It comes with the territory: an update on recent developments on territoriality in European broadcasting

This December has seen two important developments in the broadcasting sphere. First, on 13 December, the European Council and the European Parliament reached a provisional agreement on a new instrument to supplement the Satellite and Cable Directive (“the Online Content Directive”), which will facilitate certain cross-border “ancillary” exploitation by broadcasters across the European Union. Second, on 20 December, the European Commission came one step closer to wrapping up its almost five-year investigation into the pay-TV industry when three additional film studios and Sky UK offered commitments to the European Commission addressing concerns over terms in film-licensing contracts that prevent the cross-border supply of pay-TV.

Though these two developments may not seem related at first blush, each has important implications for the provision of cross-border television and film content in Europe.

(1) The Online Content Directive

In 1993, the SatCab Directive was enacted to facilitate the cross-border provision of satellite and cable communications by harmonising national laws across EU Member States. Crucially, the SatCab Directive established the “country of origin principle” – a “one-stop copyright shop” that enables a satellite broadcaster who has cleared all applicable copyrights in its Member State of establishment to broadcast satellite transmissions across the EU without first having to clear local copyrights in each additional Member State. Clearances for cross-border cable retransmission were also simplified.

However, the scope of the country-of-origin principle as defined in the 1993 SatCab Directive quickly became outdated as the media landscape and technology evolved. After the rise of the internet, 2001’s Copyright Directive (sometimes known as the “InfoSoc Directive”) introduced the concept of “communication to the public” by electronic means, without specifying where such a communication would be treated as taking place, though subsequent case law has indicated that an internet communication likely takes place (at least) in the country of origin and in each country of intended reception.

As broadcasters sought to offer “ancillary services” such as simulcasting (i.e., TV/radio channels that are transmitted online in parallel with traditional linear broadcasts) and catch-up services, they realised that these did not fall within the purview of the current SatCab Directive and therefore broadcasters were required to clear rights in each additional Member State.

In 2015, the European Commission launched a public consultation on how best to revise the SatCab Directive, and in 2016 issued a proposal to extend the country of origin principle to cover all online ancillary services of broadcasters. While this was supported by many publicly-owned broadcasters, most other rights holders, including commercial broadcasters, were implacably opposed to this narrowing of their exclusive rights. Key stakeholders, including the Association of Commercial Television in Europe (ACT) and the Federation of European Film Directors (FERA), argued that a wide extension of the country-of-origin principle would risk reducing investment in film, sport and drama in the EU. The proposal also introduced a less-controversial mechanism to facilitate the licensing of rights for retransmission, extending the 1993 rules concerning cable retransmission to other forms of (non-internet) IPTV retransmission.

Following extensive lobbying, both the European Parliament and the Council voted to support the watering down of the original proposal to a considerable degree and, earlier in 2018, the proposal entered the trilogue process.

The outcome reached in December is that the expansion of the country-of-origin principle will be significantly curtailed, such that it will only apply to ancillary services concerned with the broadcast of news and current affairs programmes (excluding sports programmes). Quite what “ancillary” means under the compromise is unclear until a definitive draft is available.

Other key changes during trilogue were the introduction of rules to clarify the copyright status of the "direct injection" technique (where broadcasters provide signals to service providers directly, without first making these signals available to the public) and the form of legislative instrument, which was changed from a directly-applicable Regulation to a Directive.

Now that political agreement has been reached, the formal text must be officially adopted by the European Parliament and the Council (likely in Q1 2019), following which Member States will then have two years in which to transpose the new provisions into national law. Given that timeline, it seems unlikely the new rules will become law in the UK prior to Brexit (assuming Brexit proceeds along the Government’s currently desired timeline).

(2) Pay-TV investigation

At the same time as the European Parliament and the Council have been coming to an agreement on the Online Content Directive, the European Commission’s competition law Directorate is seeking feedback on recent commitments offered by NBC Universal, Sony, Warner Bros and Sky UK in respect of its pay-TV investigation. In July 2015, the European Commission issued a statement of objections to Sky UK and six film studios (Disney, NBC Universal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros) alleging that they had included anticompetitive clauses in their film licensing agreements that were harmful to consumers.

The Commission’s investigation focused primarily on the issue of absolute territorial exclusivity. Typically, film studios license their audiovisual content to one pay-TV broadcaster in each Member State, which licensee only makes the licensed content available in that Member State. The Commission contends that these clauses restrict the ability of broadcasters to accept unsolicited requests from consumers located outside the licensed territories (i.e., “passive sales”), which harms consumers by eliminating competition between broadcasters, and partitioning the Single Market along national borders.

In 2016, Paramount became the first film studio to offer commitments to the Commission seeking to address the latter’s concerns over anti-competitive behaviour. Paramount agreed that it would no longer introduce or enforce contractual obligations that would prevent or limit the ability of a pay-TV broadcaster to engage in passive sales outside the licensed territory.

Disney also offered comparable commitments in November 2018 and, following swiftly on from the dismissal of a court challenge to Paramount’s 2016 commitments, the three remaining film studios and Sky UK (note that Disney has agreed to acquire Twentieth Century Fox, with the deal due to close early in 2019) have offered commitments which, if accepted, will lead to the conclusion of the case. The new undertakings are similar to those made by Paramount, in that they focus on specific contractual clauses and clearly preserve the studios’ freedom to grant territorially exclusive copyright licences.

In 2016, French broadcaster Canal Plus had launched a legal challenge to the commitments offered by Paramount, arguing that a prohibition of territorial exclusivity agreements would be detrimental to French cinema and cultural diversity and that the Commission’s investigation had failed to prove any anti-competitive effect. However, The General Court of the European Union rejected the challenge on all grounds. While its main findings were procedural, the Court took the opportunity to endorse the Commission’s substantive reasoning, opining that the elimination of absolute territorial exclusivity would not undermine investment in films, and would actually reduce licensing fees that it deemed to be artificially high.

Against this backdrop, the remaining film studios and Sky UK have offered commitments which, if accepted, would apply for a period of five years. The European Commission is currently inviting comments on the commitments from interested parties.

Conclusion: the importance of being exclusive

The revised SatCab Directive and the Commission’s pay-TV investigation are linked by a common thread – the centrality of territorial restrictions to the business model of film and TV production and the link between territorial exclusivity and the funding needed to actually produce content, especially outside of the studio system.

While the Commission has argued that the elimination of territorial exclusivity might benefit consumers, the counter-argument is that, without exclusive copyright licences, content will simply not get made, leading to reduced cultural diversity in the European film industry, and in particular, fewer sources of finance for independent film production.

This explains in part why rights-holders and film producers fought (successfully) to limit the scope of the country-of-origin principle in the revised SatCab Directive, why Canal Plus challenged the European Commission’s acceptance of Paramount’s commitments in the pay-TV investigation, and why most film studios waited so long to offer their own commitments in respect of same.

Ultimately, however, film studios and broadcasters have taken a pragmatic approach on European Union policy. Union-wide access to content and services is a part of the EU’s Digital Single Market strategy, as demonstrated by the coming into force of the Portability Regulation in April 2018, which allows EU consumers to access portable online content from their “home” member state subscriptions wherever else they are “temporarily” located in other EU Member States. The introduction of the Portability Regulation has forced a change of approach to geo-blocking and geo-fencing, which in turn has rendered obsolete many of the clauses to which the Commission has been objecting in the pay-TV investigation. The concessions today are therefore likely of even less practical impact than when they were made by Paramount in 2016.

Rights holders will hope that the new “frontline” on territoriality, defined by the new SatCab Directive and the likely settlement of the pay-TV investigation, will prove to be an enduring one, much as the Coditel case and 1993 SatCab Directive led to a period of stability until the Murphy Case and the Digital Single Market agenda. Nevertheless, it is unlikely that the fight for open digital borders is over. Much will turn on the priorities of the new European Commission and European Parliament which will take office later in 2019 and their appetite for ongoing conflict with the film and TV sector.