Pay-TV investigation: European Commission makes commitments binding on Paramount

On 26 July 2016, the European Commission announced that it has accepted the commitments offered by Paramount to address its concerns in respect of clauses in film licensing agreements with Sky UK.

The Commission’s investigation

Since 2012, the Commission has been investigating whether certain clauses in film licensing agreements between Sky UK and the ‘Big Six’ major Hollywood film studios infringe EU competition law. More specifically, the Commission is concerned that the agreements:

• prevented Sky UK from making film content available through its online and satellite pay-TV services to consumers in other EU countries outside the UK and Ireland (its licensed territories); and
• required the film studios to ensure that other broadcasters were prevented from making their pay-TV services available to consumers in the UK and Ireland in competition with Sky UK.

The Commission sent its Statement of Objections to Sky UK and the film studios in July 2015, and it was subsequently announced on 22 April 2016 that Paramount had proposed commitments in an attempt to settle the Commission’s investigation (read more here).

Paramount’s commitments made legally binding

The Commission has now confirmed that, following its market testing, it has accepted Paramount’s proposed commitments, subject to a few minor amendments. The Commission considers that the commitments proposed address its concerns.

The following commitments are therefore now legally binding on Paramount throughout the EEA for a period of 5 years:

• when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount will not (re)introduce contractual obligations, which prevent or limit a broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the broadcaster’s licensed territory (no new “Broadcaster Obligation”);
• when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount will not (re)introduce contractual obligations, which require it to prohibit or limit broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (no new “Paramount Obligation”); 
• Paramount will not seek to bring an action before a court or tribunal for the violation of a Broadcaster Obligation in an existing licensing agreement; and 
• Paramount will not act upon or enforce a Paramount Obligation in an existing licensing agreement.

The commitments cover both standard pay-TV and subscription video-on-demand services, whether provided online or broadcast via satellite.

The commitments include a clause ensuring that they cannot be circumvented by act or omission. A monitoring trustee has also been appointed to ensure Paramount’s ongoing compliance, and to whom Paramount must report annually confirming its compliance.

What happens now?

Having accepted the commitments and made them legally binding on Paramount, the Commission’s proceedings against Paramount will be closed and no further against will be taken against it in relation to the Pay-TV investigation.

While the commitments are binding for a period of 5 years, there is a review clause, such that Paramount can request that the Commission reopens the proceedings with a view to modifying the commitments. The review clause may be invoked if there has been a material change in facts or circumstances on which the Commission’s decision has been based.
Impact on the Commission’s investigation into other studios?

These commitments have no direct bearing on the Commission’s investigations into the other film studios’ agreements with Sky UK and/or other EEA broadcasters. So far as is publicly known, no other studios have come forward to propose commitments to the Commission. There are a number of possible explanations for this. For example, they may not consider that the Commission has a strong case for proceeding to an infringement finding, or they may be waiting to see whether Paramount’s commitments are well received.

As the Commission’s investigation is still on-going, it remains to be seen whether any other studios come forward with proposed commitments or whether the Commission will proceed to infringement finding and perhaps impose a fine on the companies involved. If the latter, this would be yet another formal indication of the Commission’s disapproval of geo-blocking agreements, following its proposal to ban geo-blocking of websites in a business-to-consumer environment under the Digital Single Market strategy (see more here).