The legality of geo-blocking: could Sky’s recent commitments in the “Pay-TV” case impact European sports broadcasting?

Published 01 August 2019 By: Ciaran Fitzgerald-Morgan

Sports Streaming

On 7 March 2019 the European Commission (EC) accepted commitments1 offered by certain Hollywood studios (Studios)2 and Sky UK (Sky) not to block pay-TV access to films for consumers in the European Economic Area (EEA) located outside of the UK and Ireland, bringing to a close an antitrust investigation that had been running since 2014 (Pay-TV).

The EC's investigation in Pay-TV had focused on the impact of clauses (Blocking Clauses) requiring Sky to block access to the Studios' films through its online OTT pay-TV services (by "geo-blocking") and/or through its satellite pay-TV services to consumers outside its licensed territory (by "encryption"). The EC’s concern was that the Blocking Clauses amounted to "absolute territorial exclusivity" in breach of EU antitrust law.

While the Pay TV investigation concerned film licensing rather than sport, the EC’s approach and the binding commitments could have implications for sports property rights owners (SROs) and broadcasters as provisions similar to the Blocking Clauses are often adopted in their sports broadcasting agreements.

The implications of the decision are not however straightforward, and conclusions can only be reached by considering the nature of the broadcast technology adopted in each case, and complex areas of EU copyright, broadcast and antitrust law.

This article will consider:

  1. What geo-blocking is, and why it is of importance to the sports broadcasting industry;

  2. The Pay-TV investigation, and conclusions to be drawn from it in relation to the EC's stance on geo-blocking;

  3. The importance of the symbiotic relationship of EU antitrust law and copyright law in relation to geo-blocking;

  4. EU legislative reform and its impact on geo-blocking; and

  5. The landscape for SROs and OTT broadcasters in relation to geo-blocking going forward.

What is geo-blocking, and why is it important to sports broadcasting?

Firstly, there is a need to distinguish between "traditional" broadcasts made through satellite, terrestrial or cable means, and broadcasts made via "online transmissions"; i.e. those made over the internet,3 often referred to as "over the top" broadcasting (OTT).

Geo-blocking is technology that operates to restrict access to internet content based upon a consumer's geographical location. In the OTT sports broadcasting setting, it is the primary tool used by SROs and broadcasters to prevent consumers situated outside the licensed territory from accessing that exclusive licensed content (e.g. blocking a viewer in France purchasing a day pass on Sky's OTT offering Now TV in the UK in order to watch Premier League matches).

While traditional linear satellite broadcasting still dominates viewership habits and large-scale audiences in sport, the increasingly rapid and aggressive emergence of alternative delivery models offered by the likes of OTT specialists DAZN and Eleven Sports in streaming sport content OTT direct to consumers on tablets, smartphones and smart TVs threatens this model by providing better accessibility and flexibility to consumers and is widely anticipated to displace traditional satellite in the years to come. This means that, as "traditional" satellite broadcasters (such as Sky in the UK) roll out OTT offerings of their own to compliment satellite coverage, geo-blocking and its legal status is of increasing significance for SROs and broadcasters alike battling to protect the value of their rights.

Geo-blocking (and encryption - the equivalent blocking technology for satellite broadcasts) is paramount to SROs and broadcasters because territorial exclusivity is the primary model that the sale of media rights in sport is predicated on, and geo-blocking technology is critical in protecting this model. SROs have traditionally relied on granting exclusive rights in specific territories to generate large broadcasting revenues which are now commonplace and make up the majority of income for federations, associations and clubs in sport, particularly in European football.4 In football, each of those properties in the top 10 valued sports properties globally5 (being the Premier League, UEFA Champions League & Europa League (taken together), La Liga, Bundesliga and Ligue 1), successfully utilise this model. SROs' ability to continue to license rights to broadcasters exclusively on a territorial basis along jurisdictional lines is therefore critical to their business model, and to the continued growth of revenues that underpin the commercial beast that elite level sport has become.

Geo-blocking is therefore seen as indispensable in protecting the valuation of rights where OTT broadcasts are concerned. The valuation of any sports media rights is calculated on the actual and potential audience in the target territory for exclusive rights, and therefore any diminution in that audience through an ability to choose a different broadcaster licensed in a separate territory consequently eats into the revenues and competitive advantage of the licensed exclusive broadcaster. Because of this, the protection of territorial exclusivity is carefully built into rights contracts through geo-blocking and encryption clauses, whereby SROs require broadcasters to geo-block OTT broadcasts and encrypt satellite broadcasts, to effectively eliminate the ability of consumers outside the licensed territory to access the licensed content. This is typically coupled with an obligation on the broadcaster not to market or promote its programmes to persons outside the territory (i.e. a restriction on making 'active sales') which is necessary to maintain exclusivity as far as possible. As a result of this, these clauses are pervasive throughout the sports broadcasting industry.

What did Pay-TV concern?

Pay-TV was an antitrust investigation by the EC into clauses in film distribution agreements between several major European broadcasters and the Studios, which culminated in a statement of objections being sent to Sky and the Studios in July 2015 by the EC. Consistent with the way in which many sports broadcasting rights deals work in Europe, audiovisual content (in this case films) was licensed by the Studios on an exclusive and territorial basis to a single broadcaster in each EU member state (Member State).6

The issue was not this arrangement per se, but rather the Blocking Clauses in the distribution agreements which prevented any potential consumers outside the licensed territory viewing the films in response to an unsolicited request by that consumer – i.e. a restriction on what are known as "passive sales". The Blocking Clauses:

  1. required Sky to block access to the Studios' films through its online pay-TV services (using geo-blocking) and/or through its satellite pay-TV services to consumers outside its licensed territory (UK and Ireland) (using encryption); and

  1. required certain Studios to ensure that broadcasters outside the UK and Ireland were prevented from making their pay-TV services available in the UK and Ireland.7

The EC considered that the Blocking Clauses infringed EU antitrust laws, specifically Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the Agreement on the European Economic Area, which prohibit agreements and concerted practices which may affect trade and prevent or restrict competition. In particular the EC identified that the Blocking Clauses provided "absolute territorial exclusivity" to Sky and therefore would:

  • eliminate cross-border competition between pay-TV broadcasters; and

  • partition the EU's single market along national borders,

both of which run contrary to the EU's single market objectives. At first blush this is not terribly surprising as it is consistent with the long-standing rule of EU antitrust law that provides that clauses which restrict active sales to Member States outside a distributor’s exclusive territory are only permitted if passive sales to such Member States are not restricted. The Blocking Clauses in Pay-TV failed as they didn’t permit passive sales, and this follows a long line of cases. However, the previous cases related to traditional broadcasting rather than OTT and, although subtle, this distinction is significant.

The earlier cases include the commitments offered by and made binding on Paramount Pictures in 2016, which were challenged in a failed appeal to the European General Court (EGC) by Groupe Canal + in December 2018 (Canal+). In the EGC's Canal + judgment (upholding the EC's decision to make binding Paramount's commitments) it reiterated that while exclusive territorial licenses may be granted, any restriction on passive sales means absolute territorial exclusivity and is therefore an unjustifiable restriction of competition.

The granting of "absolute territorial exclusivity" through a contractual obligation to prevent passive sales had already been found in the Murphy case in 2011 to violate EU/EEA antitrust laws when considered in relation to encryption and satellite broadcasting.8 While contractual restrictions on active sales (or marketing) to consumers outside the licensed territory were confirmed as acceptable in Murphy, the European Court of Justice (ECJ) made clear that it was anticompetitive for a SRO (in this case the Premier League) to place an obligation on a broadcaster to prevent the sale and use of decryption devices (which facilitate access to the broadcast) outside the licensed territory in response to unsolicited requests from consumers. Clauses in sports broadcasting agreements are normally now suitably amended to take this into account, i.e. allowing passive sales. For OTT broadcast agreements, there is an argument (see below) that the position is and should be different. In offering commitments not to enforce geo-blocking clauses in Pay-TV, the Studios and Sky appear to have tacitly accepted the EC and EGC's assertion that the same legal principle holds true for geo-blocking and OTT broadcasting.

Commitments are not law. Nevertheless, while the EC's decision to accept the Studios' commitments does not mean a legal conclusion has been reached on whether EU antitrust rules have been infringed by geo-blocking (but rather legally binds the Studios to respect the commitments not to enforce geo-blocking clauses), the decision amounts to the conclusion of the Pay-TV investigation, given that any potential appeal could risk being dismissed on the same grounds as the dismissal in Canal + by the EGC.910

As such, and as noted by EU antitrust commentators such as Pablo Ibanez Colomo11, some onlookers may take the view that following the conclusion of Pay-TV all agreements, whether for traditional or OTT broadcast rights, including clauses equivalent to the Blocking Clauses are prima facie incompatible with EU antitrust law, potentially raising challenges for SROs and broadcasters in contracting on an exclusive, territorial basis in respect of OTT offerings. However, this cautious approach should be tempered by the EC's comments (in its press release accepting the commitments) that its findings should be limited to the context of Pay-TV:

"the concerns identified by the Commission regarding the studios' film licensing contracts for Pay TV are specific to this case. These licensing contracts' economic and legal context was essential for the Commission's assessment. That assessment can therefore not be extended to similar clauses that form part of a different economic and legal context."12

Therefore, in applying the EC's concerns in Pay-TV to sports OTT broadcasting, much will turn on whether the economic and legal context of sports OTT broadcasting is deemed to be different, or substantially similar to that in Pay-TV.

Whether or not this is the case, the EC's confirmation (also in its press release) that the unilateral use of geo-blocking by broadcasters (i.e. in the absence of contractual obligations) does not raise antitrust concerns is good news for those interested in preserving the status quo of exclusive territorial licensing. This is because (as will be discussed further below) at present any cross-border OTT broadcasting outside of the licensed territory in the EEA will (unlike traditional broadcasting) constitute copyright infringement. As such, even in the absence of contractual obligations, it is very likely broadcasters will continue to unilaterally geo-block OTT broadcasts until the law changes.13

The complex relationship of EU antitrust and copyright law in relation to OTT broadcasting

As stated above, given the position of the EC towards passive sales (restrictions on passive sales are typically qualified as anticompetitive restrictions incapable of any exemption under Article 101(3) TFEU – known as "hardcore" restrictions in EU antitrust parlance),14 the outcome of Pay-TV on geo-blocking is not surprising.

However, it has caused a degree of consternation among antitrust and intellectual property commentators,15 due to an inherent tension between EU antitrust and copyright law in the context of OTT broadcasting, alluded to above.

The reason for this is because, while the principles of antitrust laws can be applied consistently to both satellite and OTT broadcasting, the underlying EU copyright laws are different for each type of broadcasting.

The copyright arising in satellite and cable broadcasts in the EU is governed by the 1993 Satellite and Cable Directive (the Sat-Cab Directive), which applies the so-called "country of origin" principle to these traditional satellite and cable broadcasts. Under this principle, a communication to the public (i.e. a satellite or cable broadcast) is deemed only to be made in the Member State for which the broadcaster is licensed, even if a consumer is situated in and watching the broadcast from another Member State.16 The copyright in the broadcast is therefore automatically cleared across all Member States and no copyright infringement occurs. Any attempt to prevent cross-border access (such as in the form of an obligation to prevent passive sales as in Murphy) will therefore limit competition and infringe EU antitrust laws.

The position is different however in respect of OTT broadcasts. As OTT broadcasts fall outside the ambit of the Sat-Cab Directive and there is no harmonised EU law in respect of these broadcasts, the so-called "country of destination" principle applies, meaning copyright must be cleared in each country under national laws in which an OTT communication takes place. Therefore, if a broadcaster is licensed to broadcast a Premier League match in the UK by OTT means, and a consumer accesses this OTT content from another jurisdiction, this will constitute a copyright infringement. Because of this, antitrust commentators such as Pablo Ibanez Colomo, Alfonso Lamadrid and others have argued that, in the absence of any legislative framework permitting the copyright in OTT broadcasts to be accessed by consumers situated outside the licensed territory, there may legally be no antitrust infringement as there is no possibility of competition existing in absence of the agreement, as national copyright laws mean that cross-border broadcasts without permission from the copyright owner constitute a breach of copyright and would be unlawful.

This view is given some support by the EU's own comments in previous cases, as both the EGC and ECJ have emphasised the importance of considering the "counterfactual" of what would have taken place but for the agreement or practice in question, in the actual economic and legal context.1718 The question is whether competition would have otherwise have existed, but for the geo-blocking clause. This is because the fundamental tenet of applying Article 101 TFEU is to establish whether the object of the agreement in question - when considered in its economic context - is to restrict competition, and "Competition" means the competition which would exist in the absence of the agreement.1920

Therefore the legal question of whether competition would arise in the absence of geo-blocking clauses due to the current copyright restrictions applying to OTT broadcasts under the EU legislative regime still remains unclear from a purely legal standpoint (indeed, a number of EC decisions have been quashed by the EGC on similar grounds).21 Somewhat surprisingly the above arguments were not brought before the court by Canal + in its challenge to the Paramount commitments, and therefore the EGC did not comment on or consider this in its analysis in December 2018.

Although in Pay-TV the EC and EGC applied the principles established in Murphy (which concerned satellite broadcasting) regarding passive sales and absolute territorial exclusivity to the context of OTT broadcasting, it is clear that Murphy and Pay-TV are fundamentally distinguished along satellite vs OTT grounds. This means that in the wake of Pay-TV the ultimate legality of the contractual enforcement of geo-blocking is arguably no less opaque, particularly as the EGC Canal + ruling has also not been challenged before the ECJ, so consequently we lack the thoughts of the highest European court on this matter. In addition, in practical terms, the EU copyright regime in respect of OTT broadcasts being as it is means that broadcasters will have a considerable incentive to continue unilaterally imposing geo-blocking mechanisms in respect of their licensed content, so as not to infringe copyright.

How has the EU's legislative reform impacted geo-blocking?

While the EC has challenged the use of geo-blocking from an antitrust perspective through investigations such as Pay-TV, its efforts at promoting cross-border OTT broadcasting as part of its Digital Single Market initiative through legislation have been limited in respect of sports broadcasting.

In an attempt to modernise the 1993 Sat-Cab Directive and bring the copyright licensing rules for internet broadcasting into line with satellite and cable broadcasting, the European Council adopted the Directive on Television and Radio Programmes in April 2019 ("Sat-Cab 2").22 This implements the country of origin principle (facilitating the clearance of copyright and related rights throughout the EU) for certain internet (OTT) broadcasts, but has been limited to cover a very small selection of online content – which expressly excludes sport.23 Article 3 stipulates that it “shall not apply to the broadcasts of sports events and works and other protected subject matter included in them”.24 25 Additionally, Article 3(3) provides that the "country of origin principle shall pertain without prejudice to the contractual freedom of the rightsholders and broadcasting organisations to agree, in compliance with Union law, to limit the exploitation of such rights."26 27

Added to this, there is a further primary legislative instrument directly aimed at ending geo-blocking itself - the Geo-blocking Regulation. However this only covers access to online interfaces and access to goods and services, excluding access to audiovisual works.28 The Geo-blocking Regulation therefore fails to provide additional support to the EU's attempts to facilitate cross-border OTT broadcasts.29 This regulation is however due to be reviewed in 2020, when it is thought that the inclusion of audiovisual services will be revisited (although it remains to be seen whether sport will be excluded from this as with Sat-Cab 2).

So, what can we make of the landscape for SROs and OTT broadcasters in relation to geo-blocking going forward?

The legislative program of the EU in promoting a Digital Single Market, as discussed above, appears to have carved-out OTT sport broadcasting for now. And while the EC and EGC's willingness to meet certain instances of geo-blocking with the full force of EU antitrust law is clear from Pay-TV, the legal question as to whether a cross-border sport OTT broadcast constituting passive sales (that infringes copyright and is therefore unlawful) amounts to “Competition” within the meaning of Article 101(1) TFEU is still far from resolved in the absence of EU copyright reform covering sport OTT broadcasting.30

As Margrethe Vestager (Commissioner for Competition of the EC) has conceded, ultimately the policy objectives of the EC in relation to ensuring OTT broadcasts can be consumed across borders are unlikely to be achieved simply through the enforcement of EU antitrust law alone.31 In respect of sport broadcasting, this requires the country of origin principle to be extended to sport OTT broadcasts in order to harmonise EU national copyright laws in this area, and until this occurs, geo-blocking "bans" in relation to sport may fail to stand up to judicial scrutiny at the ECJ level.

In the short-to-medium term then, it looks like the status quo of doing business in sport broadcasting agreements is set to prevail as far as geo-blocking is concerned, at least until EU copyright reform catches up with the Digital Single Market ambitions of the EC.

Tail wagging the dog?

Ultimately, changes in law are less likely to drive changes in contracting as are strategies designed to create optimum competitive tension between bidders for rights and deliver overall increase in global revenue across rights cycles; however, fundamental changes to the ways SROs protect the value of these rights such as the removal of geo-blocking provisions from sports broadcasting agreements would certainly complicate the process and strategy for SROs in the battle to protect and grow revenues for their properties.

It is also important not to overstate the impact of investigations such as Pay-TV on robust and long-standing sport broadcasting contracting practices, especially as its economic and legal context concerned film licensing rather than sport. While the judgment in Murphy (a case directly focused on sport broadcasting) was deemed at the time by some to be a radical turning point in how sport broadcasting agreements would be negotiated in the EU, the death of exclusive territorial selling did not materialise in the years following it, with contractual work-arounds established. The same may prove the case for geo-blocking, particularly as the commitments accepted by the EC in Pay-TV do not constitute law. However, the practical ease with which one can access OTT broadcasts as opposed to satellite broadcasts in the absence of technology preventing it may mean any clear decision or law banning passive sales of OTT broadcasts in the EU could be more impactful. All that is required is to visit the website or log into the app of the desired OTT broadcaster and to subscribe, whereas for a satellite broadcast a physical decryption device is required to be physically purchased, delivered and then set up.

Set against this backdrop, the ongoing EU legislative program around copyright and geo-blocking such as the 2020 review of the Geo-blocking Regulation and any amendments to Sat-Cab 2 will be worth monitoring closely for those in the media and sports industries.

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Author

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Ciaran Fitzgerald-Morgan

Lawyer, T.E.A.M. Marketing AG

Ciaran is a football media rights lawyer at T.E.A.M. Marketing AG, an international sports marketing agency.

T.E.A.M. Marketing is UEFA’s exclusive marketing agency for the exploitation of certain media and commercial rights relating to UEFA’s club competitions including the UEFA Champions League, UEFA Europa League and UEFA Super Cup.

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