How Europe's War on Social Media Could Impact Hollywood: "This Is a Complete Paradigm Shift"
Illustration by Rune  Fisker

How Europe's War on Social Media Could Impact Hollywood: "This Is a Complete Paradigm Shift"

The EU's new copyright ruling threatens to hold digital giants like Facebook and YouTube responsible for content posted by users. It's a win for artists, but some say the EU (and maybe America?) is going too far.

In March, in cities across Europe, hundreds of thousands of protesters, most of them young people, took to the streets to protest the European Union's plan to update copyright law for the digital age. The kids, of course, had the best signs.

"Save our cat videos!" read one poster spotted in Berlin. Several held up signs declaring "We are not bots!" a sly reference to certain politicians in favor of the new law, who claimed any opposition came from internet bots, not real EU citizens.

But the people were real. And so was their anger. The new law, officially called the Directive on Copyright and Related Rights in the Digital Single Market, has been the subject of fierce debate for more than two years. The likes of Paul McCartney and Lady Gaga — as well as European directors and screenwriters including Mike Leigh and Pawel Pawlikowski — backed the directive. Big tech was opposed: YouTube and Facebook in particular, but also not-for-profit sites like Wikipedia, whose founder, Jimmy Wales, joined internet pioneer Tim Berners-Lee in condemning the legislation. Among the protesters, most demonstrated against the directive.

In the end, Gaga and McCartney won out. On March 26, in a vote of 348 to 274, the European Parliament approved the directive. And on April 15, at the European Council, the European Union's executive body — 19 countries representing a majority of the European population, including France and Germany — endorsed the legal overhaul that, experts say, represents the biggest change to how companies can operate online since Berners-Lee came up with the idea for the World Wide Web all those years ago.

The Copyright Directive is far-reaching and has widespread — and sharply different — implications for different sections of the entertainment industry, as well as online platforms and ordinary users. One of the most radical changes is outlined in Article 17 of the directive. It reverses current law, making online platforms, and not their users, legally liable for copyright-protected songs, films, TV series or other content uploaded to their sites.

The law does not apply only to typical piracy — someone uploading the new Beyoncé album or a bootleg episode of Game of Thrones — but also when, say, a parent posts a video of her child singing a song from that Beyoncé album, or when a YouTuber comments on that GoT episode, using a clip from the show. This is the opposite of current U.S. law, under which the user is liable for copyright infringement and platforms have to take down material only if notified by copyright holders.

Going forward, platforms operating in the European Union will have to show that they have made their "best efforts" to detect and block protected content. The law also requires them to acquire licenses for the content that is shared on their sites.

The potential impact on Hollywood and Silicon Valley is enormous. Facebook and Google both earn between a quarter and a third of their revenue in Europe ($4.15 billion for Facebook last quarter, $44.5 billion for Google parent company Alphabet Inc). And the new law will affect any film or television studio — as well as any writer, director or performer — whose work is sold or distributed in Europe, a territory of some 515 million people with a collective GDP of more than $20 trillion.

The actual financial repercussions of the new legislation will depend on how it is implemented and how companies — both social media platforms and rights holders — react. But Facebook and Google could have to shell out billions in new licensing revenue to publishers, music companies and film and TV creators.

While Facebook and YouTube haven't commented directly on the EU directive, a Google spokesperson said the new law was an improvement on two-decades-old copyright legislation in Europe but "will still lead to legal uncertainty and will hurt Europe's creative and digital economies."

And Europe's present could be America's future. U.S. legislators, reacting to the growing public backlash against the power and influence of the digital giants, are increasingly pointing to the European model as a solution. House Speaker Nancy Pelosi, speaking in April shortly after the European Parliament passed the Copyright Directive, said she supports a change in U.S. law to make internet companies responsible for what is posted on their platforms. On an April 12 podcast interview with Kara Swisher of Recode, Pelosi echoed the supporters of the EU law, saying the "era of self-regulation" for the likes of Facebook and YouTube should "probably" come to an end.

"For the platforms, the [EU directive] is a complete paradigm shift — it changes everything," says Stephan Dreyer, a senior researcher in media law and media governance at the University of Hamburg in Germany. "It completely shifts the position of power from the platforms to the rights holders. For Facebook, Google and company, it won't be easy."

"It is going to be very difficult for companies to put a strategy in place," adds Mike Shaw, partner at Marks & Clerk, a London-based group of intellectual property attorneys and consultants. "The obvious solution would be to limit the amount of content that users are allowed to upload — to block as much as possible to avoid infringements and copyright fees. But that goes against the whole purpose of these social media platforms — they'd be accused of censorship and would lose public support."

Evan Engstrom, executive director of tech advocacy group Engine, which has received funding from Google, notes that even if the digital giants wanted to block everything, they wouldn't be able to. "Upload filters just don't work like that," he says. "They only work if you have a fully accurate library of all the content out there. And if you have even a slight change — a different edit, music or technical alteration — the filter can't catch it."

Indeed, the sheer volume of content involved is colossal. YouTube estimates that its users upload 400 hours of video content to the site every minute. The company has invested $100 million in content-matching software ContentID and, by its own estimation, has paid out more than $3 billion to rights holders since 2007. Facebook offers something similar, called Rights Manager, though it doesn't disclose the revenue it pays out to rights holders.

For many, particularly in the music business, which has seen artists' content widely distributed and pirated online, that isn't nearly enough. The music industry association IFPI notes that YouTube pays less than $1 per user in royalties to musicians, compared to around $20 per user paid by subscription streaming service Spotify. The promise of increased revenue — closing what the labels call the "value gap" between the demand for their content and the money the platforms pay them — is the main reason the Copyright Directive has near-universal support among musicians and major labels.

Big publishing companies — including German newspaper and magazine giant Axel Springer, which lobbied hard to push the law through — also hope the directive will close the "value gap" in news and journalism. A section of the legislation, Article 11, requires aggregators such as Google News to pay a "link tax" if they reproduce snippets or previews of an article in their search results. Wikipedia and other nonprofit or open-source platforms will be exempt. Richard Gingras, Google's vp news, has warned that the company could switch off its Google News service entirely in the EU if the "link tax" proves too onerous or unworkable.

But if tech companies — broadly — think the EU directive is a bad thing, and the music and news industries — broadly — welcome it, things are more complicated for the film and TV industry. The Motion Picture Association has warned that the new law hurts film and television producers by "improving the position of platforms, but not of rights holders" because the platforms can escape liability for copyright violation if they can show they made their "best efforts" to detect and block illegal content.

Production companies, including the Hollywood studios, have criticized the directive, claiming it is actually too lax when it comes to copyright protection. They note the final version of the directive does not explicitly require platforms to introduce upload filters. And smaller companies — those with less than $11 million in annual revenue or fewer than 5 million monthly unique visitors — will be exempt. "The studios have no interest in having their material on YouTube at all," says Dreyer, "so they want restrictions to be as tight as possible."

Not so with writers and directors, who have backed the EU directive and celebrated a major victory when the law passed. The directive greatly strengthens the rights of authors by forcing production companies and distributors to report how much they earn from online sales and to properly compensate the original creators. Many in the creative community see the directive as a key first step toward a rebalance of power between European writers and the industry's traditional gatekeepers — be they broadcasters, studios or platforms. Currently, the vast majority of European creatives are signed to buyout contracts and receive zero backend remuneration for their work, no matter how successful it is.

"This is just what we needed and just what we had hoped for,” says French screenwriter Yves Nilly, president of Writers & Directors Worldwide, a lobbying group. “Finally we have the power to negotiate with producers … for better terms."

There is still plenty of time to debate since the European Copyright Directive won't actually be enforced until at least 2021. The individual parliaments across 27 European countries have two years to interpret the directive and write it into their own national law. Six countries — Italy, Sweden, Poland, Finland, the Netherlands and Luxembourg — actually voted against the directive, so implementation is likely to be uneven, setting the stage for legal challenges later on.

"There's going to be muddling through, a whole lot of muddle, before we get legal clarity on this,” says Steven Wilf, professor of global commerce at the University of Connecticut Law School. “But what I do know is that it won't be as bad as the naysayers think and it won't be as good as the supporters hope. … It won't be an end to social media; it won't crush freedom of speech; the old business models will continue to exist, they will just have to adapt."

Even its harshest critics admit that the directive is unlikely to "break the internet," as some activists once claimed. The lasting impact of the legislation, however, may not be seen in your Facebook feed or in YouTube's balance sheet.

"The vast majority of users will barely notice the changes," Dreyer also concedes. "But I worry about this trend. Each individual law seems reasonable enough. But slowly, systematically, we are putting limits on freedom of speech and freedom of expression."

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Still Legal? Five Online Activities That Could Change Under the New Euro Law
From memes to cat videos, the EU copyright legislation could impact anyone using the internet to post or share content online

Movie Clips
EXAMPLE: A YouTube star mocks a scene from the new Avengers movie, using a clip from the film.

Going forward, platforms like YouTube will be legally liable if their users post unlicensed content — like a movie clip — to their site. Most expect YouTube will sign deals with the big studios and record labels to make sure none of their content gets blocked.

Music
EXAMPLE: A comedian posts a parody of a new Beyoncé song to his own site, using the same melody as the original.

It depends on how popular the comedian is. Smaller sites — ones with fewer than 5 million unique users a month and annual revenue of less than $11 million — will continue to operate under the old laws, having to license or take down content only if rights holders ask them to.

News Stories
EXAMPLE: You tweet a comment to a news story, quoting the original story at length.

Twitter, Google News, Facebook and other platforms will be required to pay a "link tax" if users' posts include more than a "short snippet" from an original news article. Just how "short" and "snippet" are defined will be the focus of future legal battles.

Memes
EXAMPLE: You screen-grab an embarrassing moment from the Oscars, add a comment and turn it into an Instagram meme.

Internet rights activists have called the Copyright Directive "the death of the meme," but, as written, the legislation explicitly protects this sort of freedom of expression. Expect technical hiccups, however, as upload filters misidentify legal memes as illegal piracy.

Personal Photos or Videos
EXAMPLE: You find a cute picture of a cat online and post it to your Facebook friends.

If you took the picture yourself, you own it. But if it's someone else's cat pic, there could be a problem. Still photos — among the easiest content to watermark and track online — could be blocked en masse, leading to a lot of very angry cat people. — S.R.

A version of this story first appeared in the April 24 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.