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Thursday, December 15, 2005

Internet Regulation Without Frontiers
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The European Commission this week put forward a new Directive proposing to update its Television Without Frontiers initiative. The EC's goal is a noble one -- acknowledge that media comes in all forms and types now, and ensure there is no regulatory disparity. To some extent parity is achieved, although if the Directive is enacted it's going to take a lot of European lawyers to figure out the boundaries of that parity. But it does extend content regulation to the Internet, as I wrote in a Progress Snapshot yesterday. And it also seems to be yet another piece of evidence for public choice theorists, an important point to remember as U.S. officials approach media regulation.

Public choice theory, as my colleagues have pointed out, acknowledges the reality of self-interest, and teaches that regulators aren't immune to acting in their self-interest. I think that was largely the case with this new Directive.

Begin with a laudatory goal -- standardize video regulations across all media. Add to that a motivating force -- Europe under both the Lisbon agenda and i2010 is striving to boost its economy through innovation in an attempt to close the gap with the United States. Now factor in the Commission bureaucracy. Some of us at PFF were in Brussels in February, staying in the EU district of town. I was overwhelmed by the massive buildings that housed untold numbers of bureaucrats. Some protesters while I was there -- honey producers -- were demonstrating public choice theory by urging the EU to restrict importation of non-EU honey. I wondered how many bureaucrats were assigned to the honey importation issue.

I'm betting a lot more are assigned to the media regulation issue. Reviewing the proposed directive, my colleague Adam Thierer and I both identified numerous ambiguities. Here are a few:

* The regulations cover "audiovisual" services meaning "moving images with or without sound," so audio transmissions are excluded. A bit arbitrary it would seem, but good for radio, satellite radio and podcasting.
* The Directive distinguishes between "linear" and "non-linear" services, with the former approximating a broadcast and the latter approximating a user demand model. So, it would seem watching a live snooker match is a broadcast, even if you're streaming it online, but using an On Demand service or clicking on an archived webcast of that snooker match later would be "non-linear." (This is far from an arbitrary example; I am addicted to televised snooker and would hate to think any regulation would restrict my ability to watch it when in Europe). The distinction matters because linear services are far more regulated. This would seem to have a strong impact on the market, incenting service providers to tweak services to have more of a non-linear format. The Financial Times this week cited the head of a U.K. trade group who said it will be a nightmare for the EC to determine who is which at any given time.
* Anticipating this, the Directive warns that as non-linear services replace linear ones, the Commission will "regularly re-examine" its regulations to ensure that the cultural regulations inherent in linear services remain viable.
* Adam points out that the Directive exempts online versions of newspapers and magazines. This was presumably done to appease the powerful owners of European newspapers, who didn't want their countries caught up in this web of regulation. But the Directive "covers mass media in their function to inform, entertain and educate." Doesn't an online version of the London Times do that? If I have an online-only news service (like my former employer, CNET News.com, which features video) I'm printing a daily newspaper version of my site with a circulation of my immediate family to get myself an exemption.
* Blogs are also exempt. But some blogs are more sophisticated than ours, and have turned into successful commercial enterprises. If I'm an online video provider in Europe, I'm going to call myself a blog and air any content I choose, enjoying my exemption from regulation.

Clearly there will be a lot for both EU-specialized lawyers and EU bureaucrats to sort out, and that sorting will have to keep occurring as the media landscape changes by the hour. All of this could have been avoided if, instead of slightly deregulating terrestrial broadcasting but crafting extensive new rules for other media such as cable, satellite, cell phone and Internet transmission, they had simply removed some broadcast regulations to bring them down closer to the deregulated level of their video competitors.

But that would have made moot the presence of untold numbers of Commission bureaucrats, and thus wouldn't have been consistent with public choice theory. The goal of this Directive, remember, was to boost private-sector job growth. The Commission couldn't start that by eliminating public-sector jobs, could they?

posted by Patrick Ross @ 11:45 AM | Economics , Free Speech , Mass Media

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