On 23 July 2015 the European Commission (the “Commission”) sent a Statement of Objections to six major Hollywood studios (Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros) and Sky UK alleging that certain clauses in content licensing agreements between Sky UK and those studios restrict the cross-border provision of pay TV services and are in breach of EU competition law. In addition to the implications that this case may have on existing and future commercial licensing deals, the Commission’s actions also provide an indication as to how it intends to proceed on proposed changes to copyright rules across the European Union.
According to the Commission’s press release (see here), its preliminary view is that so-called “geo-blocking” clauses, which require Sky UK to block access to films through its online and satellite pay TV services to consumers outside UK and Ireland, grant absolute territorial exclusivity to Sky UK and eliminate competition between pay TV broadcasters. Should the Commission’s position be confirmed, this would breach Article 101 of the Treaty on the Functioning of the European Union (the “TFEU”).
Background
In October 2011, in a case concerning the exclusive licensing of broadcasting rights for Premier League football matches on a territorial basis, the European Court of Justice (the “ECJ”) held that rights holders licensing content to a broadcaster may not impose a prohibition on the broadcaster's ability to distribute decoding devices or supply content outside of its licensed territory (so-called "absolute territorial protection"). Therefore any agreement designed to stop cross-border provision of broadcasting services is deemed to be anti-competitive and prohibited by EU competition law.
See the Olswang update on that case here.
The Commission’s Competition Directorate commenced an investigation into pay TV agreements more generally in the wake of this ruling and opened formal proceedings in January 2014 examining whether agreements between several US studios and pay TV operators in a number of EU Member States may be anti-competitive. In addition to the case involving Sky UK, the Commission is continuing its investigations into geo-blocking arrangements in relation to distributors in France, Italy, Germany and Spain.
The Statement of Objections
The Commission’s Statement of Objections identifies certain contractual arrangements between Sky UK and the movie studios which may be problematic, these include:
· Clauses which require Sky to block access to films through its online pay TV services or through its satellite pay TV services to consumers outside its licensed territory of the UK and Ireland. The Commission’s concern is that these clauses may prevent passive sales to customers located in other EU Member States who may request access to Sky UK’s services.
· Clauses which require studios to ensure that their licensing agreements with broadcasters other than Sky UK prevent those third-party broadcasters from making their pay TV services available in the UK and Ireland.
In a statement announcing this formal step in the investigation, the European Commissioner for competition policy Margrethe Vestager said: “European consumers want to watch the pay TV channels of their choice regardless of where they live or travel in the EU. Our investigation shows that they cannot do this today, also because licensing agreements between the major film studios and Sky UK do not allow consumers in other EU countries to access Sky's UK and Irish pay TV services, via satellite or online. We believe that this may be in breach of EU competition rules."
What is interesting about this latest development is that it highlights that the Commission’s Competition Directorate appears to consider that access to online services is the same as access to satellite channels. Whilst the Murphy case mentioned above was not expressly limited to satellite services, it was widely believed that the decision was reached on the basis of the specific facts of that case, i.e. in the context of satellite broadcasting.
There does appear to be a tension between, on the one hand, the Competition Directorate asserting that the law today achieves the Commission’s political agenda of completing the Digital Single Market at the same time as DG Connect is indicating that this agenda needs to be achieved by a legislative route, where DG Connect has acknowledged the complexities surrounding the European single market in the context of audio-visual content and the need to proceed with caution.
Copyright and the Digital Single Market context
As many of you will know, on 6 May 2015, the European Commission published its Digital Single Market strategy document (see Olswang preliminary comments on the impact on media companies here) which outlined a number of key areas in which the Commission is focussing its attention in order to create a fully-connected single market. Key parts of that strategy include proposals to reform EU copyright rules and to review the EU Satellite and Cable Directive to improve access to cultural content online and “to create new opportunities for creators and the content industry”.
Since the publication of this document there have been various evidence put forward of the role that territorial licensing plays in the financing of content, particularly European audiovisual content with Commissioner Oettinger suggesting in Cannes in May that the position may be softened for broadcasting, sport and cinema. The publication of more detailed legislative proposals from the Commission is expected at the very end of this year.
Also under the umbrella of the Digital Single Market, the Commission has launched a competition sector inquiry into e-commerce which is intended to gather information on, inter alia, contractual barriers to cross-border online trade (see Olswang’s update here). The first wave of (very detailed) questionnaires was sent out in June.
Next steps
The Statement of Objections is a confidential document and is a formal step in the Commission’s investigation, providing the opportunity for the parties involved to see the case against them. They now have the opportunity to examine documents on the Commission’s case file, to reply in writing to the Statement of Objections and to request an oral hearing to present their arguments. The Commission’s decision will follow, although there is no set timeframe in which the investigation is likely to conclude and we do not anticipate a swift resolution.
We would however expect the studios and Sky UK to defend this action vigorously.
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