Major Hollywood movie studios face European antitrust allegations

People pass the main gate to Paramount Pictures on Melrose Avenue in Los Angeles.

July 23, 2015 5:46 PM PT

A British vacationer on a French holiday may have visions of watching his favorite soccer team or the latest episode of “Game of Thrones” on an iPad from the sun-drenched beaches of Nice.

But he can’t. And the European Commission wants to do something about that.

In a legal salvo that aims to remove barriers to the consumption of digital content across the continent, EU regulators on Thursday opened an antitrust case against six major Hollywood movie studios and British pay-TV provider Sky UK, alleging the companies have illegally blocked consumers in most of Europe from watching U.S. movies, TV shows and other content.

The studios — Walt Disney Co., NBCUniversal, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox and Warner Bros. — each face fines of as much as 10% of annual revenues for allegedly entering into improper licensing agreements with Sky UK.

Those contracts prohibit viewers who travel outside Britain and Ireland from accessing Sky UK’s programming via satellite or the Internet.

“European consumers want to watch the pay-TV channels of their choice regardless of where they live or travel in the EU,” Margrethe Vestager, the EU’s commissioner in charge of competition policy, said in a statement.

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Regulators contend the licensing agreements, which require Sky UK to block access to movies and other studio content outside its licensing territory, violate competition rules. The European Commission, the region’s executive arm, sent a so-called statement of objections Thursday to the seven companies. The statement formally launches an antitrust case and comes after an investigation that began in January 2014 following a lawsuit over the availability of soccer broadcasts.

Hollywood studios are expected to fight the case.

Burbank-based Disney, the world’s largest entertainment firm, said in a statement that it would “oppose the proposed action vigorously.”

“Our approach is one that supports local creative industries, local digital and broadcast partners and most importantly consumers in every country across the EU,” a Disney spokesperson said in a statement. “The impact of the commission’s analysis is destructive of consumer value.”

The commission’s case probably will reverberate across Europe, where the pay-TV industry has evolved along national lines. Some governments have tight restrictions designed to limit the number of American television dramas and movies that play on TV screens throughout the day. Broadcasters are required to run programming created by local production houses — a show of support for the home economy.

“There will be all sorts of political pressure because national leaders tend to protect their national economies and national identities,” said Claudio Aspesi, a London-based senior research analyst for European media at Sanford C. Bernstein. “The fear will be that, over time, there will be more U.S. content across Europe.”

Still, Hollywood has a financial incentive to fight the EU’s plan to remove borders. The major studios combined reap hundreds of millions of dollars a year selling the same dramas, reality shows and movies to numerous foreign broadcasters. Those distributors pay a premium to have access to high-quality U.S.-made hits such as “The Simpsons,” “Hawaii Five-0” and “Blacklist,” giving them a competitive advantage.

“In every national market, the studios can hope to have multiple bidders for their content,” Aspesi said.

But if the system were to evolve so that there were only a handful of big satellite TV companies, those distributors could gain leverage over the studios in negotiating rights fees. “The studios probably fear that, over time, Sky might become the only bidder at a time when they would like to see more competition across the pay-TV platform,” Aspesi said.

Sky UK, which is partly owned by Rupert Murdoch’s 21st Century Fox, said it had received the commission’s statement and would “respond in due course.”

Prohibiting consumers from viewing content outside of their home country is not uncommon. It’s a tactic known as geo-blocking, and has long been used by distribution companies.

U.S. consumers traveling abroad experience the same blocking. Subscribers of Netflix in the U.S., for example, are unable to access the service in countries such as Spain where it is not offered.

Peter Sealey, a consultant and former marketing and distribution executive for Columbia Pictures, said the studios’ decades-old practice of licensing movies and TV programs in Europe will be turned on its head if the commission has its way.

Studios benefit from cutting separate deals in each country because their shows and movies can fetch different prices depending on the nation’s language and other factors.

“You have to license country by country and language by language,” Sealey said. “It destroys the model if you insist on some contrived matrix to try to make everything available everywhere.”

Meanwhile, Europe remains an important market for American studios and TV producers. “It’s a high-price market,” he said. “They have a lot of economic power and they’re willing to pay for content.”

But save for Disney, the other five studios offered muted responses — or none at all. Both Warner Bros. and NBCUniversal said they were cooperating with the investigation. Sony, Paramount and 20th Century Fox declined to comment.

The investigation looked at agreements between the U.S. studios and the largest European pay-TV providers, including Canal-Plus in France, DTS in Spain, Sky Italia in Italy and Sky Deutschland in Germany. The commission said it is continuing to examine access to TV services in those countries.

The commission also said it would propose changes to EU copyright rules to improve access to online content. Copyright licensing agreements often stipulate that content cannot be viewed out of its intended market.

The studios are not the only U.S.-based businesses in the crosshairs of European regulators. In another antitrust case, the commission in April accused Google of unfairly exploiting its clout in the search market to favor its own comparison-shopping services over those run by competitors. Also this year, the regulatory body has opened separate reviews of Amazon.com and Apple’s business practices.

Times staff writer Jim Puzzanghera contributed to this report.

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