Law in the Internet Society

The European Union and Netflix: Taming the Beast?

-- By JurriaanVanMil - 5 February 2020


1 Introduction

The European Union (EU) is struggling to keep up with American platforms, such as Google and Netflix. Rather than actively developing its own thriving digital infrastructure, the EU has been gradually increasing its regulation of those platforms through the enactment of legislation and the enforcement of established legal frameworks. Online video service platform Netflix, however, seems to have not been put under a heightened regulatory burden yet. That despite the threat that Netflix can pose to European broadcasters.

2 Backdrop: Digital Single Market

This paper should be read against the backdrop of the EU’s ten-year strategy for “smart, sustainable and inclusive growth”: Europe 2020. Part of that strategy is Europe’s digital agenda, the Digital Single Market, which should reaffirm the EU’s position as “a world leader in the digital economy”. To give effect to that strategy, the EU has enacted legislation that appears to be designed to specifically address American platforms. For instance, online video-sharing platforms, such as YouTube? , can now be held primarily liable for user-generated that infringes upon third-parties’ copyright. That provision in the Copyright in the Digital Single Market Directive runs contrary to the idea that platforms are not primarily liable if they do not exercise editorial control over their users’ content.

3 Problem: American prominence

3.1 Prominent American online platforms

General accessibility to the internet in combination with network effects fostered the development and wide-spread distribution of over-the-top services, such as Google and Netflix. Those services no longer rely on old media, such as broadcasters and satellite television providers. Primarily American platforms make over-the-top services available to consumers over the internet. Those services are often rolled-out in other countries after maturing and becoming household names in the United States. For instance, Netflix started its European expansion in January 2012 while it served 27.15 million American customers. The EU’s legal framework did initially not address American platforms and their over-the-top services adequately.

3.2 Outdated European broadcasters

Traditional European broadcasters unsuccessfully tried to keep up with up with the information society by making available their own online video service platforms. For instance, British ITV, Channel 4 and BBC Worlwide introduced their joint streaming service in November 2007: Project Kangaroo. The Competition Commission, the British competition authority, however, mooted Project Kangaroo because it “would be too much of a threat to competition in this developing market and has to be stopped”. Other national effort, such as British SeeSaw, were unsuccessful too.

History repeats itself. National broadcasters are joining forces once more to take on Netflix and the likes, such as Amazon Prime. The Office of Communications, the British media regulator, ironically welcomed four British broadcasters’ recently launched online video service platform: BritBox. That initiative will allow British broadcasters “to keep pace with global players”, according to the Office. Furthermore, a similar German joint venture was introduced earlier in 2019, and a French streaming service is expected to launch in the following months. Perhaps it is a matter of time before a pan-European online video service platform emerges.

4 Solution: Competition law and media law?

4.1 Competition law

Netflix should not only be wary of European broadcasters’ combativeness; it can also be subject to regulatory enforcement pursuant to EU competition law if it acquires a dominant position on the relevant market, and abuses that position. The European Commission (EC), the European competition regulator, is not afraid to enforce competition law by biting hard as is evidence by its imposition of a EUR 1.49 billion fine on Google.

Luckily for Netflix, the relevant market appears to be competitive. Not only European broadcasters challenge Netflix; American entities do too. For instance, Amazon and Hulu have been competing with Netflix for years, and Apple and Disney launched their streaming services in November 2019. Besides, it is said that competition between the different online video service providers has been resulting in bidding wars. Such a practice does not argue in favour of Netflix having a dominant position and of abusing that position.

4.2 Media law

One thing that is sure is that Netflix must devote at least 30 percent of its catalogue to European works under the Audiovisual Media Services Directive’s (AVMSD) 2018 revision. That obligation aims to “increase cultural diversity and promote European content”. We can question EU citizens’ desire to watch culturally diverse content, and the positive effect of such content on European society. Perhaps the obligation is primarily economic in nature. Besides, Netflix has already criticised the new quota, noting that it “can negatively impact both the [consumer] experience and creativity”. The threat of regulatory enforcement can, nonetheless, be an incentive for compliance: the Commissariaat voor de Media, the Dutch media regulator, can impose an administrative fine of up to EUR 225,000 per infringement pursuant the Mediawet, the Dutch implementation law.

The obligation can potentially strengthen the position of European broadcasters and production houses: Netflix and the likes must actively purchase licences or produce their own European works if they want to do business in the EU. Those streaming services have billion-dollar budgets available to spend on new content. Those budgets can explain the aforementioned bidding wars. European broadcasters and productions houses can thus bank on the quota.

The obligation does, however, not take account of online video service platforms’ business practices and contract terms. For instance, “Netflix became the first company to negotiate buy outs of content with no residual payments for production companies or creatives.” Depending on the actual level of competition on the relevant market, European broadcasters and production houses are perhaps faced with take-it-or-leave-it choices: receive a single monetary unit without further royalty payments in return for an exclusive pan-European licence or the transfer of proprietary rights, or find another streaming service to do business with. Such a business practice should be taken into consideration in the context of competition law.

5 Conclusion

The EU does provide some tools to control Netflix: competition law and media law. These tools may nonetheless prove to be ineffective. It seems unlikely that Netflix will be subjected to regulatory enforcement by the EC because the relevant market appears to be competitive. Besides, there is no European counterpart to Netflix. Perhaps it is, therefore, not in the best interest of EU citizens and the European creative industry to heavily regulate a foreign platform on which many Europeans depend. Furthermore, the AVMSD’s revision can potentially strengthen the economic and financial position of European broadcasters and production. It does, however, not take account of Netflix’s business practices, which can easily undercut the EU legislators’ efforts. By and large, the EU should perhaps move from gradually increasing its regulation of American platforms to actively developing its own thriving digital infrastructure to reaffirm its position as “a world leader in the digital economy”.

This is a solid analysis. It explains why Netflix is not likely to be a primary regulation target of the Commission, and why the broadcasters, unlike the newspapers, are not going to find much help from European Commission administrative efforts. Nor will they find themselves with much legislative clout against the production efforts of Netflix and Amazon.

But having shown why nothing much is going to happen, you come to a different ostensible conclusion, or at least you do until the conclusion of the draft. Realism is better than political optimism for the purposes of analysis. If Netflix and Disney are going to eat the broadcasters' lunch no matter what, you should say so.

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r6 - 05 Feb 2020 - 14:19:26 - JurriaanVanMil
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