Monday, September 25, 2006 - The Progress & Freedom Foundation Blog

RAND on Economic Impact of EU's "TV Without Frontiers" Directive

Scholars at RAND Europe recently released a comprehensive analysis of the European Union's controversial Audiovisual Media Services Directive (AVMS), more commonly known as the "Television without Frontiers Directive." This effort, which is being coordinated by EU Commissioner Viviane Reding, aims to bring some rationality to inconsistent EU media regulations. The problem is, in an effort to make the rules more rational, Reding has essentially proposed a significant expansion of government regulation for new media outlets and operators, including the Internet. (See these three papers by my PFF colleague Patrick Ross for a detailed explanation of the dangers of Reding's efforts to expand content regulation).

Thus far, most of the criticism of the AVMS has been based on social / content-related concerns. Rightly so. There is little doubt that the directive will threaten freedom of speech and expression on the Internet and over other new media outlets / services. But the new RAND study takes a different approach to the issue by focusing on the potential economic impact of the AVMS directive on European companies and the EU's competitive standing in the new media world more generally. [An executive summary of the report and the full report can be found on the Ofcom website here].

RAND's conclusions are not encouraging... unless you happen to be an American or Asian company rooting for your European competitors to be handicapped by excessive government regulation!

RAND argues that "the AVMS Directive will be applied to an industry whose structure is both more complex and more dynamic than the traditional industries of broadcasting or telecoms, and one in which the effects of regulation may have significant impact on the eventual industry structure that emerges." Specifically, RAND argues that for some of the new digital economy sectors it surveyed -- IPTV, mobile media and video games -- the "regulatory uncertainties" created by the AVMS could result in the "flight of capital or skills to other sectors or countries" (especially gaming and IPTV). "We expect these businesses to have a high sensitivity to regulatory proposals," RAND concludes.

RAND also notes that it is unclear how the EU's new directive will cover "Web 2.0" user-generated and user-hosted content. The report suggests that "The only feasible way to enforce the Directive [for user-generated content] is via the intermediary, content host or service provider as a proxy for the content editor." "This may result in substantial changes to the type of common carriage regime that is currently in place," RAND notes. Indeed, the problem with deputizing the middleman in this fashion is that it turns those intermediaries or ISPs into quasi-censors for the state. Instead of just delivering traffic (bits) to consumers, they will be expected to inspect it all first and sort out the good bits from the bad bits (however the EU chooses to define them).

RAND also argues that the directive would discourage innovation and new entry since: "New linear operators (e.g. new channel providers) will face relatively heavy regulatory burdens under all scenarios. They are likely to license over to incumbent or otherwise consolidate. Therefore, regulation reinforces concentration. In fact, it is difficult to imagine new entry succeeding in any but niche channels..."

That's fairly devastating stuff and the rest of the report is equally brutal. As the Ofcom summary of the RAND report concludes:

"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."

Again, I guess that's good news if you happen to be a new media / Internet operator living in the U.S. or Asia, but it's troubling news for European operators. But Americans and Asians should not gloat too much because (a) they will face these same regulatory burdens when they attempt to do business in Europe and (b) worse yet, the European model could become a model for regulation here in the States or elsewhere overseas. In some ways, it already is.

posted by Adam Thierer @ 2:20 PM | Free Speech , Mass Media