Ofcom is today publishing an independent study conducted by RAND Europe, which looks at the potential indirect impact of the European Commission’s proposed Audiovisual Media Services (AVMS) Directive.
Since 1989, television services in Europe have been regulated by the Television without Frontiers Directive, which created a single market for the provision of television services and established minimum content rules in areas such as protection of minors and advertising. In December last year, the European Commission published a proposal for a new directive. The draft is currently being considered by the European Council and the European Parliament, and adoption is expected by 2007, at the earliest.
The Commission proposes to extend the scope of regulation to all audiovisual media services, which have been defined as services the principal purpose of which is the provision of moving images, with or without sound, to the general public, in order to inform, educate or entertain. Nine months into the discussions, it remains unclear which services are exactly caught by these proposals. However, it appears that a number of strategically significant new media sectors could potentially fall within the scope of the new Directive, including mobile multimedia, online gaming and IP television.
The proposal has raised serious concerns among UK and European industry, on the grounds that it will significantly increase regulatory costs and uncertainty. Further, it has been argued that it will negatively impact on innovation, European competitiveness, and the Lisbon Agenda goals.
For its’ part, Ofcom has expressed serious doubts about the practicability and appropriateness of extending broadcasting regulation to a whole range of new media services which are very different from traditional TV, both in nature and in the manner in which they are consumed.
Clearly, in accordance with better regulation principles, it is important to be able to understand the potential impact that the Commission’s proposals will have on these strategic sectors. The Commission, as required, published a regulatory impact assessment along with the draft Directive and asked RAND Europe to provide some supporting economic analysis as part of that process. RAND Europe identified a number of key factors which would determine whether the benefits of extending the scope would outweigh the costs. However, it was not possible within the study’s timeframe for RAND Europe to look at the potential impact on specific industry sectors.
Ofcom believes such an analysis is critical for the purposes of assessing the full impact of the Commission’s proposals. It therefore asked RAND Europe to undertake further research and to look in particular at the potential indirect effects in three key sectors: IPTV, mobile multimedia and online games. Indirect effects refer, in particular, to the possible effect that regulation could have on companies’ investment and location decisions. RAND Europe concludes that these indirect effects, whilst difficult to quantify with precision, could be significant given that (a) the new media industries affected by this proposal may be at an early stage of development, with major investment and location decisions still to be made; (b) each of the sectors identified has elements within it that could be relocated relatively easily outside of the European Union; and (c) new media industries are often characterised by a significant number of small and medium sized firms which previous studies have shown are particularly vulnerable to regulatory risk.
The study concludes that:
Ofcom believes that this report highlights some important economic risks inherent in the Commission’s proposals. These risks are particularly important in relation to the new media industries that RAND Europe has examined and which are strategic for European future competitiveness. These risks accrue not just to shareholders of the companies concerned, but to the EU economy as a whole and hence to EU citizens. The worst case scenario for Europe is that economic activity which would have taken place in Europe, providing jobs and stimulating growth here, will take place elsewhere, be it in the US or in the Far East. The results of the RAND Europe study are in accordance with feedback to Ofcom and the UK Government from businesses and investors.
Our conclusion is that legislators should:
The full document is available below: