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The proposed AVMSD: an unravelling of the Digital Single Market

Imagine a directive which had resulted in a massive growth in cross-border services in the EU; which had delivered an explosion of choice for European citizens; and which a consultation had found to be widely supported by regulators and other stakeholders.

You might think the Commission would regard this as a triumph of the single market, to be nurtured – but you would be wrong.

The regulation in question is the AudioVisual Media Services Directive (the AVMSD), and in particular its ‘country of origin’ (COO) principle. COO says that providers of video services (broadcasters, or VOD – video on demand providers) operating in the European Union are only regulated by the Member State in which they are based.

The Commission is now proposing to move away from this simple and effective principle, by allowing the country of destination (the COD) to also regulate cross border services. In particular, CODs would be allowed to raise levies on VOD providers (though not on broadcasters). Further, the Commission is proposing to take this step, despite not having consulted on this option.

And what is the rationale for this change to a system that is already working well? The ‘level playing field’ – the idea that traditional broadcasters are unfairly disadvantaged versus the VOD providers.

However, there is certainly no general requirement that competing services be subject to the same regulation.  Think about short-haul flights and railways for instance – trains are not required to have life-jackets under their seats.

In our new study (commissioned by CCIA), we argue that the level playing field argument is particularly weak in the context of AVMS.

Firstly, it ignores the many regulatory advantages that major broadcasters have over VOD providers, such as free access to spectrum, prominence in programme guides, priority rights to broadcast certain sporting events and so on – if broadcasters were truly interested in a level playing field, they’d be asking for these benefits to be extended to VOD providers. The balance of advantages must be assessed holistically, not simply by looking at one single regulation in isolation.

Secondly, the level playing field argument assumes that VOD has major impact on traditional TV. However:

  • VOD providers capture a small share of viewing (perhaps 4% in markets where it is thriving) and an even smaller share of advertising;
  • Satellite and cable operators describe VOD services as complementary rather than competitive; and
  • VOD does not do particularly well in the markets where the burdens on domestic broadcasters are highest (e.g., France).

The limited impact of VOD on broadcasters suggests they’re not materially competing on the same field, level or otherwise.

Thirdly, it is perverse to appeal to the ‘level playing field’ to argue for a regulation (levies in both the COO and COD) which would only apply to VOD providers, not broadcasters.

If it was just that the change to COD was poorly justified but harmless, there might be less reason to worry. But in practice it is likely to do all sorts of damage.

Firstly it will be challenging to implement, setting up some ugly fights between member states (MS) as to who gets to raise levies on which revenues. If a Belgian consumer buys a French VOD service but is streaming in Amsterdam and is therefore shown a Dutch ad, which MS gets credit for the revenue?

Secondly, the proposed directive says that the COO must ‘take account of’ the levies imposed by the COD. This is alarmingly vague. If one of the CODs for a particular service chooses to impose a burdensome levy, does this mean the COO is not allowed to impose any levy at all? Again, this is unlikely to encourage harmony between MS regulators.

Thirdly, the COO principle acts as a break on overly aggressive levies. If need be, operators can move away from punitive rates. However, the addition of COD levies changes this, and countries will be much more tempted to impose heavy levies. This in turn is likely to lead to higher prices, and/or discourage entry into certain markets.

Fourthly, the burdens for new European VOD operators will be disproportionately heavy. They will need to comply with a plethora of local reporting requirements from different MS within their home market, and levies (if too heavy) may shrink that market for them. Already-large international players will be far better placed to deal with such challenges.

In summary, the success of the AVMSD is largely built on the core principle of COO, and yet the European Commission is proposing to undermine this with ill-founded and ill-advised changes. The Commission is about to paint a moustache on the Mona Lisa.

Robert Kenny is a media and telecommunications consultant, and a member of Communications Chambers. He has more than twenty years of senior experience in these industries, and has advised media companies, regulators and trade associations across Europe, the US, Asia and Australasia. Previously he was Director of Corporate Strategy and Development for Hongkong Telecom. Tim Suter is a media consultant, with thirty years of experience in programme making in the BBC, policy leadership in the UK Government and regulatory delivery as Ofcom’s founding Partner responsible for Content and Standards.


Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.