On 6 May 2015, the European Commission decided on the basis of European Union competition rules to launch a sector inquiry into the electronic commerce of consumer goods and digital content in the EU (“sector inquiry”) as part of its Digital Single Market strategy (1,2,3) adopted on the same day.
The e-commerce sector inquiry aims at obtaining an overview of the prevailing market trends, gathering evidence on potential barriers to competition linked to the growth of e-commerce and understanding the prevalence of certain, potentially restrictive, business practices and the underlying rationale for their use.
One of the key determinants of competition in digital content markets is the availability of licences from the holders of the copyrights in the content. The availability of rights for online transmission is largely determined by the scope of rights as defined in the licensing agreements. Licensing agreements between sellers of rights, i.e. right holders, and buyers of rights, i.e. digital content providers use complex definitions to precisely define the scope of rights.
Different rights are distinguished in licensing agreements, in particular in terms of technological, temporal and territorial scope. Contractual restrictions with respect to the licensed rights are widespread and indeed the norm. Exclusivity is widely used in relation to the licensed rights since access to exclusive content increases the attractiveness of the offer of digital content providers.
About 70 % of respondent digital content providers restrict access to their digital content for users from other Member States. However there are relatively large differences in the extent to which geo-blocking is used both between different types of business models and between Member States. Geo-blocking mostly results from contractual restrictions in agreements between digital content providers and right holders.
Almost 60 % of respondent digital content providers are contractually required by right holders to geo-block. Geo-blocking is most prevalent in agreements for films, sports and TV series. Licensing agreements enable right holders to monitor content providers’ use of geo-blocking measures or compliance with territorial restrictions and to impose sanctions and ask for compensation if such measures or territorial restrictions are not complied with.
A substantial number of licensing agreements are concluded for rather long durations or include clauses that facilitate prolongation of the agreements.
The preliminary results of the sector inquiry raise the question whether some of the current licensing practices may make it more difficult for new online business models and services to emerge and for new or smaller players to enter the market or expand their activities into other markets, in particular cross-border due to geo-blocking requirements. This may be particularly true when online rights are sold exclusively on a per Member State basis or bundled with rights in other transmission technologies and then remain unused.
The Commission will therefore assess on a case-by-case basis, having regard to the characteristics of the specific product and geographic markets, whether certain licensing practices restrict competition and whether enforcement of the EU competition rules by the Commission is necessary in order to ensure effective competition.