The European Commission has eliminated one of the key stumbling blocks to create a Europe-wide content major, by identifying and eliminating key language from the contracts of one of the top US studios, Paramount.
The move has been seen as a disaster in Hollywood, because it will force far-reaching changes to content marketing globally, but seen as a stake in the ground in Europe. The likely unexpected consequences will be that more content deals will be cut in each European territory, potentially at a lower price, as US studios attempt to make this a zero sum game – and that could pave the way for another wave of OTT video startups, all licensing major studio content in parallel.
Hollywood has long been of the opinion that it can get more money for licensing its movies exclusively in each territory, rather than licensing multiple pay TV operators in each territory, because they can tie viewing top content to buying a full pay TV subscription.
Effectively the European Commission asked to look at contracts between Paramount and Sky in the UK, called for concessions from Paramount, and has now enacted these as law under EU Antitrust rules.
The complex world of regionalizing content licensing exclusively has prevented Sky in the UK from using its contracts with Paramount and others, to distribute movies in all of its territories such as Germany and Italy, or use them to break into new territories. Similarly, Paramount has not been able to license more content into the UK. The EU realizes that this long term exclusivity, sometimes 18 months long or longer, leads to EU Citizens paying a lot more for movies, because they have to subscribe to a particular pay TV service in order to see them, often at $150 for each subscription per month.
But it has also meant that new operations from existing pay TV operators, such as Now TV from Sky in the UK, have frozen out start up activity, because they are the only ones with premium movie content.
Now companies like Paramount will eventually get a lot less for each viewing, but get a lot more movies viewed, and viewed earlier, and will have to adapt its pricing accordingly. If Paramount now licenses Canal+ in France and Sky in the UK, both operators will be able to distribute online in each other’s territories. The European Commission for the past 4 years has been talking about using this rule change to create Europe-wide operators big enough to spread their wings and defend their European turf against Chinese and the US companies.
As the deal has been done, representatives from most of Hollywood have been summoned to the European Commission to hear the new rules and revise their strategies accordingly.
One of the big worries was that this had to change now, urgently, ahead of widespread OTT services, which would redefine the European shape of TV services.
Paramount has promised that it will not put the same clauses in newer contracts and will not enforce these clauses within existing licenses in Europe.
The European Commission started off this campaign with a Statement of Objections sent to Paramount in July last year when it discovered that Sky UK was required to geo block access to Paramount films online and also in return required Paramount to make sure broadcasters outside the UK who had the same content, could not send content to the UK. It also sent the same objection to other US studios, including Disney, NBCUniversal, Sony, Twentieth Century Fox and Warner Brothers.
This has, among other things, prevented UK ex-patriots from watching Sky in other countries, and created an illegal tier of customers who feel the need to hijack those channels to get TV from back home. It appears that the ability to provide services overseas only applies to online services, but it actually includes the idea of signing exclusive licenses for broadcast as well. A Monitoring Trustee will be put in place, operating internally, to ensure that Paramount does not disobey the ruling.
In April, Paramount offered commitments to address these concerns and the European Commission consulted market participants and has now made them legal, applying throughout the European Union for the next five years.
Sky UK may have paid premium rates for exclusivity, but will have to wait until a renegotiation anniversary arrives, before pointing out it is not getting quite so much for its money. There should be a queue at the door of Paramount to sign new licenses from other content providers. However, if there are most favored nation clauses in these contracts too, that would suggest that the going rate has to be maintained until Sky renegotiates contracts, so nothing may change at first.
Most Hollywood movie studios will hate this. In the past the easy way to dominate Europe is through territoriality and they will each have to re-think their strategy. At Faultline we see this as similar to the way piracy affected the music industry – everyone wanted to own 10,000 tracks but could never afford it by buying albums. Once tracks became the currency of music, people paid less, but owned a lot more. In online streaming terms this should make it easier to get a particular program consumers want and from more than one source, making it price competitive. That’s more customers for each piece of content, but at a lower value per stream.