Thursday, May 07, 2015

Why You Should Now Really Worry About The EU If You Work In Digital Media

The Digital Single Market proposals coming out of the EC are pretty terrifying in their consequences.

The objectives are laudible:

1) better access for consumers and businesses to digital goods and services across Europe
2) creating the right conditions and a level playing field for digital networks innovative services to flourish
3) maximising the growth potential of the digital economy

Now, regular readers of this blog would imagine that I'd be all in favour of these developments, but as I have written before, they are all a double edged sword and, in the hands of politicians, are likely to be used for political ends, not to benefit EU citizens or businesses. The fact that they come from the unaccountable Commission (which is appointed based on political favours) causes even further cause for concern.

Let me point out some of the issues:

Well, can we start by sorting out access to online before mucking around with everything else. Vast swathes of Europe have little or no broadband coverage (see blogs passim about rural Wales) nor 4G or 5G coverage: this would be a simple and cheap problem to solve, costing fraction of the cost of a any one of the usual unfinished, corrupt or un-needed grand projects that the EC usually funds.

The problem with this is that you are then creating a great marketplace for efficient service providers (very similar to the model followed in the UK after the nationalisation of utilities). The likes of Google and Facebook would be rubbing their hands, so you're already working against the second objective.

Meanwhile, creating a single market for content is great for consumers, but really, really bad for content producers and will bias things horribly towards US publishers and the English language, as if the internet wasn't already bent dangerously in this direction.

The ability to differentiate marketplaces based on territory and language is worth a very large amount of money to sports federations and TV producers (although this is fast disappearing as release windows become narrower), and as I have pointed out previously, how can a single broadcaster cope with the likes of Sky (or Vivendi Sky) or Liberty or Comcast should they bid ? The EBU is disingenuous in its support of this initiative since it obviously wants to bolster its role as Europe wide broker for broadcasters, restoring the position it had before commercial, US owned TV eclipsed its role.

Underlying all this are many anachronisms such as charging rates for small physical businesses, but offering subsidies for massive companies such as Amazon; where small businesses pay full tax, but companies like Amazon do not.

It is true that the biggest challenge EU companies have when creating online or service businesses is that they have a ready marketplace that is around a quarter of the size, at best, to that of the US and Canada (and you may as well bundle the UK and Ireland in there) at launch. US businesses can go for scale immediately, building this kind of scale in Europe is next to impossible. This is why Facebook could never have come out of Europe.

There is also the dichotomy of the regulatory environment. The US has been so successful in building world class digital companies due largely to the DCMA and de-regulation. Concepts like net neutrality and no sales tax were enshrined and allowed the industry to thrive.

But the other edge to this is that it has also enabled monopolies to flourish.

The US has an endless supply of capital, whereas the EU has only a tiny fraction of this on tap for startups. The nature of new marketplaces is that you often have to spend billions buying market share before making a profit. After all these years, Amazon barely makes a profit and YouTube has spent billions in subsidising free video on the internet (to the detriment of my own businesses).

So, the second objective is impossible to achieve, in my view, without heavy handed regulation, which could include:

1) Banning free services online beyond a point (remember that we all subsidise these free services through our broadband and telephone accounts, taxes, our own data giveaways and our own contributions to the web. Net neutrality just benefits the likes of Google and Facebook, not your business or my business.

2) Not allowing a market share of 50% for any service, therefore Google would need to break up or allow proper competition with its search, DfP and YouTube businesses, for example.

3) Demand market visibility - this will appeal more to my free market friends than the previous ideas - in this case the likes of Google, Facebook, Twitter and LinkedIn should be obliged to show what margins they make and what taxes are included based on a set template that all service and product companies should follow. Google have been able to use their obfuscated model to destroy whole industries such as publishing and local online by using very dubious and opaque pricing, and no one partnering with these companies know what percentage their 'partner' is taking.

4) Tax at point of consumption - this is already partially being implemented to stop the stupidity of Google billing billions in advertising in the UK but hardly paying any tax, nor Apple doing the same with its downloads. But you have to remember that the EC leader is the ex-Luxembourg Prime Minister, Jean-Clause Juncker, who set up many of these tax avoidance schemes to benefit his tiny fiefdom.

5) Internet Rates - any company consuming more than x Megawatts of energy should be asked to pay rates to contribute towards the cost of electricity and broadband infrastructure and subsidise future investment.

The third objective takes us back to the arguments above. The EC has been instrumental in reducing roving charges between countries, so it can be a force for good, but it now seems to be wanting to take on a role similar to that of the FCC in the US. The difference is that the FCC does not have 28 stakeholders speaking even more languages with different infrastructures, local laws, mores, traditions and priorities.

If you're involved in the media industry in Europe, it's worth keeping a very beady eye on developments.

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