Europe's Digital Single Market: Goldmine or Minefield?

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The European Commission wants to introduce rules that will result in all European citizens being able to buy online services from any country. But do the proposals add up?

Adrian Pennington

The European Commission (EC) describes the internet as "a goldmine of digital opportunities" but believes that digital services are often confined to national borders. It aims to change this by pursuing a Digital Single Market Strategy (DSM), which has had a mixed reception since publication last week.

According to the EU, GDP in Europe could be increased by $466 billion (€415 billion) a year if a harmonized market in digital services for its 500 million citizens were to be introduced.

While many physical barriers to trade within the EU have been removed, digital remains fragmented into 28 sets of national contract laws. Only 4% of internet traffic from EU countries goes to online services in another European country, whereas 54% of it goes to services in the U.S., the EU reported.

"Europe cannot be at the forefront of the digital revolution with a patchwork of 28 different rules for telecommunications services, copyright, IT security, and data protection," declared EC digital commissioner Günther Oettinger, who replaced Neelie Kroes last November. "We need a European market, which allows new business models to flourish, start-ups to grow, and the industry to take advantage of the internet of things."

The DSM's ambitious 16-point plan covers spectrum management, data protection, cloud computing and big data but leads with a contentious proposal to “end unjustified geo-blocking.” This is the process in which copyright holders in a single country can block consumers in another country from accessing their content online.

Modernising Copyright

Allied to an axe on geo-blocking will be new copyright legislation. In particular, the Commission wants to ensure that users who buy films or music at home can also enjoy them while travelling across Europe. The proposed reform will recognise the "portability of legally acquired content."

Supporting figures from the Commission suggest that one in three Europeans is interested in watching or listening to content from their home country when abroad, and that one in five EU citizens would like to access content from other EU countries.

"It is an opportunity not to be missed," the EU states. Digital spending on entertainment and media has double digital growth (around 12%) for the next five years, it said.

These stats are somewhat countered by further research by the Commission which suggests that only 17% of those polled in the UK were interested in receiving content from other European countries when at home, compared to the average across Europe of 19% or 33% in a country like Sweden.

Geo-blocking Uncertainty

The proposals could mean that on-demand services like Netflix, BBC iPlayer and Sky Go are available to everyone, regardless of which EU country they're in. Critics have immediately leapt on the conflict at the heart of the plan which is to question the practicality of abolishing geo-blocking while continuing to protect territorial copyright.

While a single digital market would prove a boon to pan-regional players like Netflix, the proposal is causing concern among other rights holders and distributors who charge different rates for downloads and streaming services depending on demand in each nation.

The BBC, for example, blocks overseas viewers from accessing BBC iPlayer partly to make sure it can commercially exploit its programmes abroad but also to avoid protests from licence fee payers who might resent paying to entertain other nations.

"This is empire building," said Dr. Alice Enders, analyst for Enders Analysis. "It’s a long-standing ambition of the EC to take control of copyright, but there is just no real evidence of cross-border demand. Who is this for? It’s a disaster. Britain has a very mature and well developed media market where companies can make a good return compared with most other European countries."

Politico quotes Netflix CEO Reed Hastings as saying: "The Commission is dealing with a great frustration people have with the balkanization of content within a single market. (But) we cannot wait for the Commission… What we are trying to do now is all pan-European and global licensing so everyone can get to our content. We’re trying to solve it commercially."

The ambiguity is at least recognised by the Commission: "Financing of the audiovisual sector widely relies on a system based on territorial exclusivity, which as such cannot be considered as unjustified geo-blocking," it said. "Being able to access online content legally across borders will help deal with geo-blocking concerns, while respecting the value of rights in the audiovisual sector."

Challenging U.S. Platforms

The DSM may also raise hackles in Menlo Park, Seattle and Mountain View. With the intention of boosting Europe's home-grown digital businesses, an area in which "Europe has dropped from world leader to second-tier player in only a few years," the Commission is taking a swipe against what it terms the "platforms" that dominate Europe's online landscape: Facebook, Amazon, Microsoft and Google.

Concerned about a situation where the leading search engines and internet services are non-European (and largely American-owned with exception of Sweden's Spotify), the commission said it would launch a "comprehensive assessment" of their role and potential abuse of market power, by the end of the year.

In the EC's opinion European start-ups have been prevented from becoming net giants because they have lacked the scale of a single market to grow as fast as their U.S. counterparts.

Oettinger said that the EU had to regain the "digital sovereignty" it had forfeited.

Andrus Ansip, EC vice president said: "People must be able to freely go across borders online just as they do offline. Innovative businesses must be helped to grow across the EU, not remain locked into their home market. This will be an uphill struggle all the way, but we need an ambitious start. Europe should benefit fully from the digital age: better services, more participation and new jobs."

He added there would be no possibility of a digital single market without "deep cooperation in the field of spectrum."

Innovations such as cloud services, data analytics improving efficiency in industrial processes, and intelligent connected machines could add more than €2000 billion to Europe’s GDP by 2030, said the EC.

"The EU must establish the appropriate legislative framework to unleash these opportunities. Europe also needs the right conditions for companies to invest in digital networks," it stated.

The sixteen DSM initiatives are set to be delivered by the end of 2016 but could take several years more to pass into law.

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