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Contractual freedom and territorial exclusivity remain key to new content production and distribution in the AV sector

Oxera’s latest report shows that including AV within the scope of the EU’s 2018 Geoblocking Regulation—even with a requisite rights limitation—would erode the contractual freedoms that traders (including producers, distributors, cinemas and broadcasters) rely on to fund new content production and distribution.

In 2016, Oxera published a report jointly with Oliver & Ohlbaum Associates that modelled the likely effects of increased cross-border access to AV services within the EU. That report highlighted the risk of a significant short-term impact on the industry and consumers, with up to €9.3bn of welfare lost per year—as well as worsened medium- to long-term outcomes, with an ongoing annual welfare loss of up to €4.5bn per year.

Our new study extends that 2016 report by examining the supply-side effects on producers, offline and online distributors, cinemas and broadcasters if AV services were to fall within the scope of the 2018 Geoblocking Regulation, either completely or subject to a requisite rights limitation. We gathered evidence through a broad-based survey of industry participants across Europe, supplemented by a series of in-depth interviews with senior staff from a selection of key companies in Europe’s AV value chain.

Through our discussions with industry participants, we found that different traders adopt different approaches to financing, producing, marketing, distributing and localising content, depending on the specific characteristics of a given work and each trader’s chosen business model. Given this diversity, it is vital that traders retain the contractual freedom to tailor their strategy to each individual work and territory.

Including AV within the scope of the Regulation—even with a requisite rights limitation—would erode that contractual freedom, impinging on traders’ ability to contract on a territorial basis. This would undermine many of the funding and value-generating mechanisms that traders use to finance new productions and pursue the optimal distribution plan for each individual title. This, in turn, would put investment in new content at risk, reintroducing the risks to output and consumer welfare that we identified in our 2016 report.

A language-exclusivity regime would also have a negative impact on traders at all levels of the value chain. Smaller offline and online distributors and broadcasters may find themselves unable to afford the language rights to content with multi-territory appeal; meanwhile, producers may be unable to find distributors willing to acquire the rights and invest in the localisation and promotion of content in less widely spoken local languages. For consumers, this would mean less tailored content and local services; for producers, the commercial potential and incentives to invest in new works would be reduced.

Felipe Florez Duncan, the expert who led the study, said:

‘Having carefully reviewed the evolution of the market since 2016, we consider that the key findings of our previous study still apply. Neither a “requisite rights” limitation nor a language-exclusive licensing model would be sufficient to eliminate the risk of harm to industry and consumers identified in that study.

‘There is no one-size-fits-all approach to financing and distributing AV content. While the AV industry has undergone significant change over recent years, the contractual freedom to conclude territorially exclusive licensing remains key and continues to underpin the creation, production, financing and distribution of content across the EU.’

Gareth Shier, a Senior Consultant on the study, said:

‘No two works are the same, and traders use a variety of different strategies and mechanisms to raise production funding, manage their risk, and maximise the chance of recouping their investment. For example, a producer may release a work domestically to gain favourable reviews before being able to sell that content internationally; meanwhile, distributors typically optimise their promotion and release strategies for localised consumer preferences and cultural requirements.

‘Eroding territorial exclusivity would impede the ability of traders to raise financing and to optimise and localise the distribution of their content. This would have a knock-on effect on the complex financing, promotion and distribution mechanisms prevalent in the AV industry.’

View the report

Contact: Stevie Dixon, Senior Marketing and Business Development Manager