Since the European Commission announced its much vaunted Digital Single Market strategy in May 2015 to boost the EU's digital economy, it has had precious little to show, with major initiatives such as copyright reform and e-privacy stuck in debates over how best to achieve meaningful reform.

The signs are that things are about to change, especially if events of 25 May 2016 are anything to go by. On that date the Commission unveiled a major plan to boost e-commerce alongside a proposed update of EU regulation to create a “modern and fair legal environment” for all providers of audiovisual services. It also announced draft regulations dealing with geo-blocking in e-commerce (but which will not apply to audiovisual services), price transparency of parcel delivery services, and cooperation between national consumer protection authorities.

Completing the May 2016 package is a communication from the Commission on online platforms and the Digital Single Market, signalling that it will adopt a copyright package in autumn 2016 aimed at achieving a fairer allocation of value generated by the online distribution of copyright-protected content by online platforms.

For now, the most relevant aspect of the 25 May 2016 announcements for media companies is the much-anticipated Proposal to amend the existing Audiovisual Media Services Directive, which provides a common framework for the regulation of certain audiovisual media services across the EU, and is the focus of this update.

The current Audiovisual Media Services Directive (Directive)

The current version of the Directive came into force on 20 May 2010. One of the principal aims of the Directive was to ensure that linear (i.e. scheduled, one-to-many) and on-demand services are subject to a comparable degree of regulation, albeit with a lighter touch regime for on-demand services. The degree to which the regulatory approach should differ is a debatable area in itself, particularly in view of the significant increase in on-demand services since the current Directive came into force.

More particularly, the Directive includes important provisions in areas such as product placement and the protection of minors. It also contains the important country of origin principle whereby audiovisual media services transmitted by a provider under the jurisdiction of a particular Member State only have to comply with the laws applicable to their services in that Member State (even if they transmit into others).

The Proposal

The latest Proposal follows the Commission's public consultation process launched on 6 July 2015, which asked how well the current framework works, what roles and responsibilities market players should have, and how best regulators can protect viewers, promote European works and regulate advertising in the audiovisual online world. It is also a central plank of its Digital Single Market strategy, which is designed to boost the EU's digital economy through better targeted regulation.

Convergence between traditional broadcast media and internet-based services (including video-on-demand and video-sharing platforms) means regulators must increasingly balance rules to ensure they remain relevant to the media landscape and how the public consumes information and entertainment. The differing and changing nature of audiovisual media services also means the Commission has stated it is not adopting a "one-size-fits-all" approach here, but instead intends to make rules to be flexible to allow for this.

The Proposal therefore seeks to achieve a number of outcomes.

  • Change to what constitutes a 'programme' to remove the requirement that their form and content be comparable to the form and content of television broadcasting.1 The list of examples of what constitutes a programme also now adds videos of short duration. This appears designed to capture short video content not typically shown on television broadcasts, but which are increasingly popular with audiences of on-demand services. The change could mean that services which only curate short videos, like YouTube star channels or video journalism, are now caught by the Directive. In the UK, this could mean they are required to notify Ofcom before their service begins, and to advise Ofcom if the service closes or undergoes significant changes. It will be interesting to see how broad a role Ofcom is to play in regulating these services in future.
  • More flexibility for advertising rules by allowing TV broadcasters to spread the overall limit of 20 per cent ad time between 7am and 11pm (spread across the day as they choose), instead of the more rigid 12 minutes per hour. The new rules also allow shorter ad break frequency than is presently the case by allowing ad breaks in films made for television, cinematographic works and news programmes once every 20 minutes (rather than the existing 30 minutes). The longer ad break frequency for children's programmes and ban on ads in religious services are to remain. The Proposal also clarifies product placement and sponsorship by making product placement admissible in all audiovisual media services except news, current affairs, consumer affairs and religious programmes and programmes with a significant children's audience. Unfortunately however, the Proposal does not provide any guidance about what constitutes a 'significant children's audience' so there is new uncertainty about what may be captured here. Previously, the Directive generally prohibited product placement except in cinematographic works, films and series, sports and light entertainment. Providers are also no longer restricted from giving undue prominence to the product in question, which the Commission recognises has proven difficult to apply in practice. The sponsorship rules have also been relaxed to remove the prohibition on special promotional references to the sponsor's goods or services.

The changes recognise the risk of declining advertising revenues affecting investment in original content, where viewers can easily switch from traditional broadcasts to ad-free, on-demand and sharing platforms and thereby affect the value of advertising space. There is much debate about the future of ad spend and audience reach across different types of media and it will be interesting to see the impact the new rules may have on this, particularly how far service providers will go to take advantage of the new rules. We expect however that commercial considerations, such as not devaluing ad space value by way of oversaturation, may limit the extent of any changes in market practice.

  • More European content by requiring on-demand providers to ensure at least a 20 per cent share of European content in their catalogues, and to give prominence to this content. The Proposal does not specify how this 20 per cent share is to be measured. Further, given the Commission's statements as to the difficulties of testing prominence in respect of product placement, it is unfortunate that the Proposal does not clarify how prominence is to be assessed in the context of European works. Providers will be keen to understand how they are to adapt these new rules to their platforms or whether they need to wait to see whether national law implementations of the Proposal provide objective criteria for determining this. As it stands, ensuring prominence could be very subjective.

Regulators will also be empowered to impose content fund levies on services originating outside their Member State, based on the service's revenues in the regulator's Member State. Low turnover companies, thematic services and small and micro enterprises are exempt from these requirements.

By contrast, linear broadcasters will continue to be required to dedicate at least half of their viewing time to European works.There may be concern from those linear broadcasters that thesechanges, although welcome, do not adequately level the playing field between traditional and new media.

  • Better viewer protection by expanding to all services covered by the Proposal the prohibition of hate speech and the restriction of content that may be harmful, with the most harmful content on linear and on-demand services to be subject to strict measures including PIN codes and encryption. The existing broadcaster-specific rules protecting minors against pornography and gratuitous violence have however been removed. Video-sharing platforms are included within the scope of the Proposal only in respect of the proposed viewer protection measures, although it is plausible the Directive could be further expanded to apply other aspects to such platforms in future. However, social media services are not included unless, among other requirements set out in the Proposal, the principal purpose of the service or a dissociable section is devoted to providing programmes and user-generated videos to the general public.
As with the change to what constitutes a 'programme', there is likely to be debate about whether particular platforms are in or out of these new rules, particularly given the increasing convergence between video-sharing and social media platforms and market consolidation across these areas. The Commission is also working with major industry players on a code of conduct on combating hate speech online, to be released in the coming weeks.
  • Clarification of the country of origin principle by applying some minor changes to the rules for determining the sole location for regulatory responsibility under the country of origin framework and extending the principle to video-sharing services. In respect of the regulatory location of a media service provider that has its head office and editorial decisions located in different Member States and a significant part of its relevant workforce in each, the rules have changed slightly to now deem this to be in the Member State where the majority of the workforce involved in the pursuit of the audiovisual media service activity operates rather than the location of its head office. In an environment where companies operate on a multi-territory basis, there may be uncertainty about where particular workers are located for these purposes. Furthermore, the relevant workforce may not simply be split between two locations, so it is unclear how the term majority should be interpreted – will a small proportion be sufficient provided it is more than the others? For video-sharing services not established in a Member State, any group company of a video sharing service provider being located within the EU will be enough to bring that service within the scope of the new Directive, a change clearly designed to spread the reach as far as possible. Where video-sharing platform providers have several subsidiaries located in different Member States, the provider can designate in which of those Member States to be regulated. We expect this could incentivise forum shopping by such providers, or otherwise encourage offshoring to bring providers outside the scope of the Proposal altogether.

Broadcasters and on-demand services (subject to more stringent regulation than video-sharing services) will continue to be regulated according to where their head office and editorial control, or in certain circumstances workforce, are located. However, there will be an enhanced role for the newly created European Regulators Group for Audiovisual Media Services (ERGA) to advise and assist the Commission in respect of audiovisual media services and to provide for the exchange of experience and good practice as to the regulatory framework. ERGA will also be tasked with providing an opinion to the Commission in respect of disagreements between Member States as to the proper jurisdictionfor regulatory responsibility.

  • Greater independence of audiovisual regulators by enshrining into EU law requirements that they be legally and functionally independent from industry and government, and operate transparently and accountably.

Overall assessment

With regards to concerns as to the gap between regulation of linear and on-demand, traditional TV broadcasters will likely be pleased with the prospect of more flexible advertising rules, potentially giving more freedom over scheduling of ads in prime time.

Given that Member States will remain free to apply higher levels of regulation to these advertising rules, it does remain to be seen whether the new Directive will change the approach of particular jurisdictions such as the United Kingdom, which currently provide for less extensive ad space.

On the other hand, on-demand will continue to be subject to lighter touch regulation, while video-sharing is newly regulated by the Directive but only in respect of viewer protection measures.

Next steps

Once adopted by the European Commission, the Proposal is to be sent to the European Parliament and to the Council in order for it to be commonly agreed between them. Watch this space for further updates to the Proposal and other initiatives arising out of the Commission's Digital Single Market Strategy.