A day at the races - the e-commerce sector inquiry, a conference report


On Thursday, 6 October, the European Commission presented its preliminary findings of the e-commerce sector inquiry (Preliminary Report) to a large audience of interested stakeholders, followed by debates on the three main topics - the online distribution of digital content, the online distribution of goods, and the outlook for law enforcement in this area.

In her welcoming speech, Commissioner Vestager re-emphasized her view that one of the main benefits of e-commerce is that the consumer is and should remain in control by ensuring a certain level of transparency online. She also noted that the e-commerce sector inquiry served as an impetus for businesses to check that their distribution agreements were in order. In a comprehensive summary of the preliminary findings presented by Thomas Kramler, Head of the Digital Single Market (DSM) Task Force, he noted that currently only 15% of all online-customers shop cross-border. The Commission is adamant that this percentage should be expanded further under the DSM.

Most of the discussions dealt with the most novel and complex issue, the online distribution of digital content, which is still largely unchartered territory for the Commission and DG Competition. In this context, the Commission revealed a new area of interest which had not been discussed in its Preliminary Report, known as 'windowing' where digital content is distributed on an exclusive basis for an initial period then released more broadly after the original broadcasting.

  • As the lively panel discussion revealed, there exists a tension between the Commission's push for a pan-European Single Market with cross-border licensing on the one hand, and rights holders together with broadcasters on the other. The Preliminary Report suggests that territorial restrictions are primarily driven by the right holders' attempt to maximize revenue. Whereas both right holders and broadcasters, question whether or to what extent a pan-European system would be a suitable model for broadcasters, rights holders and consumers alike. Richard Burnley Director of Legal Affairs at the European Broadcasting Union highlighted the fact that broadcasters still typically operate in one or few countries, and are not necessarily interested in pan-European rights which are not suitable for the interests of their respective audience. This is especially the case for public broadcasters that have a legal duty to broadcast national content in their country and who do not have contracts with consumers directly as it is the case in for pay-tv. Also, smaller broadcasters may be driven out of the market if capital intensive pan-European licensing rights became the norm. 
  • Seong Sin Han, UEFA's Head of Marketing Legal Services, further emphasized that national licensing is beneficial not only to right holders and broadcasters, but also to the consumer, as it helps to develop an offering that is tailored to local needs and preferences. Sport in particular tends to be national and "tribal" by nature, and an enthusiastic German soccer fan may not have a real interest in watching football matches of the 3rd league in Greece with comments in the Greek language. While some demand for cross-border football exists, it is the exception rather than the rule. Further, there is an intrinsic "live" element in sports content, and there is only so much a customer can watch at one given time. Pan European licensing would also create additional technological challenges for instance on the production side in order to maintain signal quality. Speaking for UEFA, Han said that bidders in public UEFA tenders are free to pitch for whatever is of interest to them, but most ask for exclusivity and limited territorial scope. Richard Burnley, further commented that broadcasters tend to buy content country-by-country, as culture remains national. Ice hockey is big in Finland, but less popular in Italy. 
  • Spotify is an online provider of music that preserves the artists' rights in a world often characterised by piracy, says Horacio Gutierrez, General Counsel of Spotify. Finding an agreement with right holders has actually been key to Spotify's success. Roughly 70% of all Spotify revenues go directly back to right holders, which helped reverse years of severe decline in revenues for the music industry. In Horacio's view, the fragmented structure of music licensing deals combined with their "razor-thin margins" is quite a daunting challenge, as there are different types of rights for different categories of right holders in different countries. Spotify's strategy has been to retain some of the world's best copyright experts to master the diversity and maintain a consistent catalogue offering across countries. As a matter of fact, 99% of the content is identical, including for free users. Horacio submitted that creating a requirement of pan-European licensing, may be a circular solution as under this licensing regime, any attempt to impose a local blocking right would inevitably have pan-European effects. 
  • Ursula Pacht, the Deputy Director General for the European Consumer Organisation (BEUC's), presented arguments on behalf of the consumers' view. In her experience, there are millions of consumers with cross-border appetite, both in small and bigger countries. By way of example, 70% of German consumers want to have access to cross-border services and content. In her view, it is not the price difference that drives customers abroad or even to pirates, it is the availability of content. "I have the impression that the industry is shooting themselves in the foot", she said, as territoriality pushes consumers towards pirates and deprives the industry of legitimate revenues". "Absolute territoriality is an absolute red banner", says Pacht, adding that "it is against competition and against the law." In her view, the demand goes far beyond the fact pattern at the basis of the European Court of Justice's geo-blocking case. While she believes in competition law enforcement as a very powerful tool to ban restrictions on passive sales, its case-by-case and ex post aspects make it ineffective. BEUC therefore welcomes the Commission's legislative proposal on geo-blocking, but deplores that audio-visual services are exempted from it.

The presidents of various national competition authorities (NCA) discussed developments in competition law enforcement and e-commerce. It was particularly noteworthy that Andreas Mundt, President of the German Federal Cartel Office (FCO) stated that in order to increase clarity on these issues, in his view more cases were required rather than more sector inquiry type research. However, he welcomed the Preliminary Report as a means to establish a level playing field throughout the NCAs of the European Competition Network. He concluded that one of the main challenges for NCAs going forward would be to find the right balance between undertakings' legitimate interests in protecting their brand, encouraging innovation and giving the consumer transparency and control online. In contrast to the developments in Germany, Chris Fonteijn the Chairman of the Dutch Competition Authority expressed his surprise at the lack of complaints made with regards to vertical restrictions in his jurisdiction and noted that his concerns focus more on drip pricing and a lack of transparency with online sales but that he does not consider marketplace bans to be automatically hard core restrictions.

The Commission's position is now clear, but it is far from certain whether it will have the determination to walk the stony path to pan-European licensing, given the arguments put forward by various important stakeholders. We will see the outcome in the Final Report, but any actions to influence the outcome should be taken by interested stakeholders now.