Executive summary

The European Commission has commenced antitrust proceedings against several prominent European pay-TV service providers and major U.S. film studios including Sony Pictures Entertainment, NBCUniversal, Warner Bros. and Paramount Pictures.

The investigation will hinge on whether prior case law restricting the grant of absolute territorial protection in respect of sports broadcasting can be extended to apply to movie licensing for personal use via satellite broadcasting and online streaming.

Background

The Commission has raised concerns that the licensing of audio-visual content on an exclusive and territorial basis, often to one single broadcaster within each EU member state, may constitute an anticompetitive practice contrary to the European treaty. Licensing arrangements for satellite broadcasts or online streaming often grant broadcasters or online providers “absolute territorial protection” for a national territory, protecting them from all competition from other broadcasters and other providers, whether those other providers operate within or outside that national territory. Broadcasters benefitting from such arrangements include BSkyB, Canal+, Sky Italia, Sky Deutschland and Spain’s DTS.

The Commission will consider, in particular, whether such provisions prevent broadcasters and online providers from providing services across borders, for example by requiring them to accept potential subscribers from other member states, to block cross-border online access to content or to prevent subscribers from viewing content on mobile devices while abroad.

Link with the Murphy judgment

The investigation follows the European Court of Justice ruling of October 2011 in the Murphy case;¹ where it was decided that restrictions on cross-border sales of satellite decoders for viewing broadcasts of Premier League football matches constituted absolute territorial exclusivity which unlawfully divided the single European market in line with national borders.

Comparison of the Murphy case with the matters the Commission will now investigate raises some problematic issues which the Commission will have to consider:

• Murphy related to public viewing of satellite broadcasts in pubs, whereas the Commission investigation relates to private viewings, whether from satellite or online services
• The ruling in Murphy upheld the broadcaster’s rights to prevent unauthorised use of copyright elements included in the broadcasts, for example in logos, anthems and recorded highlights, as distinct from the live broadcast of the match itself, in which no copyright subsisted. Conversely, a movie would be fully protected by copyright.
• Murphy concerned restrictions on the sale of physical decoders, rather than restrictions contained in a licence agreement or requirements for Internet geo-blocking whereby content providers prevent subscribers from accessing a service through an IP address outside the subscriber’s country of residence
• Murphy has led to the gradual disappearance of such exclusivity clauses in football broadcasting rights contracts but has not yet had the same impact on licensing of movie content

Implications

Arguably the investigation may not have as wide an impact as might first appear likely, at least in respect of satellite broadcasting. Currently, it is common for consumers within the EU who are living abroad to buy decoders to watch programmes broadcast on pay-TV services from their home country. Broadcasters are aware of such “passive sales” but tend not to enforce the restrictions in subscription contracts against such consumers.

However, if current licensing practices are deemed to be unlawful, absolute territorial restrictions in licences would be unenforceable; the studios could face fines for insisting on their inclusion and would have to adopt less restrictive licensing structures. This could include pan-European licensing, which might promote competition among the main European pay-TV broadcasters as well as opening up the market for “Over the Top” streaming services and other online service providers. Geo-blocking may become a matter of choice for the online service providers rather than a necessary response to the requirements of content suppliers.

While it appears that the Commission wants to bring movie licensing in line with the licensing of football broadcasting rights by removing absolute territorial restrictions, it may take months or years for the Commission to issue a decision. A decision extending the application of the Murphy ruling seems certain to be appealed back up to the European courts, which will also take the time to arrive at a decision. The industry, therefore, faces some years of uncertainty regarding the permissible limits of territorial licensing of movie rights in Europe, and will need to review licensing strategies, considering how best to manage relevant risks.

^{1. Joined cases of Football Association Premier League Ltd & others vs QC Leisure & Others / Karen Murphy vs Media Protection Services Ltd (C-403/08 and C-429/08).}

Client Alert 2014-035