Vanto: Europe’s Digital Competitiveness
September 3, 2009, 1:16 am
Remedy Entertainment is a Finnish game developer that is known worldwide for its Max Payne series of games, recently turned into a feature film by Fox Filmed Entertainment, a subsidiary of News America Group. Since developing the smash hit game, Remedy Entertainment has sold all rights to it to Take-Two Interactive Software Inc., a software developer and publisher based out of New York. Stories similar to that of Remedy Entertainment - successful European digital content snapped up by American companies with an eye for what sells - are common.
In its digital competitiveness report released in August 2009, the Commission of the European Union concludes that Europe is not taking full advantage of digital content markets, and that American content has cornered the market. This European content malaise, however, is not tied to digital content, and is by no means a recent phenomenon. For example, according to the Lumiere database of the European Audiovisual Observatory, during the years 1996-1999 American films represented only between 39% and 46% of the supply of films in the then-smaller EU, but accounted for 66% to 76% of all movie theater admissions. Films produced in the EU during this same period represented between 45% and 53% of supply, but only 22% to 33% of movie theater admissions. It appears that it is not so much a lack of digitizable content, as such, that lies at the heart of the problem, but a lack of content that is appealing to mass audiences and innovative European platforms for distributing it. European success stories such as that of Max Payne are the exception rather than the rule.
The digital competitiveness report also concludes that young European Internet users – those that primarily use the Internet for content – are generally unwilling to pay for content services except where such services provide some additional added value over and above that provided by those services they can obtain for free.
To remedy the situation, the Commission suggests “innovative and sustainable business models as well as favorable regulatory environment.” Somewhat counterintuitively, the European Union is heaping public funding on content providers; an approach that is unlikely to generate a sustainable business model for capturing the content market cornered by Americans. According to a joint study by the European Audiovisual Observatory and the European Investment Bank, which was published in 2004, a major difference between the European and American video content markets is the importance of public sector funding in the financing of European films and TV programs. From 2001 to 2006, MEDIA, the EU's support program for the European audiovisual industry, has injected more than half a billion euros into 8,000 projects from over 30 countries. To top it off, there are also various EU Member State programs in place targeted at local video content production. Pursuant to the joint study, private funding shortage is caused by “shortage in risk-sharing resources,” and “the fragmentary nature of the film and audiovisual market at the European level and the need for lenders to be familiar with local markets make it hard for new financial intermediaries to gain foothold.” Thus, in the current financial crisis the European content producers are hit by a double whammy: private funding is extremely difficult or impossible to come by, and the EU and the individual Member States are faced with budget shortfalls that necessitate cuts in funding for audiovisual content production.
The findings in the digital competitiveness report and the studies discussed above suggest that a proper approach to improve the competitiveness of European content providers is primarily three-fold: (i) addressing those factors that prevent banks and other sources of private funding from gaining a foothold in the financing of European content production; (ii) new approaches to targeting public funding; and (iii) improved protection of intellectual property rights in the EU.
In order to attract private funding for European content production, the EU and the Member States need to increase the private lender knowledge of individual Member State content production markets. This should be a joint effort between the public and private sectors, enabling easy access to financial information about the content production markets in the Member States from a single source, and making that information readily comparable. We should also resist the temptation to stifle innovation in the financial sector in the face of the current financial crisis, and instead provide a regulatory environment that incentivizes private sector funding of European content production.
We need to have a smarter approach to public sector support for European digital content production. First, more dialogue is needed between the public and private financiers of European content production so that those content providers with bankable projects can be better identified. There also needs to be more creative ways of public support, with better use of tax incentives for content production, and support for production facilities that foster creativity and which can be used for different types of digital content production. Just handing out cash is not going to generate the sustainable business models that, according to the Commission, Europe sorely needs. We need to have Member States competing against one another in attracting digital content producers, and make information about the local content production support programs publicly available from a single source. Finally, one of the factors hampering the market potential for European digital content, language, is an issue that is eminently suitable for publicly funded solutions. The focus should be on creating smart European technologies for digital content localization.
As to the unwillingness of European youth to pay for digital content, there are two primary reasons for this. First, there is a large amount of legitimate free content accessible from websites, which are mostly run by American companies and primarily supported by advertising. Whether the legitimate European content supported by advertising is available through a European platform, such as dailymotion.com or the US-based youtube.com owned by Google Inc., seems irrelevant. What matters is the ability of European content to attract advertising Euros in a manner that makes it financially feasible for content producers to use these available platforms as well as new ones for distributing European content. For example, what is preventing European content producers from entering into an arrangement similar to that of hulu.com, set up by NBC Universal, Fox Entertainment Group, and ABC Inc., that is supported by advertising and soon also available in Europe? Initiatives to provide full-length European audiovisual content supported by advertising and delivered using a platform that is commercially attractive are needed.
The final issue to be addressed is illegally shared digital content that is accessible from various websites and peer-to-peer networks. With respect to illegal content, we need to ensure first that the European regulatory structure, including tax laws and competition policies, support the creation of strong European content distribution solutions so that legitimate European content is readily available across the EU, thereby lessening the need to access illegitimate content. The EU and the Member States must also engage in PR-campaigns targeted at the digital natives, using channels and language that they use, explaining why copyright laws are needed. “Three strikes and you are out” types of laws should only be used as a last resort, and alternatives must be devised. As the Internet is woven into more and more aspects of European citizens’ lives, disconnecting an individual from the network can have unexpected consequences that may affect areas such as healthcare and employment. For example, we should consider mechanisms such as incrementally increasing Internet access fees, based on a tariff schedule, for those who illegally share copyrighted content on the Internet. The proceeds of such fees could be then distributed among the copyright owners.
The author is an attorney at Vanto Law PLLC in New York, with a practice primarily focusing on data protection and information technology law. He has lived in Belgium on three separate occasions.