Hollywood Deals in Spotlight as EU Builds Antitrust Film Case

  • EU quizzes studios and Sky over so-called windowing system
  • Regulators building case after last year's antitrust complaint

The European Union is delving into the movie industry’s business model as part of a crackdown on contracts that prevent pay-TV viewers in one country from watching films and shows intended for customers in other parts of the 28-nation bloc.

Regulators quizzed Hollywood studios including 20th Century Fox and Viacom Inc.’s Paramount Pictures about their income from pay-TV channels compared with theaters, web-streaming and DVDs as regulators fine-tune an antitrust case into geographical curbs on movie sales, according to a copy of the questionnaire obtained by Bloomberg.

Walt Disney Co., Time Warner Inc.’s Warner Brothers unit, Comcast Corp.’s NBCUniversal, and Sony Pictures as well as pay-TV giant Sky Plc were also questioned by officials seeking details of the so-called windowing system, when studios make separate deals for screening of movies on different types of media.

“The potential consequences are potentially absolutely enormous,” Ed Barton, an analyst in charge of TV and video research at Ovum in London, said by phone. “The entire studio revenue model depends completely on the windowing system.”

Revenue Sources

The EU is demanding a breakdown of film revenue by distribution stages, details on how long movies play in cinemas in each market and data on how long it takes for a film to reach 80 percent of total box office sales in each country, according to the document. Movies have at least half a dozen or more distinct release dates by devices or media in each major EU market, analysts say.

The EU has made competition in digital markets a priority. Alongside clashes with Alphabet Inc.’s Google, antitrust chief Margrethe Vestager opened an investigation into barriers that block access to Internet-based services and content -- including films and TV shows -- across the region.

Film sales to pay-TV providers “can be as big as the original box office,” said Richard Cooper, a research director at IHS. Tearing down the current system of selling films separately in each country “would really upset the studio’s business model” which relies on selling fresh film content at higher prices to pay TV before making it available to services like Netflix.

Regulator’s Suspicions

The EU’s fact-finding follows a three-day hearing in January, where the studios and Sky sought to rebut the regulator’s suspicions. They were set out last year in a statement of objections, or SO, and include concerns that clauses in the licensing deals between the studios and Sky “eliminate cross-border competition” and “partition the internal market along national borders.”

While SOs are typically a precursor to fines in price-fixing probes, regulators can instead order companies to change their business practices, including contracts. The commission is expected to move toward a decision that will force the companies to stop a process known as geo-filtering, said three people familiar with the case, who asked not to be named because the investigation is private. Geo-filtering is the industry’s term for restricting viewership by location.

The documents were sent this month. They consist of five detailed questions that also ask for information from the companies on any deals they made between 2012 and 2015 with pay-TV broadcasters or independent distributors that consisted of an upfront contribution for the making of a film in exchange for the exclusive territorial rights.

Soccer Case

The EU case into so-called absolute territorial protection clauses was triggered by a ruling from the bloc’s top court in 2011 on English soccer’s Premier League’s geographic restrictions on broadcasts. Those limits were found to have breached competition law.

Sky, Viacom, Warner Bros. Entertainment, and NBCUniversal declined to comment, as did Netflix, the Motion Picture Association of America and the Brussels-based European Commission. Sony, Disney and 20th Century Fox didn’t immediately respond to an e-mail.

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