Confidential Extension of the Television Without Frontiers Directive An Impact Assessment Final report for Ofcom Indepen, Ovum and fathom September 2005 Indepen Diespeker Wharf 38 Graham Street London N1 8JX Telephone +44 (0) 20 7324 1800 Facsimile +44 (0) 20 7253 4949 http://www.indepen.co.uk Confidential CONTENTS 1 Introduction and Summary................................................................................................ 3 1.1 Scope of the study........................................................................................................ 3 1.2 Background................................................................................................................... 3 1.3 Approach to the impact assessment ............................................................................ 4 1.4 Summary of findings..................................................................................................... 6 1.5 Assessing the costs and benefits of the extension....................................................... 9 1.6 Overall Conclusion ..................................................................................................... 12 1.7 Report structure.......................................................................................................... 13 2 Developments in the Audiovisual Sector ........................................................................ 15 2.1 Traditional TV broadcast sector.................................................................................. 15 2.2 Radio .......................................................................................................................... 19 2.3 Broadband IP networks and services......................................................................... 20 2.4 Mobile networks and services .................................................................................... 23 2.5 Advertising.................................................................................................................. 26 2.6 Implications................................................................................................................. 29 3 Regulatory Scenarios...................................................................................................... 32 3.1 Introduction................................................................................................................. 32 3.2 How might the TVWF Directive be extended? ........................................................... 32 3.3 Which AVC services would be covered by the extension? ........................................ 35 3.4 Where might the extension constrain commercial development?.............................. 36 4 Baseline Market Scenario............................................................................................... 40 4.1 Introduction................................................................................................................. 40 4.2 Pay TV Services over an IPTV platform..................................................................... 42 4.3 Video on demand over IPTV Platforms ...................................................................... 43 4.4 Video streaming over the Internet .............................................................................. 44 4.5 Video downloads over the Internet............................................................................. 44 4.6 Audio streaming services ........................................................................................... 45 4.7 Audio download services............................................................................................ 46 4.8 Mobile cellular TV streaming services........................................................................ 47 © Indepen, 2005 1 Confidential 4.9 Mobile cellular TV downloads..................................................................................... 47 4.10 Mobile TV network broadcasts............................................................................... 48 4.11 Mobile TV network downloads ............................................................................... 49 4.12 Traditional TV......................................................................................................... 50 4.13 Radio ...................................................................................................................... 50 4.14 Mobile visual radio ................................................................................................. 51 4.15 Summary................................................................................................................ 52 5 The Impact of Extending the TVWF Directive................................................................. 55 5.1 The impact on advertising revenues .......................................................................... 55 5.2 Comparison with USA and Japan .............................................................................. 58 5.3 The likely benefits of an extension ............................................................................. 59 5.4 The likely costs of an extension ................................................................................. 65 5.5 Summary .................................................................................................................... 75 Annex A Categorising AVC Services for Regulatory Purposes .............................................. 77 © Indepen, 2005 2 Confidential 1 Introduction and Summary 1.1 Scope of the study The recent communication on the i2010 strategic framework1 recognises the need for an integrated approach to information society and audiovisual media policies in the EU and refers to the need for a consistent set of rules to govern all audio visual content (AVC) services. One way to do this is to extend the rules of the Television Without Frontiers (TVWF) Directive, which currently apply to broadcast TV services, to all AVC services – either wholly or in part. This document is the Final Report for a study which provides a top down impact assessment of such an extension . The precise nature of any extension of the Directive is not known, but for the purposes of this report we have assumed that the revised Directive could cover new areas, including radio and audiovisual content (AVC) delivered over the internet and mobile services. The objective of the project is to inform the debate on any extension of the Directive. To assess the impact of an extension of the Directive we need to compare future situations with and without an extension. In practice, it will take several years for changes to the Directive to be implemented. However, we expect that the changes will be anticipated by businesses and so could change behaviour from 2006 on. We therefore assume that any changes to the Directive apply from 2006 on2 and we project impacts for the period to 2010. While, in principle, the analysis should be undertaken over a longer time period market uncertainties make projections beyond 2010 highly debatable. The analysis focuses on the four largest economies in Europe, France, Germany, Italy and the UK and, as an example of a smaller country, Sweden. We also contrast the regulatory situation in the EU with that in the US and Japan. 1.2 Background The TVWF Directive provides the legal framework for television broadcasting within the European Union (EU). It is intended to promote freedom of transmission in broadcasting by setting down minimum rules for the regulation of the content of television broadcasts by Member States. The rules are also intended to ensure that the interests of television viewers are fully and properly protected and to promote European and independent production. EU law distinguishes between “television broadcasting services” subject to the TVWF Directive, and “information society services”, subject to the e-commerce Directive.3 The TVWF Directive applies only to television broadcasting services. The TVWF Directive was last amended in 1997. In May 2002, the Culture and Audiovisual Affairs Council decided that the TVWF Directive should undergo an in-depth review, and this 1 Commission of the European Communities, i2010-A European Information Society for growth and employment, COM(2005) 229, 31 May 2005 2 The Commission plans to propose a revision to the TVWF Directive by the end of 2005. “i2010 – A European Information Society for growth and employment”, COM(2005) 229 final, 31 May 2005. 3 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 © Indepen, 2005 3 Confidential was followed in 2003 by series of discussion papers and public hearings. 4 In response to the consultation process, the Commission published a Communication on the subject.5 The Communication proposed a two-step approach to reviewing the Directive. In the short term, the Commission undertook to provide more clarity on the application of the Directive to new advertising techniques, which was achieved with the publication of the ‘Interpretative Communication on certain Aspects of the Provisions on Televised Advertising’.6 In the medium term, while noting that no information society service had reached the importance and impact of television broadcasting services, the Commission nevertheless considered that a thorough revision of the Directive might be necessary to take account of technological developments and changes in the audiovisual market.7 The key question in the