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European Commission announces competition investigation into major film studios


On 23 July 2015, the Commission announced that it had sent a Statement of Objections to the major film studios (Disney, Twentieth Century Fox, Warner Bros., Sony Pictures, NBC Universal, Paramount Pictures) and the Pay-TV broadcaster Sky UK alleging a breach of EU competition law. In particular, the Commission alleges that contractual provisions preventing EU consumers outside of the United Kingdom and Ireland from accessing pay-TV services are anti-competitive.  In announcing the investigation, Commissioner Margrethe Vestager stated:

“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.”

It is not usually problematic as a matter of EU competition law to prevent an exclusive licensee from actively seeking customers outside of the designated territory (so-called “active sales”).  However, the preliminary view of the Commission is that Sky UK is also being prevented by the licensing agreements from accepting unsolicited requests (so-called “passive sales”) for its Pay-TV services from EU consumers outside the United Kingdom and Ireland.  In addition, some agreements contain clauses requiring studios to ensure that, in their licensing agreements with broadcasters other than Sky UK, these broadcasters are prevented from making their pay-TV services available in the UK and Ireland. 

According to the Commission, these clauses grant “absolute territorial exclusivity” to Sky UK and/or other broadcasters as they “eliminate cross-border competition between pay-TV broadcasters and partition the internal market along national borders”.  It is therefore of the view that the these practices could “constitute a serious violation of EU rules that prohibit anti-competitive agreements”. 

The major studios and Sky UK now have the right to respond to the accusations of the Statement of Objections and to provide their justifications for any alleged restriction of competition arising from the exclusive territorial licences.  In their responses, the major studios and Sky UK may argue that the contested restrictions simply reflect current copyright law realities.  Whether such explanations will constitute sufficient justifications to convince the Commission that the clauses are permissible remains to be seen.  

Whatever the outcome of this specific case, the Commission is mindful that EU competition law has its limitations in addressing wider issues concerning the European digital market.  It has announced at the same time that it plans to modernise the relevant EU copyright laws, notably the Cable and Satellite Directive (93/83/EC), to facilitate pan-European online services:

Broadcasters also have to take account of the applicable regulatory framework beyond EU competition law when considering sales to consumers located elsewhere. This includes, for online pay-TV services, relevant national copyright laws. In this context, in parallel to its actions under EU competition law, the Commission will propose to modernise EU copyright rules and review the EU Satellite and Cable Directive as part of its Digital Single Market Strategy adopted in May 2015. The aim is to reduce the differences between national copyright regimes and allow for wider access to online content across the EU.

The European Commission may then be hoping that the competition investigation into the major studios and Sky UK provides a catalyst to broader reform of the European digital market. 

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