Scroll down for a Q&A with EC VP Andrus Ansip and industry voices

In advance of this year’s Cannes Film Festival, the attitude among European film financiers, distributors and producers towards the European Commission’s recent proposals for a connected digital single market (DSM) was one of utter, panicked dismay.

Senior film industry figures issued dire warnings about the potential collapse of the entire business model of the European film industry. In a fractious and competitive sector, this was one issue on which there appeared to be complete, industry-wide consensus. The British, in particular, were baffled by proposals that would put their audiovisual industry at risk.

“I actually convened a meeting of 40 different players in this, all the big players,” says John McVay, chief executive of British producers’ association PACT. “I sat them down earlier in the summer and said, ‘Right guys, the only thing that will get you lot all in a room together is the European Commission!’” “You’ll be very hard pressed to find any practitioners who are in favour of it,” agrees Charlie Bloye, chief executive of British sellers’ association Film Export UK.

To outside observers, the initial debate on the subject seemed bizarre and utterly contradictory. At the same time that film industry representatives were bemoaning ideas they saw as potentially catastrophic, Jean-Claude Juncker, president of the European Commission, was striking a determinedly utopian note.

The DSM was not just about European citizens being able to use their mobile phones across Europe without paying roaming charges, and accessing films on their electronic devices wherever they were. Juncker hoped to create hundreds of thousands of jobs and billions of euros in new economic growth.

The commission was pushing for increased cross-border access to content while promising “better enforcement of rights and actions to combat piracy”.

The upbeat EC rhetoric was all about tearing down regulatory walls and “moving from 28 national markets to a single one”.

Adapting to the digital age

Some measure of reform was clearly overdue. As the EC pointed out, EU copyright rules date back to 2001 and new rules are needed to respond to new technologies, consumer behaviour and market conditions. It became painfully clear, however, that adapting European media rules for the digital age wasn’t straightforward at all — at least as far as the film industry was concerned.

Immediately felt to be under threat from the EC proposals was the cherished principle of the ‘territoriality of rights’ — the long-accepted practice of films being licensed and released on a country-by-country basis. The nightmarish image conjured up by the DSM was that as soon as a film was available digitally in one European country, it would be available everywhere else too. That, many suggested, would have a disastrous knock-on effect at every level from theatrical release to broadcast rights. It would undermine the way that independent European films were financed (distributors would no longer be willing to pre-buy

rights) and the way they reached audiences. The proposals didn’t seem to make any allowances for the differences between European countries in everything from language and weather to the timing of school holidays.

As producers and distributors point out, every individual film has a “different chronology of exploitation”, dependent on how popular it is likely to prove in any given territory. A film that is a big theatrical hit in one country might go straight to VoD in another. “If you make Europe one territory, how do independent films get funded?” asks Mark Batey, chief executive of the Film Distributors’ Association, posing the single question that vexed producers the most. Film-makers who piece together budgets for their films by pre-selling rights in different territories would simply no longer be able to raise finance for their films.

A further worry was that the DSM strategy would play into the hands of online North American giants such as Netflix and Amazon, which would have the muscle to buy pan-European rights to films — as well as the name recognition to attract consumers. These companies have not always shown much consideration for local film in the markets in which they operate.

For example, Dutch distributors have pointed out the VoD majors pay as little as $1,130 (€1,000) a title to take rights to Dutch movies — a pittance that does nothing to plug the gap from falling DVD sales (this is one reason these distributors are becoming ever more reliant on the theatrical business).

Reassuring words

The EC appeared startled at the furious reaction its proposals had provoked. In early May, it issued a fact sheet designed to reassure the film sector that it never had the intention of destroying the ecosystem of European film financing and distribution. It stated that it did not want to dispense with the “territoriality of rights”.  “Each film has its distribution strategy, its release windows system,” the fact sheet acknowledged. “This is not about opening access to all content for free.

It is about a win-win situation for creators and users; this is about nurturing cultural diversity in the digital age.”

Relations between the EC and the film sector grew steadily more cordial.

Film industry representatives listened to EC commissioners and their staff in Cannes and Venice, and were heartened that European policy makers seemed to be acknowledging the complexities of the European film business.

They also accepted the intentions behind the DSM proposals were well-meaning. In the autumn, feted producer and UK industry spokesperson David Puttnam, president of the Film Distributors’ Association, met Andrus Ansip, the vice-president for the digital single market, and described him as someone the film sector “could do business with”.

“I trust that film-makers’ fears were allayed when we detailed our objectives in May — we made it clear that we wanted to strengthen the creative industry, to help authors reach new audiences, new markets and benefit from new opportunities,” Ansip told Screen International. He is due in Tallinn at Black Nights Festival in November to hold a fireside chat about the DSM proposals. He has also issued invitations to leading European film-makers to meet him in Brussels. Lines of communication are open.

Putting the cart before the horse?

All this is reassuring — but only to an extent. To many, the EC’s language remains frustratingly vague. The same commissioners sometimes appear to make contradictory statements. “Ansip and his other commissioners have been at pains to modify their language. However, there is nothing in their actions that has given me any comfort,” says McVay, pointing to the commission’s allegations that Sky and the Hollywood studios are complicit in anti-competitive practices.

One persistent concern among film industry representatives is that EC thinking regarding the digital single market is too focused on ‘availability’. As one UK distributor points out, this may be a case of putting the cart before the horse: “Availability is something consumers only appreciate when they have an appetite. That appetite is created by the way the films are marketed and distributed. If distributors can’t control the way they release films, that appetite may soon dwindle.”

“If we look at the kind of tools they want to use to create this DSM with a strong focus on availability, that is where they [the EC] go wrong because availability is not the same thing as building bigger audiences or having better circulation of European works,” Jelmer Hofkamp, secretary of the International Federation of Film Distributors’ Associations (FIAD), points out. “Is it the principle of availability of the single market they want, or is it actually a flourishing European production market and more circulation within the EU of European product?”

“Looking at these issues only from the point of view of how to improve access to works risks damaging the mechanism by which audiovisual works come to exist,” comments Marco Chimenz, a partner in production house Cattleya and president of the European Producers Club. “We all know there is an ecosystem that allows producers to find financing. If this ecosystem becomes endangered, there will be no issue of improving access because there will be fewer strong European works.”

“The worries are still there,” agrees Hofkamp, who points to tensions and contradictions in the EC position. On the one hand, “Ansip says to us he does not want to break territoriality and he does not want to touch the release window system”. On the other, the EC has appeared to support “mandatory passive sales”. This is the idea that distributors should be obliged to respond to unsolicited requests from customers outside their territories and allow them access to their films.

Cut through the bureaucratic jargon and this would mean that geo-blocking wouldn’t be enforced and that consumers from one European country would have the rights to stream or download films from another. This is not an outcome that distributors would cherish in any way. “If, in one country, a film is online, in theory every citizen in the EU can access it, which will make it less tempting for a distributor in a different country to buy it or for a distributor to release it in their cinema,” Hofkamp says.

An EC source acknowledges that mandatory passive sales was “an option that was looked at in the context of facilitating cross-border access to content”, but the commission has accepted it might not be “the best solution right now. We need a gradual approach.”

A persuasive argument can be made that, in the long term, some form of digital single market is inevitable. That does not mean the film industry needs to dismantle its tried and tested business models in advance. “One hundred years ago, people could see the rise of the motor car but they didn’t go out and start shooting all the horses,” Bloye states. “In an attempt to be friendly with the consumer, the danger is that Brussels will precipitate something before people are ready for it.”

Even those most wary about the damaging consequences of a digital single market for the European industry accept that distribution strategies are bound to change. Puttnam recently expressed the view that the European distribution sector is “overly fragmented” and that “there needs to be a degree of consolidation”.

Impact on arthouse

The rub here is that such consolidation is likely to have an adverse effect on the smaller players — the arthouse distributors across Europe handling non-mainstream fare. This will undermine attempts to maintain and grow cultural diversity. To some, it seems paradoxical that the EU’s Creative Europe programme, with its budget of $1.65bn (€1.46bn) for 2014-20, is investing so heavily in the development, distribution and promotion of European cinema at the same time the DSM proposals risk undermining the sector. “We really feel that cultural diversity is at stake,” Hofkamp says. “We feel it is the small arthouse cultural productions within Europe that will suffer the most.”

Film Export UK’s Bloye makes a similar point. If the sector does contract and there are fewer distributors, certain types of films will cease to be made. “Territorial consolidation inevitably leads to more homogenous choices and less people to say yes to a project. In simple terms, if the EU becomes less valuable in terms of sales, people are going to make films that will sell better in other areas.”

Some believe that Brussels bureaucrats are addressing a problem they themselves feel more keenly than the average European citizen. “They are the ones who are travelling away from home — so they feel the non-availability of their favourite shows and football matches probably more than the rest of us do,” says Bloye. “The average Brussels politician or civil servant is going to perceive geo-blocking to be a much bigger problem than most of us do.”

Analyst André Lange, who warned in Cannes that Netflix might “destroy the current ecosystem of film production in Europe” in the coming years, observed a paradox in European attitudes towards filmed entertainment. “EU member states seem to be reluctant to harmonise criteria for welcoming refugees, but are more and more open to welcome audiovisual media services established outside their borders.” Lange pointed out the European Audiovisual Observatory had identified, in December 2014, “236 on-demand audiovisual services established in the US and targeting Europe” — and that very few of these were championing European movies.

Continental shift

The commission appears very aware of the concerns of the European film industry, but its attempts to allay those concerns have sometimes exacerbated uncertainty. The film sector’s anxiety is shared by those involved in sports content licensing, who face exactly the same dilemmas.

“Sports rights owners are certainly worried — as they see it, if the DSM proposals were implemented to their fullest extent, then the value of their media rights would be seriously and detrimentally affected, with the consequential negative impact on their ability to fund their sports, particularly at grassroots level,” says Warren L Phelops, global head of sports and media at international law firm K&L Gates. “Further, it could mean their customers, particularly in the smaller European markets, would be worse off because, without exclusivity, broadcasters might not tailor their content acquisition, commentary and support programming to those markets. Insofar as they relate to live sports content, the DSM proposals are not addressing a failure in the market, but are instead based on ideology.”

The first step in the implementation of the DSM proposals will be to introduce the less contentious principle of portability — allowing consumers cross-border access to content they have acquired legally. The bigger debates about territoriality and geo-blocking will be pushed back as further consultations are held and more reports commissioned. In the meantime, the European film industry should be able to carry on as before, with country-by-country releasing.

“Digital has changed everything in this business,” says the FDA’s Batey.

“It is not a format change. It is a total paradigm shift and reinvention of the model entirely. The whole value chain is dramatically changing, not just in the UK but all around the world.”

The business is in flux. Everything from windowing to pricing is being questioned as never before. Even so, this — in the opinion of many in the European film industry — is not a reason for dismantling a system that has underpinned European film financing and distribution for decades. “There just has to be flexibility,” says Batey. In the case of the digital single market, one generalisation can safely be made — one size most certainly doesn’t fit all.

Q&A Andrus Ansip Vice-president, European Commission

Screen meets the man responsible for leading the DSM project team

Andrus Ansip There were serious concerns before we presented our digital single market strategy in May, especially regarding the modernisation of EU copyright rules. It’s necessary to ensure our legislation is fit for the digital age. Many people in the European film industry recognise this fact.

AA We will facilitate legal access to content across borders. We will work on a better enforcement of rights and on measures to combat piracy. We also aim for a fairer remuneration of rights with the participation of all players in the value chain. We need to find the most appropriate way to promote European works, particularly online.

We are in particular looking into efficient ways to promote European audiovisual works in video-on-demand services.

To achieve our goals, we will work on a comprehensive agenda of non-legislative measures either supported through our Creative Europe MEDIA programme or agreed with the audiovisual sector in the context of the European Film Forum, a platform for exchanges with audiovisual professionals and policy makers set up by the European Commission.

AA I don’t agree. Overall the digital single market is about harmonising rules at the European level. Big American companies have the resources to deal with a fragmented market. This is not the case for smaller European businesses.

The current EU copyright framework does allow licensing deals covering a multitude of territories. Situations are different across sectors and member states.

But where, in order to expand the service, there is a need to obtain a separate copyright licence for each EU member state, multinational corporations usually have more resources at their disposal to deal with it.

Simplifying the licensing environment will, therefore, reduce the transaction costs for businesses and, ultimately, bring about more content and greater choice of services to people everywhere in Europe.

AA We indeed want to abolish unjustified geo-blocking. This term refers to practices used for commercial reasons, when online sellers either deny consumers access to a website based on their location, or re-route them to a local store with different prices. Sometimes restrictions are justified, for example due to national rules.

We have launched a public consultation to gather views on the experience of users regarding geo-blocking and the best way to tackle this issue. A broader legal access to content online across borders is our goal.

AA We need to be prepared for changes in the future and help the audiovisual sector adapt its financing models accordingly. As technologies, viewer behaviour and therefore markets evolve, new business models will be developed in Europe. They cannot and will not grow along national borders.

We have to be pragmatic and result-oriented. We have to put forward balanced measures that will guarantee the best impact at EU level and prepare the ground for further changes in the future.

Industry voices

We need to crawl before we can walk. In order to have a digital single market, there are so many things to improve and to make sure about the European market and the European territories: the state of VoD platforms, infrastructure and unified delivery requirements of materials.Within Europe there is still a long way to go in regards to day-and-date releases, which only work in a few territories such as the UK and Poland, and in some territories are not permitted due to official laws or unofficial industry restrictions. It is therefore much more relevant to start by implementing some guidelines about day and date, and windowing in general, within the European territories.
Susan Wendt Head of sales, TrustNordisk and President of Europa International

The commission’s current proposal would be calamitous for independent film production and distribution.It will place too much of the distribution buying power into the hands of multinational digital platforms. It will erode the concept of localised marketing campaigns and rapidly accelerate the cultural homogenisation of the films themselves. Ultimately, if independent distributors and independent financiers take this big a kicking from the EU then it could be a fatal blow to the independent film world. We’ll all be heading off to ‘Cannes Film Festival As Sponsored By Netflix’ each May.
Stuart Ford Chief executive, IM Global

It will be a herculean feat to remove borders and, if this does happen, I don’t see it taking place in the next decade. We are made up of so many different cultures and histories that our need for entertainment will always be too diverse to have one broadcast/feed satisfy all. A single market would create a competitive environment in the short term, but down the road there would be piracy and the deterioration of traditional modelling for independent film financing. Fewer buyers mean fewer choices for financing. We should safeguard territoriality but not hinder technology or additional revenue streams.
Brian O’Shea Chief executive, The Exchange

The BFI balances the twin ambition of creating access for audiences and protecting the rights of the content creators. The commission’s proposals for a digital single market have audience access at their heart, but care must be taken to ensure this is not to the detriment of the film sector, for example by abolishing territoriality. A clear, stable copyright framework should support the creative, cultural and economic development of the audiovisual sector and is key to achieving a diversity and cultural richness of film for audiences.
Amanda Nevill Chief executive, BFI

We believe the commission will see that the present financial system depends on the possibility to be able to license in different territories. This is especially true for films from small-language areas. If licensing is affected, it is of vital importance that governments continue to support national films.
Elisabeth Bill Legal advisor, Swedish Film Institute

Europe, often helped by the US, regularly tries to suppress market borders, virtual or otherwise… … on the pretext of helping the consumer, all the while maintaining fiscal borders, which encourage fraud, and geographical borders, which discourage immigration. We have to keep fighting to ensure these topics aren’t treated separately and that a freer European market is tied up first and foremost to more social, fiscal and economic justice. Even if territoriality comes to an end, we will still be able to monitor who watched a movie and where. It’s not impossible to envisage some sort of superstructure through which revenue is re-distributed zone by zone.
Bertrand Faivre Producer and founder, The Bureau & Le Bureau

Geo-blocking is the reason the whole production, exhibition and sales sector exists. The idea of doing away with it must have been brought about by someone who didn’t know what the business is about. It’s also a fake problem. A film doesn’t exist unless a distributor does their job to promote the film. Films exist because we work on them, press work on them, exhibitors work on them. Otherwise they’re viewed by very few people.
Stefano Massenzi Head of acquisitions and business affairs, Lucky Red

If the commission’s aim is to improve the circulation of independent European films, there are positive things it can do. The first would be a root-and-branch review of the virtual print fee. It also needs to address piracy and create a more level playing field in which distributors and culture see as much support as the broadband platforms, who are given great access to consumers.
Laurence Gornall Chief executive, The Works Film Group

It’s inconceivable that territoriality will be done away with in such an arbitrary manner. There isn’t a single company in Europe with the financial clout to pay for a pan-European licence or the distribution network across the whole region if they did. The only companies capable of doing that are American. It would mean there would no longer be any European buyers. You would be telling companies like StudioCanal, Pathé, Gaumont, Medusa and Wild Bunch to shut up shop.

In the long term, there will be more companies buying multi-territorial rights like us or StudioCanal. The EU needs to let these groups emerge before tackling the issue of territoriality, and you would still need territoriality to protect smaller, independent films and ensure diversity in cinema. We also need to ensure there is a good legal offering across the European Union, which is not always the case and is a problem. It’s not by smashing the current system that we’re going to fix it.
Vincent Grimond, Chief executive, Wild Bunch AG