Knocking down borders

“Deep in my heart, I hate geoblocking”. Hard words said by the EU Commission Vice President Ansip when he recently announced the Commission’s Digital Single Market Strategy. A strategy with an intention to combine the 28 European markets into one common digital market.

The more I think about it, Mr. Ansip is right, geo-blocking makes no sense in a modern economy. To block people based on nationality or where they happen to be at the moment is just annoying and aggravates customers. Especially within the European Union where a single market is sought in which trade barriers should be reduced and free movement of goods and services is one of the cornerstones. For on-line stores and services this geo-blocking behavior is common practice and a well-established business model. In the physical world indications of blocking people based on e.g. nationality would immediately raise protests and be filed as discrimination cases.

Geo-blocking is the technique to restrict access to content based on the user’s geographical location. By IP-address, black- or whitelist the service provider can decide if you are allowed to access their content or not. E.g. if you have a Netflix subscription in UK and you are abroad in a country with no Netflix service like Italy you will end up with a message telling you “Sorry, Netflix hasn’t come to this part of the world yet”. But, I think that we all can agree that services like Netflix could be functional abroad, Internet is global and the streaming technique is not limited to historical decided country borders. Instead, legal arrangements and rights for audiovisual content are forcing streaming services like Netflix to geo-block their subscribers.

For companies like Netflix where customers are lining up to pay for their popular service even in markets where they have no rights to distribute content this is an uncomfortable situation. Customers are starting to bypass geo-blocking by using VPN services and Netflix are now gaining revenue in markets where they have no right to distribute the content. The response by media companies have been tough, the new CEO of Bell Media in Canada says, “Accessing U.S. Netflix is stealing”. Without judging the local Canadian option available, I guess there is a reason why Canadians prefer U.S. Netflix. Customers in a global transparent market are aware when they are forced to sign up on expensive local cable TV deals or mediocre local streaming services. The industry has to deal with the situation and start reviewing terrestrial rights and agreements immediately. Consumers will not wait, VPN solutions will meanwhile continue to grow and non U.S. residents paying $9/month for the content will probably continue to be blamed as pirates.

The content creators have during the years built up an industry with a business model driven by exclusive agreements and rights in terrestrial markets. Now when Mr. Ansip is attacking the fundamentals in their business model, the industry is now preparing to fight. In theory the direction from the commission is rather simple, if you are providing online content in one EU country you have to make it available in all other EU countries. However, it requires a lot of rethinking by a traditional industry and the current standpoint by the industry is that preventing geo-blocking will weaken local production and favor big firms with the consequence that cultural diversity will be reduced. Another angle from the industry is that it will reduce advertising, product placement and sponsorship since they often have local connections. However from my perspective I can’t understand why audiovisual content should be so different from other businesses, take a Swedish local magazine as an example. It’s in Swedish with Swedish commercials and Swedish content. Contrary to the audiovisual industry everyone can subscribe and are allowed to read the magazine, it doesn’t matter if you are from Sweden or Denmark. And if you would like to read your magazine on travel that’s fine, so why should the audiovisual content you have paid for be treated differently?

Another related area that the commission will address with the Digital Single Market initiative is the rising issue with geo-localizing technique within EU. Geo-localization technique enables on-line services to re-route consumers into local websites or to automatically apply prices on the basis of geographic location. A debated example has been that car rental customers in one member state has to pay more for the identical car in a given destination than a customer in another member state. Simply called price discrimination. The technique is a widely used pricing strategy where in theory the seller charges each customer the maximum price that he or she is willing to pay. In reality the seller segments customers into groups, like the EU member states and charge each state a different price for the same product. The geo-localization technique has now become an issue for the commission. According to the commission, 74% of the price differences or other geographical discrimination complaints at the European Consumer Centres Network related to online-cross-border purchases.

If the commission wants to create one single digital market within EU, the use of geo-localization and geo-blocking techniques have to be reviewed. Today the technique enables virtual terrestrial barriers creating 28 sub markets within EU, not an ideal situation for a union where cross-boarder free trade is encouraged. In fact, around 50% of the European population shopped online 2014, but only 15% of them bought from a seller in another EU country. As a consumer it makes sense what Mr. Ansip says and it will be interesting to see what will come from the legislative proposal in the first half of 2016. From statements we know that the issues will be addressed by legislative proposals and that both the competition law and copyright law will be reviewed. Meanwhile EU is trying to tear down national silos by legislative proposals I hope that the industry proactively is transforming towards one global community. As a matter of fact, many US based corporates already got it. While European companies struggle with local markets and terrestrial boarders new on-line giants with the world as one market are popping up constantly in the US. Amazon, Ebay, Netflix, Uber, Google and Facebook, they are all launching services with a global customer focus in mind. Course they have to deal with current country legislations like broadcast rights or privacy regulations. But they are all aware that the consumer will always win, with or without VPN. They know that they have to compete on attractiveness, content and quality instead of protecting terrestrial borders.

/Karl

Karl is a Consultant at Northstream

 

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