On 22 April 2016 Paramount Pictures (Paramount) became the first film studio to seek a negotiated end to the European Commission’s (the Commission) investigation of licensing arrangements between Sky UK and six major Hollywood film studios. On 26 July 2016 Paramount’s commitments became legally binding. The Commission’s investigation continues in respect of the remaining film studios and Sky UK. This article summarises the investigation so far and recent developments.

Background

In January 2014 the Commission opened an investigation into restrictions affecting cross-border provision of pay-TV services, examining whether agreements between several US film studios and pay-TV operators may be anti-competitive and hinder the completion of the single market.

On 23 July 2015 the Commission sent a Statement of Objections to Paramount, Sony, Twentieth Century Fox, Disney, NBCUniversal and Warner Bros, as well as Sky UK, alleging that certain clauses in content licensing agreements between Sky UK and those studios infringe EU competition law by restricting the cross-border provision of pay-TV services. The Commission indicated its preliminary view that “geo-blocking” clauses, which require Sky UK to block access to films to consumers outside the UK and Ireland through its online and satellite pay-TV services, grant absolute territorial exclusivity to Sky UK and eliminate competition between broadcasters. This potentially breaches EU competition law which prohibits anticompetitive agreements (Article 101 of the Treaty on the Functioning of the European Union (TFEU)).

The Commission’s approach applies principles established in an October 2011 ruling of the European Court of Justice concerning the exclusive licensing of broadcasting rights for Premier League football matches on a territorial basis (Cases C-403/08 and C-492/08 Premier League/Murphy). In that case the Court held that, while it was not anticompetitive for the FA Premier League to enter into exclusive licensing arrangements with a broadcaster in each country, requiring a broadcaster to prevent its satellite decoder cards (which enable reception of the licensed program content) from being used outside the licensed territory was contrary to the competition rules.

The Commission is also investigating separate geo-blocking arrangements in relation to distributors in France, Italy, Germany and Spain.

What are the Commission’s concerns?

The 2015 Statement of Objections sent to Sky UK and Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros identified certain geo-blocking provisions in the licensing agreements between Sky UK and the film studios that, in the Commission’s view, raise competition concerns:

  1. clauses which require Sky UK to block access to films to consumers outside its licensed territory of the UK and Ireland. The Commission views this as restricting Sky UK's ability to accept unsolicited requests for its pay-TV services from consumers located abroad (in Member States where Sky UK is not actively promoting or advertising its services). This, therefore, restricts Sky UK's ability to make passive sales to such customers.
  2. in licensing agreements with broadcasters other than Sky UK, some agreements contain clauses requiring studios to ensure that these broadcasters are prevented from making their pay-TV services available in the UK and Ireland.

The Commission is concerned that these clauses grant "absolute territorial exclusivity" to Sky UK and/or other broadcasters. Therefore cross-border competition between pay-TV broadcasters is eliminated and the internal market is partitioned along national borders. The Commission considers that these clauses could amount to a serious violation of EU competition law because they have as their object the restriction of competition within the meaning of Article 101(1) TFEU; there are no circumstances falling within the economic and legal context of the clauses that would justify the finding that they are not liable to impair competition; and the clauses do not satisfy the conditions for an exemption under Article 101(3) TFEU.

Paramount’s commitments

On 22 April 2016, in an attempt to negotiate an end to the investigation and avoid the prospect of financial penalties, Paramount offered the following commitments to address the Commission's competition concerns:

  1. when licensing its films for pay-TV to an EEA broadcaster, Paramount will not prevent or limit a pay TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the pay-TV broadcaster's licensed territory (No "Broadcaster Obligation").
  2. when licensing its films for pay-TV to an EEA broadcaster, Paramount will not prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (No "Paramount Obligation").
  3. Paramount will not bring an action for the violation of a Broadcaster Obligation in an existing agreement licensing its film output for pay-TV.
  4. Paramount will not act upon or enforce a Paramount Obligation in an existing agreement licensing its film for pay-TV.

Following a one-month consultation (ending on 23 May 2016) when the Commission sought interested parties’ comments on Paramount’s commitments, the commitments became legally binding on 26 July 2016.

The commitments will apply for five years throughout the EEA and cover both online and satellite broadcast services. Commentators however have suggested that Paramount’s commitments, designed to address antitrust law concerns, may have little practical impact because copyright licences apply on a national basis.

By accepting the commitments, the Commission has concluded its antitrust investigation of Paramount. The remaining five studios, and Sky UK, are continuing to contest the charges and are reluctant to follow Paramount’s lead in offering commitments to the Commission, as they wish to continue to tailor their content distribution based on different release dates for each EU country. The Commission’s investigation will therefore continue regarding the conduct of Disney, NBCUniversal, Sony, Twentieth Century Fox, Warner Bros and Sky UK. Some commentators have speculated that the Commission could make its decision in respect of the five remaining film studios and Sky UK in early 2017.

Digital Single Market context and final remarks

The current film studios investigation parallels the e-commerce sector inquiry launched by the Commission in May 2015 as part of the Commission’s broader Digital Single Market strategy. This inquiry aims to gather information to better understand any barriers which affect European e-commerce markets. On 18 March 2016 the Commission published its initial findings which showed that geo-blocking, in relation to the online sale of consumer goods and of digital content, is widespread in the EU. This is partly due to businesses making unilateral decisions not to sell abroad, but also contractual barriers which restrict cross-border commerce and/or access to consumer goods or digital content. A more detailed analysis of the findings from the ongoing sector inquiry will be presented in a Preliminary Report in mid-2016 and the Final Report scheduled for the first quarter of 2017.

The e-commerce sector inquiry does not target the provision of pay-TV services in relation to film content, to avoid duplicating the Commission’s investigation of film studios and Sky UK.

In parallel with its competition law investigations, the Commission proposes to modernise EU copyright laws and review the EU Satellite and Cable Directive as part of the Digital Single Market strategy. This would allow for wider access to online content across the EU and reduce national differences, thus creating a fully-connected single market. However, for online pay-TV services when broadcasters consider customers located outside their home territory, they must also take account of relevant national copyright laws. The Commission states that it wants to ensure that users who buy online content, such as films or music, can also enjoy them while travelling across Europe. Currently, service providers may be prevented from providing pan-European services by copyright licensing arrangements.

The Commission’s actions highlight the interaction and current tension between competition law and copyright law. The ultimate outcome of the present investigation will have implications for existing and future commercial licensing deals. The Commission’s scrutiny also indicates how the Commission intends to proceed on proposed changes to copyright rules across the EU. Even if other film studios decided to follow Paramount’s lead, a full overhaul of copyright law is the only way a truly pan-European service can emerge. It is hoped that the Commission’s efforts in implementing its Digital Single Market strategy will help in this regard. Companies interested in this sector should remain informed of EU developments to assess how reforms may impact their business in the future.