually. Larger markets are served by subscription VOD services from Netflix and/or Lovefilm.
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Territorial licensing prevails in Europe because the principal channels to serve audiovisual content to the consumer are territorial in scope. They include cinemas, TV broadcasts, the retailing of DVDs/Blu-Rays and through-the-middle VOD services from cable and IPTV (internet protocol television) providers. This value chain generated combined revenues of €129 billion in 2010, sustaining a tissue of 126,000 small and medium-sized firms engaged in production, post-production, distribution and retailing activities, employing 560,000 people earning €21bn.
This value chain has contributed significantly to Europe’s recovery from the financial crisis, a point recognised by the Commission. The bulk of this value is created by the TV broadcasters, whose output – which still accounts for most of the time that consumers spend viewing films and other types of entertainment – is funded by pay-TV subscriptions and advertising but above all by licence fees. Territorial licensing therefore funds original European content production, which in turn helps to preserve the EU’s linguistic and cultural diversity.
While the vision of a unified online market for the EU may be compelling, territorial licensing is the bedrock of the audiovisual industries of the EU, allowing them to serve efficiently the markets in which they are located. Pan-European licensing will eventually emerge when the foundations of the online market in Europe are in place. This should be the overriding priority of EU leaders when they discuss the digital agenda, including copyright, at the European Council.
Alice Enders is an economist and media expert at Enders Analysis, a research firm based in the UK. She is a former senior economist at the World Trade Organization and was professor of economics at York University, Canada. She is the author of a report about “The value of territorial licensing to the EU”.