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European Commission Sends Statement of Objections to Sky and Hollywood Studios in Pay TV Investigati

On 23rd July the European Commission sent a Statement of Objections to Sky UK and six major Hollywood movie studios - Disney, Warner Bros., Paramount Pictures, NBCUniversal, Sony and Twentieth Century Fox - as part of its ongoing Pay TV investigation.

Charging them with antitrust violations under Article 101 TFEU, the Commission alleges that the contractual restrictions forming part of the agreement between Sky UK and the US studios gives territorial protection to the broadcaster, insofar as it prevents Sky UK from allowing EU consumers outside of the UK and Ireland to access its Pay TV services - both online and via satellite.

The Statement of Objections declares that without these contractual restrictions, “Sky UK would be free to decide on commercial grounds whether to sell its pay-TV services to such consumers requesting access to its services, taking into account the regulatory framework including…the relevant national copyright laws”.

The main issue is that the Commission is looking at restrictions on passive sales in agreements, which the industry secures through geo-blocking. According to the Commission’s Guidelines on Vertical Restraints, passive sales “mean responding to unsolicited requests from individual customers including delivery of goods or services to such customer.”

These objections come at a time when legislative reform for cross-border access to copyright-protected works is under constant discussion in the EU Institutions, with the abolition of geo-blocking having been included as a priority in the Digital Single Market Strategy launched on 6th May. This begs the question, is geo-blocking a copyright or a competition issue?

The objections disregard that the broadcaster may only hold a licence to offer content in its own Member State. By ignoring this issue, the Commission is implying that the possession of a licence in one Member State could permit a TV broadcaster to broadcast content online in the whole of the EU. The Commission’s position essentially extends the exhaustion doctrine to broadcasts, thereby contradicting Article 3 of the InfoSoc Directive which clearly states that the right of communication to the public is not subject to exhaustion.

The Commission’s objections are based on the Murphy Case, which ruled that a system of licences for the broadcasting of football matches which grants broadcasters territorial exclusivity on a Member State basis and which prohibits passive sales is contrary to EU law. However, the objections include a generous interpretation of the case because territorial agreements are not by default contrary to Article 101 TFEU. The Murphy case states that “the mere fact that the right holder has granted to a sole licensee the exclusive right to broadcast protected subject-matter from a Member State, and consequently to prohibit its transmission by others, during a specified period is not sufficient to justify the finding that such an agreement has an anti-competitive object". The investigation could see the Commission redefine the scope of the right of communication to the public and the exhaustion doctrine.

The Statement of Objections forms part of the original investigation launched by the Commission 18 months ago, which also involves broadcasters based in France, Spain, Italy and Germany. However, the Commission decided to first launch proceedings against the British broadcaster due to the size of Sky UK and the popularity of the English language. Commission spokesman Ricardo Cardoso has stated that this “does not prejudge its ongoing assessment of cross-border pay TV-services in other member states”.

Speaking on the Commission’s objections, Commissioner Margrethe Vestager argued that “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”. However, Disney has been quick to defend the industry’s territorial-based financing system, stating that “the impact of the Commission’s analysis is destructive of consumer value and we will oppose the proposed actions vigorously”.

The movie studios and Sky UK now have two to three months to respond to the Commission’s accusations.

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