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However, its exit from the EU will cause a period of uncertainty for UK SVoD providers and customers. This article considers the likely impact of Brexit on SVoD in the UK.

The shift from traditional media consumption to SVoD is undeniable. In the USA, the world's largest media market by far, half of the viewing population over 12 years of age has a Netflix subscription and 30 per cent use their TVs to stream the service.TV viewers are still not exclusive to SVoD – studies suggest that viewers often complement linear content consumption (over cable, satellite and free-to-air networks) with SVoD services and also catch-up TV and YouTube. However, the future of SVoD growth is promising with over 70 per cent of the USA's "youth" market (16-24 years old) associating "watching TV" with Netflix.

With an ever-expanding consumer base and access to user consumption data, SVoD providers can secure access to premium content, while developing their platforms and original content based on data points of user viewing habits and preferences. As a measure of its scale and importance, original content currently accounts for 12 per cent of all of Netflix's programming costs,with 54 nominations (and 9 wins) at the 2016 Primetime Emmy Awards. This leverage has disrupted the traditional broadcasting supply chain in which Hollywood studios and broadcasting conglomerates held the bargaining power and enjoyed lucrative, territory-based licensing deals.

Traditional networks have responded by launching complementary online services, such as DirectTV Now, HBO Go and BBC iPlayer. Though without the early investment and level of online adoption now enjoyed by established SVoD providers, even media powerhouses like Time Warner have, to date, felt a need to channel through SVoD providers; Time Warner, for example, which is set to be acquired by AT&T (owning DirectTV), still channels HBO through Amazon Video Services, although this arrangement is due to end

in 2018.

Europe is an important Svod market and the UK is its hub.The UK has a proud history of content creation and broadcasting, with the BBC as its highest profile player, and consumers in the UK have access to a broad range of content through cable, satellite, free-to-air and online services. Though importantly, the UK has approximately one third of all European Svod subscribers.

Europe has been a hard nut to crack for the established SVoD providers, with diverse cultures and languages, varying regulation (despite the minimum EU requirements), and strong incumbent broadcasters. In this complexity, the UK is perceived as a safe entry point for SVoD providers and a launch pad into Europe through its access to the Digital Single Market.

The EU responded early to the regulatory challenges of Svod by implementing the Audiovisual Media Services Directive (Directive 2010/13/EU) (AVMS Directive) with the objective of creating a level playing field for providers of "audiovisual media services" which includes SVoD services (and will soon include video-sharing platforms such as YouTube after proposed amendments are implemented).

The UK implemented the AVMS Directive into UK law through direct amendments to the Communications Act 2003 and statutory instruments under the European Communities Act 1972 (ECA), the instrument that gives EU laws effect in the UK. Other UK laws impose additional regulations, such as the newly minted Digital Economy Bill which regulates pornographic content and restricted material.

Other EU laws relating to the Digital Single Market are relevant to SVoD, such as the ePrivacy Directive (2002/58/EC), the General Data Protection Regulation (Regulation 2016/679/EU) (GDPR) and recent proposals to modernise EU copyright rules (EU Copyright Rules). In particular, the proposed EU Copyright Rules will introduce "media portability" across the EU requiring online content providers to allow consumers to access content available in their home markets while travelling in other member states.

The EU Copyright Rules were proposed following investigations by the EC into the practices of US film studios (e.g. Paramount)who had entered into exclusive license agreements with pay TV broadcasters in EU member states (e.g. Sky TV in the UK and Ireland), while prohibiting EU consumers outside of the relevant member state from accessing the broadcaster's service.

On Friday 29 March 2019, barring an unlikely extension, the UK will leave the EU and the Digital Single Market. On that day, the ECA will be repealed by the Great Repeal Bill and all current EU laws will be implemented into UK law for review and reform without the supremacy of EU law. The precise impact of Brexit on the UK Svod market remains uncertain as negotiations between the UK and the EU are yet to commence in earnest (as of May 2017). There are, however, certain outcomes that are likely unless specifically addressed in negotiations.

First, the "country of origin" principle enshrined in the AVMS Directive allows a SVoD provider domiciled in an EU member state to transmit to all other member states without further licensing, provided it complies with the laws of its country of origin.

The rationale is that the AVMS Directive sets a regulatory baseline and EU member states often impose more stringent requirements.Post-Brexit, UK-domiciled SVoD providers will lose the "media passporting" rights under the country of origin principle, as the UK falls back on the rights granted by the European Convention on Transfrontier Television (ECTT) - a dated instrument signed by the UK in 1989 that does not contemplate SVoD services and faces an uncertain future after Brexit. UK-domiciled SVoD providers should assume that they'll need to be licensed in, and comply with the laws of, each EU member state to

which they broadcast.

This is the complexity faced by US SVoD providers, who have struggled in Europe and had to customise their platforms and content libraries in order to compete in each European market.As a result, UK-domiciled broadcasters might review the domicile of their operations, in the same way as financial institutions.

Second, the AVMS Directive contains must-carry obligations requiring SVoD providers to show and actively promote "European works" – this currently includes content originating from EU member states and also signatories to the ECTT. More onerous obligations are on the way, with proposed amendments to the AVMS Directive requiring 30% of a Svod provider's content library to be European works, with "prominence"given to those works. Established SVoD providers like Netflix have already invested heavily in UK content (e.g. The Crown), perhaps in an effort to meet the European works requirement.

However, post-Brexit, they will need to assess whether or not UK content qualifies as European works as a signatory to the ECTT. If the ECTT route is challenged, or the test for "European works" in the AVMS Directive amended (by a perhaps displeased EU),then additional investment in European content will

be required.

Third, the pool of European media talent working in the UK will be at the mercy of Brexit negotiators, with the freedom of movement of workers under scrutiny. If visa and residency requirements tighten, it will be more difficult for UK media companies to recruit and retain foreign media talent and entrepreneurs.

The UK's access to Europe and its role as regional leader is under a cloud. The silver lining is that a post-Brexit UK may have greater freedom to develop its SVoD market and regulations with a global view rather than a regional focus.We encourage you to watch this space as Brexit negotiations progress.


Watch this space: Brexit and the SVoD market in the UK

Written by Andrew McMillan and Daryl Cox,

Pinsent Masons

Daryl Cox

The growth of subscription video-on-demand (SVoD)services such as Netflix and Amazon Prime Video reflects a structural shift in video consumption. Consumers now demand immediate access to premium content, coupled withthe convenience of viewing on multiple platforms or devices. The UK is a hub for broadcasting in Europe and a flourishing market for SVoD services.

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Andrew McMillan

Andrew McMillan is a partner at Pinsent Masons LLP and was, previously, global head of the technology, media and telecommunications sector practice of another international firm. Andrew has considerable experience advising trade players, investment banks and private equity houses on transformative mergers and acquisitions and high-value commercial contracts within the TMT sector and has been recommended by various legal directories, both for his sector expertise and execution capability. His recent transactions have involved channels (both linear and on-demand), content production, digital delivery, adtechand technology platforms. Andrew is a member of Tech London Advocates, an advocacy group of senior leaders within the international technology community, created with the aim of championing and accelerating the growth of London's emerging technology and digital sector.Andrew read Law at Cambridge and is also a Fellow of the Royal Geographical Society.




Daryl Cox is a Senior Associate at Pinsent Masons LLP and a specialist telecommunications, media and technology lawyer, with over a decade of experience in Asia Pacific, the Middle East, North America and Europe. He regularly advises telecoms operators, broadcasters, technology providers, governments and MNCs on strategic and business critical TMT projects. Recently, Darylhas advised on the development and international rollout of on-demand media platforms, media regulations, complex outsourcing and procurement projects, communicationsregulation and transactions, corporate transactions and data management and commercialisation. Daryl is co-founder of a technology start-up and works closely with emerging technologies to bring new ideas to market. Daryl holds a Master of Industrial (Intellectual) Property, a Bachelor of Laws with Honours and a Bachelor of Sciences.