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Digital Audiovisual Media: Video on Demand, some necessary regulations

VoD represents a challenge to nations’ regulatory capacity. How can one identify the main purpose of each service? How to share the economic performance of a service that is extraterritorial by nature?

Rosana dos Santos Alcântara*/Brazil/September 2016

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Audiovisual media is quickly spreading throughout the world and is now found everywhere. Services are linear, non-linear and multi-screen: cinema, TV, mobile phones, computers, tablets and other forms yet to appear. Audiovisual media is also multiple and found in TV series, feature films, and branded content type inserts, among other formats and forms of expression that highlight the diversity of a pluralistic, inclusive and democratic culture.

Today, the development frontier of the audiovisual industry necessarily involves the Internet. The latest report of Marché Du Film-Tendances du Marché Mondial du Film is perhaps the most important document regarding the cinema market in the world. Released at the Cannes Film Festival this year, it stated that VoD helps promote the films distributed in cinemas.

This non-linear service has proven to have a rapid growth potential. In the United States, on-demand video services in 2010 resulted in an income of USD 4,636.60. In 2015, this figure increased to USD 9,452.80 in profits. These numbers include subscriptions to Over-the-Top services, OTT by product, and VoD via exclusive networks, which are the three operating modes most commonly used in the world. In comparative terms, the same services in Brazil led to profits of USD74.60 in 2010, jumping to USD398.90 in 2015. VoD penetration, according to data for the first quarter of 2014, underlines the growth potential for this area: United States 46%; Mexico 36%; Brazil 32%; Canada 30%.

A survey of consumer habits in Latin America found that 79% of the public watch feature films, 70% music videos, and 65% TV series. In Brazil, 34% of respondents watch VoD at least once a week. As a result, online advertising is the fastest growing sector, and advertising revenues are migrating away from print media and TV.

Audiovisual commodities generate large positive externalities in terms of access to entertainment, culture, education and information, generating a collective identity. This means that local production is a necessary way of affirming freedom of expression, diversity, pluralism of sources, and appreciation of a country’s culture.

High production costs make it an important asset of any country. As it is not a rival commodity, many can consume it at the same time. An example of this was the opening ceremony of the Olympic Games in Rio de Janeiro, which was seen by billions of people simultaneously.

However, as it is an intangible product, it has relatively low distribution, exhibition and replication costs. Once a work has been finished, or TV scheduling has been organized and production costs have been paid, the sale of broadcasting rights becomes an extremely lucrative business that can be carried out at a very low price. The costs incurred on the international market may be so low that they can displace local (national/regional) production and make production activity even more risk prone. Consequently, when there is no recognition of ownership rights there is no way that production activity can make a profit. Issues related to risk and low reproduction costs are so important that they determine business strategies related to production verticalization, cross-media ownership, or diagonal integration and internalization, or the gigantic growth of the largest companies in the market. These business trends generate critical consequences for the audiovisual market.

Market concentration reduces the level of risk and allows for operations in scale. It can also have a damaging impact on independent producers outside of the vertical circuit, affecting production and local programming and the diversity of the content being offered.

Since the anti-trust measures implemented in the past in the United States to European experiences in the present, the regulatory State has become necessary as a way to encourage private investment, enable cultural diversity and expand access to local content, as well as to guarantee the right of consumers to a diversity of content, formats and services, and at a fair cost.

Despite the progress that has been made, such characteristics are still present in the current development of the production chains of the audiovisual market. While cinema, broadcast TV, pay TV and video-on-demand services all have specific characteristics. Therefore, among the regulatory challenges of non-linear services, is the identification of the limits of each service, and their harmonization with those regulations already in force. Digital convergence, which allows for the simultaneous presentation of audiovisual content via different forms of media, is another challenge to the creation of an environment of equality before the law.

VoD represents a challenge to nations’ regulatory capacity. How can one identify the main purpose of each service? How to share the economic performance of a service that is extraterritorial by nature? How to stimulate the circulation of national content in order to make the most of the exploitation potential of independent national production?

The European Audiovisual Media Services Directive verifies criteria to define an implicit economic agent, the impact of taxation and mechanisms for promoting local or regional content, through the financing of local and independent production, quotas and the broadcasting prominence of such productions. These criteria were applied through regulations adopted in more than ten countries. The current debate in Europe and in many countries continues to seek ways of improved dosimetry between the concept of similarity with TV, the treatment of local content and regulatory leveling that observes the regulatory requirements of different services, access to which may be via the same screen (pay TV and OTT, for example). An equally important challenge relates to tax harmonization: taking into account each situation, and if we are dealing with the provision of communication services, or rental services, or the selling of merchandise, and their respective tax impacts.

Thus, it can be observed that the economic regulations of audiovisual productions in each country will identify more appropriate solutions if more attention is paid to cultural and constitutional principles and the guarantee of rights, as established in modern societies.

* Attorney, and Director of the National Cinema Agency (ANCINE) in Brazil

Related links:

Federal Public Ministry of Brazil considers that OTTs do not respect national sovereignty

Brazil: VoD regulations will be ready this semester