Gil STEIN, 24 September 2015
Andrus Ansip, Commission Vice-President for the Digital Single Market, is famous for promising to end “geo-blocking” , allegedly since he wants to watch soccer matches when he’s travelling across borders. Geo-blocking is the technical term given to the practice of blocking access to media content available on the internet, based on the geographic location of the viewer.
Commissioner Ansip is on the right track, but I would like to suggest he might be missing the big picture. The big picture is the enormous database which is the internet, and all the content which it holds. We’re not talking soccer matches. Server networks are constantly active, holding unfathomable amounts of information. A considerable amount of that information is popular creative content, scientific and academic knowledge, public media communications, and of course also soccer matches. However, despite the undoubted value this content has, the obvious benefits from its frictionless exchange and the relative low-costs that would be required to widely disseminate it under existing network infrastructures (theoretically even globally), much of this content is blocked based on user location. Indeed, according to a report of the Commission, 35% of broadcasters in the EU have used geo-localization to restrict access to content online (the data refers to 2012). The content that is blocked, absent or inaccessible is typically international creative media content (e.g. US films, BBC shows, etc.), while access to the most well developed services is often the most restricted. More evidence of the trend to limit accessibility can be seen in the ever increasing amount of claims brought before Google to remove links to content which is (allegedly) infringing copyrights (See Figure 1).
Figure 1: Requests for removal of content due to copyright claims 2011-2015 (weekly)
Why do creators and distributors of interesting content utilize geo-blocking on the internet to limit access to their content? Politico suggests that geo-blocking is a marketing strategy that is taken “… in order to protect an air of exclusivity” by major production studios and distributors. I would argue that categorizing geo-blocking simply as a marketing strategy is a too narrow frame. A better answer could be that geo blocking strategies are utilized to maintain power over the supply of copies (of the original content) circulating in the market. Copyright, which governs the legal realm of this market, allows content producers and their related agents to control distribution methods, timeframes, and capacity by which they supply their content to the public, as well as the legal right to enforce their exclusivity. This fact has led some to argue that the existing copyright regime is equivalent to that of “intellectual monopoly” rather than intellectual property.
However the use of copyright to maintain market power, made by established content producers and distributor chains in the creative industry (including among others global TV broadcasters and large production studios for film or music), is seriously challenged by increasing connectivity and the rise of digitization. These major actors in the creative industry are indeed cultural giants, playing a key role in history that could never be forgotten. They pioneered the creative audiovisual sector and invested in distribution networks and technologies that brought to the whole world the wonders of Pink Floyd and David Bowie (EMI), Mickey Mouse (Disney) and Terminator 2 (Sony Pictures Motion Picture Group). Not forgetting of course broadcasters of World Cups and Olympic Games. We should all be grateful.
Nonetheless, we should perhaps look again at the big picture. While much respect is due to the great investments made by these production studios to pioneer the creative audiovisual industry roughly a century ago, it is important to mention that their capacity to maintain considerable power over the distribution of information (some might even argue their ability to exercise control over the content itself) has allowed them to reap astronomical profits. A fact that has gone largely unnoticed by most users. Perhaps it has not been noticed because the amount of information and content which is available to the common users is staggering as it is. Have you ever paused to ask yourself why you are being “redirected to a local website” when shopping at Amazon online? Or why does Netflix makes different content available in different territories? The abundance of information available online allows producers of quality content to “work in the shadows”. Since a lot of content is still available in traditional channels (which are being strongly guarded), most users never wonder why the newest Hollywood movies are not released online on a global scale, directly upon their completion. Instead users accept without question that such content is mostly distributed based on old fashioned “release windows” focusing on geographical and market segmentation. These distribution strategies focus on profit maximization, giving little or no importance to universal consumer accessibility.
But limited accessibility is starting to draw the public’s attention. The EU has recently become very aware of the need to seriously address its digital handicap, and is now tackling head on the issue of geo-blocking. Indeed, two months ago the Commission launched an anti-trust investigation against six major Hollywood studios: Disney, NBC Universal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros, as well as Sky TV in Ireland and UK. This development resonates with the public’s increasing demands to have access to any published content, anywhere, at any time, and the rising awareness of citizens, businesses and institutions to the costs of geo-blocking.
And there’s more good news, particularly when considering the amazing advancements in information and communication technologies (ICT) and the adaptability of the economy to the digital age. Never in history did individuals have a tool to access such deep databases of content and information. Moreover, the shift to digitization of cultural and media works, and the development of innovative business models such as Spotify, Netflix and similar Digital Service Providers are a huge step forward, and could be argued to constitute the best content distribution models possible under existing legal constraints online. They constitute the best since they enjoy legal certainty and business legitimacy by providing access to quite a large variety of content, for which copyright usage has been cleared in advance. Nevertheless Spotify and Netflix build their content repertoire from the ground up, not relying on information available (“illegally”) online. This is due to the legal constraint to clear the use of copyright protected content with the original creator (or his agent) before making copies of it available for distribution. This approach will forever yield a smaller variety of content (compared to all “legal” and “illegal” content available online) at a higher price, and could create a bias towards distribution of content holding mainly commercial value (as opposed to artistic value for example).
It is important to stress that access should not come at the expense of the content creators’ right to be rewarded for their contributions. Good content producers should get well paid and have good incentives for creating beneficial and interesting content. Nevertheless, the protection of the economic interest creators have in their creation has nothing to do with market segmentation strategies. Geo-blocking which is often implemented in the name of copyright protection could actually reduce the total revenue creators and distributors can collect (given universal distribution capacity and the ability of users to pay for access to content). Said differently, In a perfect world, all published information will be cataloged and made available to the public, together with the option to pay for access to the content itself, thus allowing universal access to valuable data while providing sufficient incentives for creation. What is mind-blowing is that today’s content producers prefer to grant only limited access to their creations, despite their potential capacity to distribute them on a global scale online. In excluded markets users don’t have even a possibility to pay for access to content which is valuable to them, since it is blocked on a purely geographical basis. This is exactly where users encounter the famous disclaimer – “This content is not available in your location”.
Framing the issue in this way, one might argue that content producers and creators are essentially “leaving money on the table” by refusing to supply cross-border demand. However we cannot assume that these major creative industry actors would behave in what seems to be an irrational way. This analysis would imply that while creators and distributors are indeed reducing their total revenue by refusing to supply demand, their control over the quantity supplied in the market enables them to increase prices, thus allowing them to maximize profits and extract high rents (e.g. by providing access only to high-demand areas). Thought of in this way, the removal of geo-localization based market segmentation in the online creative market would increase overall content consumption, eliminate monopoly prices, and still allow content creators and distributors to cover their investment costs – thus providing sufficient incentives for creation. In other words the removal of geo-blocking would make everyone better off without undermining incentives for the production of content.
We may find it hard to think of a world without the restrictions of copyrights, but ample examples exist in the markets today. Simply consider the fashion industry, gastronomy and pornography sectors which have essentially no copyright protection at all. I don’t think anyone can argue that in these sectors creativity is curbed to a standstill due to little or no protection of intellectual property. On the contrary, the ubiquity of imitation and “knock-offs” seem to push creative motivation to extremely high levels, while allowing for fringe competitors to have a major part in the sector, thus increasing the variety of creations available in the market. Examining a radical approach which envisions a world with no copyright protection on the internet might also be beneficial for the understanding of the forces at play. If tomorrow everyone would be allowed to access all creative content available today online (which is by large illegal due to copyright infringement in today’s world), content producers and distributors will find themselves in direct competition with these formerly illegal distributors. This will present established content distributors and creators with the two options, either stop producing-distributing, or find a way to supply all demand at a cheap enough price to kill the competition. In this theoretical scenario the legitimate creators and distributors will push for universal accessibility since this will be the only way they could survive – by providing universal access to their interesting creations, at a cheap price, benefitting from global scale and negligible reproduction costs, thus eliminating any incentives illegitimate distributors might have to copy their creation and supply it themselves.
I would like to conclude by saying that indeed the disruptive nature of the internet, developments in ICT, and revolutionary ideas such as the sharing economy and the information society, loom as a destructive threat over the value chains established by the big production studios and distribution chains in the creative sector. Resistance to similar developments has been common throughout the ages, yet proved to be futile in the long run. If we ask Schumpeter however, this may not be all bad news.
Commissioner Ansip is also famously quoted for saying that EU copyright laws are “pushing people to steal”, see http://arstechnica.com/tech-policy/2015/06/eu-vice-president-copyright-legislation-is-pushing-people-to-steal/
[ Boldrin, M. & Levine, D.K., 2008. Against Intellectual Monopoly. Review Literature And Arts Of The Americas, 21(6), p.306. Available at: http://ebooks.cambridge.org/ref/id/CBO9780511510854.