Politically important; further information requested; drawn to the attention of the DCMS Committee
Not cleared from scrutiny; further information requested
Proposal for a Directive amending Directive 2010/13/EU concerning the provision of audiovisual media services in view of changing market realities
Articles 53(1) and 62 TFEU; QMV; Ordinary Legislative Procedure
Digital, Culture, Media and Sport
(37812), 9479/16 + ADDs 1–4, COM(16) 287
10.1As part of its Digital Single Market Strategy, the European Commission proposes to revise the regulatory framework which governs the operation of the Single Market for broadcasting to ensure that it reflects recent technological developments, such as the growth of on-demand services such as Netflix and video-sharing platforms such as YouTube. The background section of this report summarises the specific reforms that are proposed.
10.2In its Explanatory Memorandum of 15 June 2016 the Government indicated that it was broadly supportive of the proposal, but would oppose some elements of it. On 11 April the Minister of State for Digital and Culture (Matt Hancock) wrote to the Committee in advance of a forthcoming meeting of the Education, Youth, Culture and Sport (EYCS) Council on 23 May, at which he anticipated a General Approach would be reached. The Minister outlined a number of areas in which the Council appeared to be split and in which the outcome was difficult to predict. He emphasised that the Government’s negotiating position would remain flexible.
10.3On 5 July 2017 the Minister provided the Committee with a post-Council update. A General Approach was agreed following new amendments which were tabled on the day, which crossed a number of the Government’s red lines. These included increasing the quotas for video-on-demand services from 20% of European Works to 30%; a broadening of the definition of video-sharing platforms to include services where an essential functionality of the service includes video-sharing; and the retention of the controversial proposal to allow Member States to impose levies on on-demand services established in other Member States (the “Netflix tax”), as well as its extension to linear services. The Minister therefore voted against.
10.4The European Scrutiny Committee was unable to consider the Minister’s letter in advance of the General Approach being agreed at Council because it did not meet between the time that the letter was received and Parliament was dissolved, however because the Minister provided the Committee with a clear account of the Government’s position before Parliament was dissolved, and furthermore as his vote against the General Approach was consistent with the positions expressed in his previous correspondence with the Committee, it should not be considered to constitute an override.
10.5Brexit raises significant challenges for parts of the audio visual sector. The UK is currently the destination of choice for international broadcasters seeking to access the EU market: the Creative Industries Federation reports that “of all 2,200 of the broadcasting licences granted to channels across the European Union, more than half (1,100) are granted by Ofcom in the UK, and half of these (650) are for ‘nondomestic channels’ that are broadcast from the UK to other countries”.
10.6UK dominance has been enabled by the EU internal market in broadcasting, which permits any broadcaster that is established in a Member State and conforms to the rules of that state’s national regulator to broadcast content to the other 27 Member States. Outside the EU, broadcasting is one of the less liberalised sectors in global trade because of the view in many countries that cultural services are particularly sensitive and should be treated differently to other commodities (the ‘Cultural Exception’). The EU has never included significant access to the Single Market in broadcasting in any FTA or Association Agreement with a third country.
10.7As a Member of the Council of Europe the UK will be able to fall back on the Council of Europe’s Convention on Transfrontier Television (CTT) to retain a degree of access to the EU market, however the CTT is limited in a number of respects. In addition to its known limitations (non-participation of some Member States; exclusion of on-demand services; lack of an enforcement mechanism), legal analysis produced for Commercial Broadcasters Association (COBA) has shown that the CTT permits countries to block commercial advertising, which is central to the business model of most linear broadcasters, that does not conform to rules in the country of destination. This further reduces its adequacy as a substitute.
10.8As a consequence it appears probable that, unless the Government chooses to remain in the Single Market, UK broadcasters will have to access the EU market on the basis of the AVMSD provisions for third countries, which would require them to relocate editorial staff and possibly up-link facilities to the EU.
10.9We thank the Minister for his update from the Education, Youth, Culture and Sport (EYCS) Council on 23 May, and note that the Government voted against the proposed General Approach that was agreed. We note his reservations about aspects of the revised text, particularly:
10.10We ask the Government to provide further information regarding the following implications of the General Approach and trilogue negotiations:
10.11Regarding the implications of Brexit for the audio visual sector, we observe that:
10.12We ask the Government to answer the following questions about the emerging implications of Brexit for the sector:
10.13We ask the Minister to reply to the above questions by 4 December 2017. In the meantime we retain this proposal under scrutiny and draw it to the attention of the Digital, Culture, Media and Sport Committee.
10.14The Audiovisual Media Services Directive (2010/13/EU) (AVMSD) governs EU-wide coordination of national legislation on all audiovisual media, including both traditional (referred to as ‘linear’) broadcasts and on-demand (‘non-linear’) services. The Directive establishes minimum regulatory standards that Member States and national regulators must implement, which aim to preserve cultural diversity, protect children and consumers, safeguard media pluralism, combat racial and religious hatred, and guarantee the independence of national regulators.
10.15The Directive has created a deep EU market in broadcasting. This is because it applies a ‘Country of Origin’ approach, meaning that a broadcaster only has to obtain a licence and observe regulatory standards in any one Member State in order to be able to offer its services in the others, without being subject to additional requirements. This removes the obligation for broadcasters to meet multiple regulatory regimes when trading across borders.
10.16The Directive requires broadcasters to promote the production of, and access to, ‘European works’, both for linear and on-demand services. For linear (television) services, the Directive requires Member States to ensure that broadcasters, “where practicable”, reserve a majority proportion of their transmission time for European works, excluding the time allotted to content such as news, sports events and advertising. Broadcasters should reserve at least 10% of their transmission time, or alternately allocate at least 10% of their programming budget, for European works created by independent producers. Member States are given flexibility as to how they choose to promote European works, and there is wide variation.
10.17The UK is Europe’s leading international hub for global media groups, home to more television channels than any other EU country (1,100 channels are licensed by Ofcom, compared to its closest rival France with 400). More than half of these channels broadcast not to the UK, but exclusively to overseas countries.
10.18A separate report by COBA concludes that £400m of UK economic activity is dependent on retaining current access to the Single Market in this sector:
“These purely international channels are worth £400m a year to the UK economy in direct terms—equivalent to all annual sales of UK television programmes to the EU. They employ around 1,600 people. In addition, they benefit UK post production, playout facilities and other technical services required to get a channel on air. And perhaps most importantly, they contribute to the critical mass of the UK television sector, helping make it a truly world-class centre for broadcasting.”
10.19As part of the EU’s Digital Single Market Strategy, the European Commission committed to modernise the AVMSD in order to reflect changes in the broadcasting landscape, such as the increasing volume of content that is viewed online.
10.20In its draft Directive, the Commission proposes to:
10.21It is also proposed to extend the scope of the Directive, which currently only applies to TV and on-demand services, to include video-sharing platforms such as YouTube. The Directive introduces an obligation on Member States to ensure that such video-sharing platforms put in place consumer protection measures to:
10.22Measures to implement these requirements could include:
10.23National regulatory authorities are to assess the appropriateness of measures. In order to ensure compatibility with the e-Commerce Directive (2000/31/EC) the provisions on video-sharing platforms require implementation via co-regulation, which will require the establishment of national codes of conduct. Such codes must be broadly accepted by stakeholders and provide for monitoring and evaluation of objectives, enforcement and, where appropriate, sanctions.
10.24While the AVMSD was a minimum harmonisation directive, the proposal now limits the issues in respect of which Member States may impose stricter rules in a wide number of areas, increasing the level of harmonisation.
10.25UK-based international broadcasters have emphasised that access to the EU market is the bedrock of their operations and that securing continued access to this market is the priority. The different ways in which they can retain access to the EU market are outlined below.
10.26As a member of the Council of Europe the UK is a signatory of the Convention on Transfrontier Television (CTT), the predecessor of the EU regime. Although dated, the CTT remains in force, and provides an automatic fallback in the event of an exit without alternative arrangements. It operates according to the same basic principles as the AVMSD.
10.27The CTT has several notable defects:
10.28In addition to the above problems, legal analysis produced for COBA suggests that Article 16 of the CTT also includes an effective opt-out on advertising. This is less of an issue for Public Service Broadcasters, but advertising is a key source of revenue for many commercial broadcasters. In summary, although different broadcasters would be unevenly affected by the switch to the CTT as the basis of EU market access, for most broadcasters the CTT would constitute a very poor substitute for membership of the Single Market, while for on-demand broadcasters it would not provide any access at all.
10.29Broadcasters are accordingly concerned by the prospect of an exit in which the UK falls back on the Council of Europe’s Convention on Transfrontier Television. Adam Minns, the Executive Director of the Commercial Broadcasters Association (COBA), told the FT that “The UK’s status as Europe’s leading international broadcast centre is at risk. … It’s black and white. Either those licences are valid or they aren’t”.
10.30The EU framework (the AVMSD) allows broadcasters with their head office in third countries—such as the UK, post-exit—to apply for a licence in an EU Member State. However, to be eligible for this licence broadcasters would have to make editorial decisions in the EU and have a “significant part” of their workforce in the EU (compared to the UK). This would entail the relocation of a proportion of broadcasters’ staff—particularly editorial staff—from the UK to the EU. Having editorial staff in one country and production staff in another may present difficulties for some businesses who prefer collocation, which could lead some broadcasters to also migrate part or all of their production operations, however working across two countries may not present difficulties for other broadcasters: the extent to which this is the case will depend on firms’ business models.
10.31The UK could seek to include provisions on broadcasting in a UK-EU FTA. However, the EU has always excluded broadcasting from its negotiating mandates for FTAs, including the recent EU-Canada FTA (CETA) and the WTO’s Trade in Services Agreement (TiSA). The only exception is the EU-Korea FTA which granted some access for animé.
10.32There is no precedent for a third country securing Single Market-equivalent access for broadcasters. Broadcasting is not covered by the EU-Canada FTA, and will not be covered by the new EU-Japan FTA. The Deep and Comprehensive Free Trade Area (DCFTA) which is nested within the EU-Ukraine Association Agreement contains certain provisions relating to the audiovisual sector. However legal analysis of this aspect of the agreement shows that, while satellite broadcast transmission services are included in the annex on services commitments, this refers to the communication service of satellite broadcast transmission not the content service.
10.33The exclusion of broadcasting from most trade agreements is due to what is commonly referred to as the “cultural exception”, which refers to the view, promulgated by the French and Canadian Governments during WTO GATS negotiations, that cultural services are too important to be treated as other commodities in trade. This is the reason why audio visual is one of the less liberalised sectors in terms of global trade.
10.34The Government’s White Paper, The United Kingdom’s exit from and new partnership with the European Union, states in relation to the broadcasting sector:
“Content that is carried over electronic communication networks is regulated in the EU by the Audiovisual Media Services Directive. This underpins the operation of the internal market for broadcasting by ensuring the freedom to provide broadcasting services throughout the EU. The UK is currently the EU’s biggest broadcasting hub, hosting a large number of international broadcasting companies. In the course of the negotiations, we will focus on ensuring the ability to trade as freely as possible with the EU and supporting the continued growth of the UK’s broadcasting sector.”
10.35On 11 April the Minister of State for Digital and Culture (Matt Hancock) wrote to the Committee in advance of a forthcoming meeting of the Council of Ministers on 22 May, at which he anticipated a General Approach would be reached. Overall, the Minister was content with the direction of travel, but he outlined a number of areas in which the Council appeared to be split and in which the outcome was difficult to predict. The Minister said that in working groups the Government had been opposing proposals to extend the scope of the AVMSD to video-sharing platforms, to include child protection measures such as parental controls, as well as proposals to extend the definition of video-sharing platforms to include social media platforms, but added that the Government was “being pragmatic and assessing if the proposals would cause excessive burdens, as many of the requirements are already captured in the terms and conditions of existing social media platforms”. He emphasised that the Government’s negotiating position would remain flexible.
10.36The Minister answered some of the Committee’s Brexit-related questions, stating that:
10.37However, in its report, the Committee also noted that the Minister did not answer a number of its questions about the implications of Brexit for the sector, including: how significant a failure to secure continued access to the EU market would be for UK-based international broadcasters; what proportion of UK-based international broadcasters would have to relocate part or all of their operations to the EU if this eventuality came to pass; and how many jobs depend on securing continued access to the EU market.
10.38The Committee retained the document under scrutiny but granted a scrutiny waiver for any votes in the Council of Ministers until the Committee was reappointed following the General Election. The Committee requested information about any developments in negotiations which could affect the terms on which the UK would be able to access the Single Market post-exit.
10.39Since the previous Committee last considered this issue, coverage of the implications of Brexit for the broadcasting sector has emphasised the difficulty of including broadcasting in any deal, and that companies need to know the direction of travel as far in advance March 2019 as possible. Otherwise they will not have the time to restructure their European businesses if a deal cannot be concluded or broadcasting is excluded from it.
10.40An article in Bloomberg (“Brexit Limbo Leads London Broadcasters to Size Up Amsterdam Digs”) states that:
“Akin to global banks, international media companies like Discovery, Sweden’s Modern Times Group AB and Time Warner Inc.’s Turner International use U.K. licenses to access the European Union and must fast decide whether to relocate some operations to preserve that access. Delays to the start of substantive talks for Britain’s EU exit don’t help—the broadcasters risk having to make the call without knowing the full impact Brexit will have on their business.
“Broadcasters will have to decide on relocation by as early as next spring, said Adam Minns, executive director of the Commercial Broadcasters Association, which represents international media networks in the U.K.
“‘No one running a business of any scale can wait to the end of negotiations before deciding what to do,’ Minns said. The process of acquiring office space, moving staff and shifting technical support could all take up to a year, he said.”
10.41The article quotes Irish and Dutch individuals who are endeavouring to attract international broadcasters from the UK, into their jurisdiction:
“Amsterdam’s strong international flight connections, flexible regulator and existing pool of skilled English-speaking workers are a draw. Netflix Inc. opened its European headquarters there in 2015 and announced 400 more jobs in May, while Viacom Inc.’s MTV also has a large presence in the city.
“‘I am holding talks with many companies, also with media companies,’ said Kajsa Ollongren, Amsterdam’s deputy mayor in charge of economic affairs. ‘The creative industry in a broader sense is really strong, so that means that this is an interesting sector for us.’
“Ireland is also vying to draw broadcasters from London. The Broadcasting Authority of Ireland has held meetings with international media companies assessing their options, said Michael O’Keeffe, the body’s chief executive.
“‘The inquiries got more intense after March when the formal Brexit process started,’ O’Keeffe said. The similarity of Ireland’s regulatory regime to the U.K.’s and its well-developed audiovisual sector make it attractive to broadcasters looking to move, he said.”
10.42On 25 April the Minister of State for Digital and Culture (Matt Hancock) provided an update from Council working groups in the lead up to the vote on the Directive in the Education, Youth, Culture and Sport (EYCS) Council on 23 May.
10.43He relates that the Government received an updated compromise text from the Presidency which raises a number of problems for the UK:
“On 7 April we received an updated compromise text from the Presidency following the working groups that have taken place this year (Annex 1). My officials have done an initial analysis of this proposal, considering both the initial Commission proposal and where the Presidency’s compromise proposal aligns with the UK’s position (Annex 2). You will see that there are three areas that do not align with the UK’s view. There is wording in relation to jurisdiction which we believe could further deteriorate the Country of Origin principle, there is considerable extension to scope for video-sharing platforms, which has the potential to create burdensome regulation for business and the country of destination levies for video-on-demand services has been extended to include linear channels.”
10.44The Minister adds that:
“The next steps are to attend further working groups, Coreper, and an attaché only meeting in the next three weeks and to ascertain what the red lines are for other Member States. My Department will continue to assess other Member States’ positions but we are aware that many Member States retain flexible positions and remain under scrutiny.”
10.45The Minister updates the Committee regarding the outcome of the Education, Youth, Culture and Sport (EYCS) Council on held on 23 May, at which a General Approach was agreed. As anticipated by the Minister’s previous letter, a number of amendments were tabled which raised issues for the UK.
10.46The Minister writes:
“There was not an agreement for a General Approach at the start of the meeting, and a number of amendments were tabled on the day in order to reach a compromise.
“These amendments included:
“There were no changes to the proposed levies or the extension to linear.”
10.47The Minister states that:
“The UK did not support the text. The increase in quotas and retention of levies crossed the UK’s ‘red-lines’ in this area. My Department is now assessing the implications of the new wording on essential functionality in relation to video sharing platforms.”
10.48The Minister provides a detailed account of how the General Approach was established:
“The Council did not have a formal vote. Member States were asked to indicate if they could not support the text. Those who did not support (in addition to the UK), were Ireland, Sweden, Denmark, Netherlands, Luxembourg, Finland and Czech Republic. Hungary expressed reservations that compromises regarding Country of Origin did not go far enough.
“The text was accordingly considered to reach a qualified majority for a Common Approach and will now go into trilogue with the Commission and Parliament, once the Estonians have taken on the Presidency.”
10.49The Minister adds that:
“I will provide an update in the early autumn with regard to the timeframes and process for trilogue. I remain at your disposal if you have any further questions.”
10.50The first inter-institutional trilogue negotiations regarding the AVMSD reforms took place on July 10 and September 28 2017.
Fortieth Report 71–xxxvii (2016–17), (25 April 2017), Thirty-third Report 71–xxxi (2016–17), (1 March 2017), Nineteenth Report 71–xvii (2016–17), (23 November 2016), Seventh Report 71–v (2016–17), (6 July 2016).
66 Letter from Matt Hancock to ESC Chair
67 The Creative Industries Federation, ““ (October 2016).
69 Not publicly available.
70 Letter from Matt Hancock to Sir William Cash
74 Bloomberg, (8 August 2017).
Also see Broadcast, (13 July 2017).
76 COBA—Briefing on impact of Brexit on broadcasting sector (July 2017).
78 House of Lords Internal Market sub-committee, (3 November 2016).
82 Letter from Matt Hancock to Sir William Cash
83 Fortieth Report 71–xxxvii (2016–17), (25 April 2017).
85 Bloomberg, (8 August 2017).
Also see Broadcast, (13 July 2017).
86 Bloomberg, (8 August 2017).
20 November 2017