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BEREC report on the impact of premium content on ECS markets and the effect of devices on the open use of the Internet
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Electronic communication services (ECS) can enable end-users to access content; therefore content (e.g. audio-visual services) and ECS can be complementary goods. In the context of this report, content that is valued enough by end-users to make a sizeable share of them switch ECS provider (such as, but not restricted to, certain sports events and blockbuster films and TV series) is qualified as “premium content”.
BEREC members were surveyed for the drafting of this report. In the majority of the surveyed countries, bundling is used by ECS providers to commercialise premium content, and this trend appears to be on the rise globally. Exclusivity agreements are widespread for sports and, to a lesser extent, for films and TV series. The larger ECS providers are the ones most able to offer premium content under exclusive terms bundled with ECS.
A mixed picture emerges regarding the impact of these practices on competition dynamics in ECS markets, with both negative and positive effects. Whether or not the bundling of premium content with ECS affects competition in the ECS market may depend on the ability of all actors to compete effectively with the bundled offers of large ECS providers. In this context, the role of premium content actors that do not bundle access to their content with the purchase of an ECS is highly relevant. From the consumers point of view, bundling of premium content with ECS can be especially beneficial for those who are interested in both the premium content and the ECS that are offered together (provided that they are facing competitive offers). However, this may be not the case for other consumers only interested in ECS. In general, the effects of bundling on consumer welfare have to be analysed on a case-by-case basis, as this will depend on a number of elements, such as the structure of the market for both ECS and premium content, the market position of the actors involved, the nature of the underlying agreement between ECS and premium content providers (e.g. whether or not the agreement provides for exclusivity), the replicability of the bundle by competing ECS providers and the availability of the premium content to customers of competing ECS providers.
Competition Authorities (European Commission and National Competition Authorities, NCAs) play a key role in addressing competition issues related to premium content, such as the risk of foreclosure arising from long or exceedingly wide exclusivity agreements for premium contents (notably sports). In particular, several mergers and acquisitions were blocked, or approved with remedies – such as limitations of exclusive rights and obligations to sell specific premium content to other actors. The ECS regulatory framework does not regulate the content of services delivered over electronic communications networks, including premium content issues. However, when regulating Markets 3a, 3b and 4, NRAs are allowed to apply economic replicability tests for retail bundles including ECS and other services to avoid margin squeeze situations.
The second subject being analysed in this report is the effect that devices may have on the openness of the Internet (section 3). This issue is discussed not in terms of access services (the openness of the Internet is safeguarded by the European Regulation 2015/2120); instead, the objective is to analyse whether devices may challenge the general objective of an open Internet in terms of how end-users can practically use Internet services on their devices (Section 3).
Devices and their embedded Operating Systems (OS) provide the interface for consumers to use the Internet; as such, the choice of Internet content and applications actually available to consumers may differ depending on the device they use. This report notes that the vast majority of the limitations observed as of today relate to unavoidable technical constraints (such as ergonomics or obsolescence due to the pace of innovation in the device industry) and seem to be accepted by end-users and to fit with their expected usage of the device. Such limitations are therefore not likely to raise any specific concern. However, with the rising popularity of the app format, traditional web-browsers are not anymore the main way through which end-users access content on the Internet. As such, the freedom for device manufacturers to pre-install the apps of their choice is already a subject of attention for the European Commission. Moreover, in this context, app stores act as gate-keepers regarding applications, and subsequently regarding the much of the content to which end-users can have access on the Internet. As of today however, the potential threats that are identified in this report remain rather hypothetical.
To verify that Internet use remains open, BEREC is of the opinion that monitoring of devices markets and software platforms (OS and app stores) by regulatory authorities (being competition authorities or sector-specific agencies) might be useful. Monitoring can be a powerful tool in itself, as it may sometimes be sufficient to prevent the occurrence of possible market failures. The effectiveness of monitoring, where it is deemed appropriate to implement, relies on the ability of the authority in charge of such a task to collect the necessary data and manage the resources needed for its analysis. In general, as technology rapidly evolves in this field, light-touch options based on the publication of collected or crowdsourced data could be an appropriate possibility to explore. Such a “data-driven intervention” could empower consumers by helping them make informed choices. Compared to other types of regulation, it would also have the benefit of limiting administrative costs for all actors (which is especially relevant for smaller players and new entrants) and of impacting every player proportionally to its size. A follow-up report in the coming years could help assess the evolution of the situation.
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P2 V01 Author: Savvas Andreadis Berec Office Date: 11 October 2017
The general purpose of this report is to study how the electronic communications sector is influenced by other sectors, in particular by content (section 2) and devices (section 3). Although NRAs do not generally have regulatory power over these sectors, it may be of interest for them to have a deeper understanding of the mechanisms involved, as they may have an indirect influence on some of the NRAs’ core missions. BEREC members were surveyed for the drafting of this report through a specifically designed questionnaire.
The influence of premium content on the markets for electronic communication services (ECS) is analysed in section 2 of this report. ECS enable end-users to access content; therefore content (e.g. audio-visual products) and ECS can be complementary goods. Market players are applying convergence strategies between content and ECS typically based on bundling practices and content exclusivity offers. These strategies may have a direct impact on the ECS markets when the content in question is valued enough by end-users to make a sizeable share of them switch ECS provider. Such content, referred to as “premium content” in this report, is the focus of the analysis. The report aims to provide a snapshot of the current situation across Europe regarding the distribution of premium content by different actors, the bundling of premium content with ECS, and the exclusivity agreements applied to premium content (section 2.2.2). Furthermore, the report discusses the potential effects that bundling practices and exclusivity agreements regarding ECS and premium content may have on the ECS markets (Section 2.2.3). This snapshot is based on the aforementioned questionnaire sent to BEREC members, to which 30 NRAs responded, allowing a large collection of information regarding the various market structures, the observed practices, as well as regulatory responses taken across Europe. It should be noted that most NRAs in Europe do not have regulatory power over the media sector (which is often regulated by a separate regulatory body), nor can most of them impose pre-emptive remedies in the case of a merger, as this falls under the responsibility of National Competition Agencies (which are often separate regulatory bodies).
The second area under discussion in this report is the effect that devices may have on the openness of the Internet. This issue is addressed not in terms of access services (the openness of the Internet is safeguarded by the European Regulation 2015/2120); the objective is to analyse whether devices may challenge the general objective of an open Internet in terms of how end-users can practically use the Internet on their devices (section 3). Indeed, devices and their embedded Operating Systems (OS) provide the interface for consumers to use the Internet and, as such, the choice of Internet content and applications actually available to consumers may differ depending on the device they use. This section provides a description of the device ecosystems and of the mechanisms through which devices can potentially restrict the choice of Internet content and services available to end-users. This section has a purely prospective purpose and, as such, analyses issues that are beyond the strict scope of NRAs’ regulatory powers provided by the Regulation 2015/2120.
P3 V02 Author: Savvas Andreadis Berec Office Date: 11 October 2017
This section describes the actors involved in the commercialisation of premium content. This information is based on the NRAs’ responses to BEREC’s questionnaire. It must be made clear that not all respondent countries have the same definition of what can be qualified as premium content. For some countries, such as Austria, Italy, France or Switzerland, a national definition with a legal basis corresponding at least partially to the concept of “premium content” can be found. It can be noted that the definition of premium content used in this report does not necessarily correspond to the definition of premium content used in other contexts and by other organisations; it is aimed to focus the analysis on the effect of premium content provision on ECS markets.
Some NRAs lacked a national definition of premium content, but, when answering the questionnaire, they still included other types of content that they deemed to qualify as premium content in their country, for example, music-streaming services.
Overall, audio-visual content, such as sports, films and TV series represent the vast majority of what can be considered as premium content in Europe. To provide an overview of the relevant stakeholders and their interactions, the main players in the value chain for premium sports events, films and TV series are described below.
Some players have more than one role in the value chain. For example, a company like Netflix delivers content as an OTT player and also produces its own premium content. This is discussed in more detail below.
P5 V01 Author: Savvas Andreadis Berec Office Date: 11 October 2017
Media rights in sports are an important source of revenue in all of the most important professional sports, both for sports teams/leagues, sports organisers and the hosting venues. For example for the financial year 2015/2016, 70% of UEFA’s (Union of European Football Associations) revenues were generated through media rights.
Examples of sports teams that are often associated with premium content are football clubs, Formula 1 teams and national teams for other sports. Venues are for example stadiums, race tracks or a location for an event like a World Championship. The role of sports event organisers is to coordinate teams and locations and set up the rules for certain sports events. Examples are FIA (Fédération Internationale de l'Automobile) for motor sports (e.g. Formula 1), UEFA (Union of European Football Associations) for European football, FIFA (Fédération Internationale de Football Association) for worldwide football or the International Olympic Committee (IOC) for Olympic Games.
In most BEREC members, the first football league is the main example of typical premium content given by NRAs in the questionnaire.
According to a briefing of the European Parliament, the European film landscape is characterised by the strong presence of US so-called 'majors' who account for almost 70% of the European Union film market. The large US companies are vertically integrated with activities spanning from production to distribution, thus controlling the most important components of the global audio-visual industry.
According to the responses given by NRAs to the questionnaire, blockbuster TV series such as “Game of Thrones”, produced by HBO, or “House of Cards”, produced by Netflix, are considered as examples of premium content in most countries.
Once the premium content is created, the next level of the value chain is the commercialisation of media rights to content providers.
In most cases, rights management is done collectively for a set of sports events by a sports rights agency, whereby all the clubs in a league agree to sell their media rights collectively through their league or federation and allocate the proceeds of the sale between all clubs via a revenue-sharing mechanism.
Concerning the collective sale of sports media rights, the European Commission has set policy in this area with several leading decisions that also served as a model for the National Competition Authorities (NCAs), which have been adopting an increasing number of decisions in this area in recent years. Some relevant topics in the decisions were the limitation of the duration and scope of exclusive vertical contracts, or the so-called ‘no single buyer’ obligations, as analysed in section 2.3.2.
Sports rights agencies usually try to maximise their total revenue and profit (in most cases on an international basis) and redistribute a relevant part of the revenue back to the sports event organisers. Examples of sport rights agencies are Formula One Management Ltd (FOM), or TEAM for the management of the UEFA Champions League. Most of the premium sports rights are managed by the largest 7-8 global market players. In some cases, media rights are sold to intermediary media rights agencies instead of being sold directly to content providers. Examples of such situations are the award of the rights for the Olympic Games to Eurosport and its parent channel for most of Europe starting from 2018 and the selling of rights (e.g. Olympic Games, FIFA World Championship) to the European Broadcasting Union (EBU) in the past.
In some countries a legal framework provides rules on some of the aspects mentioned above. For example, in Italy, the commercialisation model for the national football league is described by a legislative decree requiring the production of guidelines by organisers of sporting competitions. In Germany, the NCA proclaimed a “no single buyer rule” for Deutsche Bundesliga in 2016 (see section 2.3).
Traditionally, each form of commercialisation of a film/TV series happens in sequence, corresponding to the specific market involved (cinema, television, DVD and BlueRay, Video on Demand (VoD), etc.), having its own exclusive time window during which the film or TV series may not be exploited in a different medium.
At a later stage of exploitation, films are usually combined into libraries of films and sold as a package to a content provider. A common model to sell film media rights are so-called “output deals”. Following such a model, a content provider buys a certain amount of future productions – which usually also includes TV series – from a producer or label, and guarantees the distribution of this content.
Examples of licensing companies for films and series are Sony Pictures, MGM, Universal Studios, Warner Bros., 20th Century Fox, Paramount, DreamWorks, HBO or Disney. The producers are the same entity as the licensing companies in a significant number of cases, especially for US-based companies.