Memorandum by the CBI
INTRODUCTION
The CBI welcomes the opportunity to respond
to the Internal Market Sub-Committee of the House of Lords inquiry
on the review of the Television without Frontiers Directive (TVWF).
16 OCTOBER 2006
As the UK's leading business organisation, the
CBI represents over 240,000 businesses employing around a third
of the private sector workforce. The effects of TVWF, whilst crucially
important for the converging technology, media and telecoms sectors,
will be felt throughout the whole of Europe by businesses who
are increasingly relying on digital content and services to add
value to their business processes and to market and advertise
their products. The creative industries that supply these services
are major drivers for economic growth and a key asset for the
competitiveness of knowledge-based economies.
The review of the TVWF Directive (Audiovisual
Media Services Directive) was introduced as part of the Commission's
i2010 programme for jobs and growth in Europe. However, we do
not believe that the proposals (as currently formulated) help
drive forward the objectives of i2010 as they adopt an overly
complex approach to the regulation of online and mobile services.
Whilst the deregulatory aspects proposed for the traditional broadcast
sector are applauded, we have yet to see a compelling case for
extending regulation to online and mobile services. This is particularly
relevant as digital content and services become increasingly important
for UK business competitiveness in a global economy characterised
by growing competitive pressures from low-cost overseas rivals.
Q3a. In our current rapidly converging and
evolving technological and market environment, is it appropriate
to try to recast the regulatory framework?
The CBI recently hosted an OECD workshop on
the future of online audiovisual services, film and video. If
we were to pick one key theme that came up consistently from the
international mix of speakers, it would be the extremely high
pace of change characterising current market developments. Businesses
from across the sector noted how they are still creating new business
models and strategic partnerships in response to a changing digital
value chain. Policy-makers highlighted the challenges they face
in regulating a sector undergoing such rapid transformation. In
such a context, we would second the voices of many representatives
from UK industry who consistently queried the value of introducing
a new layer of broadcasting regulation over the current regulatory
framework of the eCommerce Directive and relevant national advertising
laws for internet-based commercial services.
In Commissioner Reding's confirmation with the
European Parliament in 2004, she promised to update and review
the Television without Frontiers Directive (TVWF).[18]
In her i2010 action plan for jobs and growth in the EU, there
was a further promise to publish a revised proposal by the end
of 2005, a goal she achieved on 13 December. The key issue for
UK industry is that, rather than just reducing regulation, the
revision of the proposed Directive greatly extended the scope
of the original to cover numerous emerging services which bear
little resemblance to the broadcast services the original TVWF
Directive covered.
The CBI is still optimistic that a net positive
result for the EU can be achieved through the review of TVWF.
Both in the European Parliament and the Council, the key to achieving
a positive outcome will be clarification of definitions and a
clarification and limitation of scope to regulate those services
that clearly resemble or are identical to traditional broadcast
services. We have recently seen signs from some of the Parliamentary
Rapporteurs and Council discussions that they intend to clarify
many of the issues with the Directive.
In a global economy, UK business competitiveness
could be severely hurt if the scope of the current proposal is
not clarified. The original Directive successfully regulated the
broadcasting sector with rules apt for that sector. We are concerned
the current proposal extends its scope to a plethora of new services
without adequate regard to their development and operation. CBI
research has shown how many of our members are investing in and
developing more compelling audiovisual content that takes advantage
of broadband connections, driving up the value of online customer
engagement, increasing "stickiness" and the likelihood
of a return visit or sale on their websites.
Key business processes like marketing and product
development are being transformed by such commercial uses of audiovisual
content online internet. Customers are becoming more closely involved
in the development and use of products or services through social
networking sites and user-generated content—companies engage
with consumers at an early stage to modify and enhance product
development based on feedback and comment from consumers. Product
development thus changes from a largely in-house activity—with
marketing of products and services very much an arms-length process—to
one in which consumers are involved much further back in the definition
and development stages.
Such innovative developments are needed to maintain
the competitiveness of UK and European business through building
customer value in the face of low-cost overseas competition. We
are concerned that the Directive will damage this capability by
taking an overly simplistic view of such services as either linear
or non-linear. Companies are more likely to provide an integrated
mix of linear and non-linear content in services offered on their
websites or via digital TV in order to enhance the customer experience.
For instance, after customers ordering a new
car have been shown an entertainment/informational video of the
car being driven at night in a mountainous environment (perhaps
using a clip from a thriller film) on a company website,they might
then be directed to a list of headlight specifications through
an interactive applet that shows them how each specification works
in reality. To ensure that the front-end customer website experience
and back-office stock and delivery options work together accurately
and in real-time, the different content formats and modules will
need to be integrated seamlessly. So it is questionable whether
any service will be purely linear or purely non-linear in its
operation, making it unclear how they would be regulated and difficult
for companies to anticipate this in the design of their graphical
interfaces with customers.
As well as a tightened definition of scope,
there is a need not to regulate emerging services under new regulation
until such time as they are well established with a defined market
structure and profitable business models. The current non-linear
definition in the Directive would regulate numerous developing
services when it comes to be implemented. This should be avoided
as fettering emerging media services in a complex regulatory framework
could slow or even skew their growth and might cause investment
capital to move outside the European Union. We see the need for
a set of key milestones in terms of market development to be established
before regulation under TVWF kicks-in.
Q3b. What are the advantages and disadvantages
of regulating in this area? Are the regulatory costs proportionate
to the benefits?
The proposed Directive could have supported
the goals of i2010 by implementing a straightforward regulatory
framework that promoted job creation, economic growth and service
development within the EU. In creating an additional, overly complicated
layer of regulation, the Directive might instead prompt companies
to direct global marketing budgets or investments for new services
towards those produced and hosted outside the EU. This would badly
hurt Europe's ability to respond to international competition
through innovative business models.
In a worst-case scenario, an extension of broadcast
regulations to online and mobile service providers would introduce
an additional licensing system that would be unnecessary and inappropriate
for a digital economy and that could hinder its development. Whilst
such an outcome is explicitly denied in the Recital 12 of the
proposed Directive, the language used in the actual Articles could
mandate the creation of such a system—for example, the repeated
references to "Member States shall ensure..." within
current Article 3.
We also do not see any advantage in extending
advertising regulation taken from the broadcasting environment
to online and mobile services. Online advertising is the fastest
growing form of advertising in the UK, with spending up 62.3 per
cent in 2005 relative to an overall increase of 0.6 per cent in
total spend.[19]
19 This is a clear indication the current light-touch self and
co-regulatory system operated by the Advertising Standards Authority
with backstop powers from Ofcom has allowed the market to flourish—providing
vital funds for the growth and development of numerous online
services.
The proposed Directive fails to recognise the
innovative developments that are occurring in online and mobile
advertising, for example in companies pursuing viral marketing
and developing interactive communities of interest for their customers,
and that fall outside the traditionally easy distinction between
editorial and advertising content. As noted above, such sites
are changing the nature of product development from a largely
in-house activity—with marketing of products and services
as very much an arms-length process—to one in which consumers
are involved much further back in the product definition and development
stages. As a recent quote from John Hayes, chief marketing officer
for American Express, in Forbes magazine notes: "the world
has been turned on its ear... no longer can firms talk `at' consumers...
they must find ways to listen and interact."[20]
Q4a. Does the Proposal sufficiently liberalise
the provision of broadcasting services within the European Union?
Time constraints on programming have today become
unnecessary and an excessive regulatory burden for modern media
services, and go against better regulation principles. As consumer
trends change and technologies enable advertisements to be skipped,
advertising has to evolve, as does regulation. Quantitative restrictions
such as the proposed "35 minute rule" should be lifted
to allow European media service providers to better compete internationally
and to sustain revenue streams to finance and invest in European
audiovisual content.
Q4b. Does the Proposal contain measures that
will effectively protect public interest objectives?All commercial
audiovisual services already operate under relevant national and
Community law. It is likely that, with almost non-existent barriers
to entry, European audiovisual media service markets will in the
near-term be provided for by hundreds of thousands of content
providers. These might range from an individual in their bedroom
posting videos to a Google AdSense[21]-funded
blog to a large media company providing a whole host of individually
tailored and targeted services. In such a context, the public
policy goals behind the current Commission proposal can often
best be achieved through alternative industry self-regulatory
approaches, that better suit the fast-moving nature of technology
and allow for greater flexibility in adapting to change than do
traditional regulatory edicts. Such systems would be supported
by firm, generic national laws that target rogue traders who actively
flout legal standards.
Q4c. Does the Proposal achieve an appropriate
balance between the objective of harmonisation and right of Member
States to control audiovisual media services which reflects national
concerns and interests?
Balance between harmonisation and the right
of Member States to control audiovisual media services that reflect
national concerns and interests is best achieved through implementation
of the country-of-origin principle.
Q5a. Is there agreement on the Commission's
proposal to distinguish between linear and non-linear services?
The CBI is unaware of any agreement between
stakeholders on the scope of and boundaries between the linear
and non-linear definitions created by the Commission. As RAND
Europe has noted: "the [Directive] as drafted contains significant
definitional uncertainties, especially for new forms of interactive
multimedia on non-traditional TV platforms."[22]
As explained above, we are concerned the Directive takes an overly
simplistic view of audiovisual services as either linear or non-linear.
Companies are more likely to provide a mix of linear and non-linear
content in services offered on their websites or via digital TV
in order to enhance the customer experience. So it is questionable
whether any service will be purely linear or purely non-linear
in their operation, unclear how they would be regulated and difficult
for companies to anticipate this in the design of their graphical
interfaces with customers.
Whilst the Directive is technology-neutral in
terms of delivery platform, we see value in introducing an element
of technological specificity in terms of the definition of the
content's format. Introducing an element of technological definition
in terms of the content format (as opposed to the delivery platform)
would help delimit the scope of the non-linear side to "TV-like"
services, as the UK Government's tabled amendments aim to achieve.
We believe this would not contradict the principle of technological
neutrality—as the Commission outlines in the Directive:
"the set of applicable rules shall no longer depend on the
delivery platform but on the nature of a service."[23]
In the transmission of "TV-like" content
(ie video on demand), there has to be a sequential and interlaced
ordering of the frames being shown unlike, for instance, in computer
games where frames are independent of the other. As sequential
frames are displayed, there is a logical ordering of the programme's
transmission for the content to be viewable. In addition, the
user is unable to alter the content being shown, as could happen
in an interactive audiovisual service such as a product demonstration
and ordering applet on a website or an interactive service on
digital television. Linking the non-linear definition to the technical
format of the content would help tighten the scope of the eventual
Directive and create a de facto sunset clause for the current
Directive as new media formats stay exempt from the Directive
and older regulated formats are rendered obsolete by the advance
of technology.
Q5b. Does the Proposal go far enough in facilitating
the free movement of broadcasting services?
The country of origin principle is key to ensuring
providers do not face 25 different legal frameworks when delivering
an audiovisual service across borders. The success of the original
TVWF was founded on this principle. It is vital for the continued
growth of European audiovisual services that free provision continues
to be ensured within the EU and that providers are guaranteed
this basic level of legal certainty. Many new media businesses
have also been established and developed on the legal certainty
and country of origin principle provided by the eCommerce Directive.
It will be important to keep this Directive as the main instrument
for providing such certainty in order to support continued investment
in this sector in Europe.
Q5c. What role should industry self-regulation
play in the new regulatory framework?
Self-regulation should continue to play a major
role in any new regulatory framework for online and mobile services.
Self-regulatory bodies already play a strong role in user protection
and can react quicker to specific issues than legislative responses.
An effective approach to this issue needs to harness the commercial
self-interest of service providers and empower service users.
ATVOD achieves this in the UK by allowing companies to publicise
their adherence to a set of objective standards, thereby allowing
potential customers to make informed decisions regarding their
choice of supplier.
The UK is rightly proud of the self and co-regulatory
systems we have in place, the result of much hard work between
industry and government. We would be very concerned if the proposed
Directive forced a complete overhaul of the well-established systems
in the UK. Yet the definitions of self and co-regulation provided
by the Inter-Institutional Agreement referenced by the Directive
in Recital 25 could reduce the flexibility required by self and
co-regulatory bodies to react and respond to technological developments.
We see no need for new and existing self and co-regulatory schemes
to have to be given a "green-light" by Brussels to operate—as
they have a purely national remit, it should be a matter for discussion
with relevant national authorities.
The proposed Directive also fails to recognise
the increased level of individual responsibility in the online
and mobile environment, and the value of media literacy as a tool
for up-skilling individuals, an area in which Ofcom has been making
significant progress. We strongly support the UK Government's
proposed amendments tabled in the European Council to incorporate
media literacy into the Directive. The responsibility of end-users
of a particular service in the online world needs to be more explicitly
recognised, as visiting a site requires an active choice on the
part of the user. Individuals are best equipped to judge what
is (and accordingly protect themselves from) harmful or offensive
content. [24]
Q5d. Should broadcasters be given greater
flexibility in respect of the commercial arrangement they enter
into for the financing of programmes?
The CBI supports the proposed deregulation of
advertising restrictions for the broadcast sector. As the internet
continues to transform the media sector and related consumption
patterns (particularly within the 16-24 year old age group) broadcasters
should be allowed more commercial flexibility to seek new ways
to achieve a return on investment in content production and distribution,
and in new revenue streams in place of declining advertising revenues.
European content producers and broadcasters have been at a disadvantage
in relation to their international competitors due to product
placement restrictions and we believe allowing this form of advertising
reflects the current commercial reality the broadcast sector now
faces.
Q5e. What controls should be imposed on non-linear
services in respect of illegal and harmful material, such as the
granting of a "right of reply"?
No reply.
Q5f. Do quotas continue to be an appropriate
mechanism for promoting the production of "European works"?
The CBI does not see quotas as an appropriate
mechanism for promoting the production of European works, particularly
for the non-linear world. As bandwidth increases and storage costs
decrease, individuals will be able to access the "long tail"[25]
of content—a far more diverse and extensive selection will
become available for consumers than on the distribution platforms
available today. In such a situation, we have difficulty envisaging
how regulatory methods might mandate the consumption of certain
types of content in an on-demand world nor how quotas might benefit
the end-user in a world of greater individual choice. The basic
question remains how do you determine and control content production
and distribution in an essentially on-demand environment?
11 October 2006
18 http://www.europarl.europa.eu/hearings/commission/2004_comm/pdf/speca_reding_en.pdf Back
19
Association of Online Publishers-http://www.ukaop.org.uk/cgi-bin/go.pl/research/article.html?uid=1039 Back
20
http://www.forbes.com/free_forbes/2006/1016/100a.html-"Video
Fixation" 1 October 2006. Back
21
See http://www.google.com/services/adsense_tour/ Back
22
"Assessing the Indirect Impacts of the EC Proposals for
Video Regulation" RAND Europe, 2006 p 6. Back
23
COM(2005) 646 p 10. Back
24
Ofcom 2006 Communications Market Review. Back
25
"See: http://en.wikipedia.org/wiki/Long_Tail and http://www.wired.com/wired/archive/12.10/tail.html Back
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