EU vs. Hollywood: The Battle Over "Buy One, Get 27 Free"

European Commissioner for Competition Margrethe Vestager - H 2015
AP Images

European Commissioner for Competition Margrethe Vestager - H 2015

The European Commission’s antitrust complaint seeks to eliminate trade barriers and create a single digital market. But that could cost the six major Hollywood studios billions.

This story first appeared in the August 7 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

Is this war? On July 23, the European Commission -- the European Union's executive arm -- sent an antitrust complaint to the six major U.S. film studios as well as Sky UK, a possible opening salvo against Hollywood.

The EU claims Sky's licensing deals with Disney, NBCUniversal, Paramount, Sony, 20th Century Fox and Warner Bros. that restrict access to their films outside of Britain and Ireland violate laws guaranteeing free trade among the 28 EU countries. "Consumers want to watch the pay TV channels of their choice, regardless of where they live or travel in the EU," said Europe antitrust boss Margrethe Vestager in a statement.

Europe is caught between a proposal to eliminate trade barriers among EU countries to create a "digital single market" and the traditional film licensing system that splits the continent into territories -- so crucial to Hollywood studios. The U.S. and European film industries have warned that killing territoriality would leave rights holders unable to protect copyrights. Any EU territory could buy a film for a pittance and make it available online throughout Europe. "It's buy one, get 27 free," says one veteran European film producer. Alfred Holighaus, president of German film umbrella organization SPIO, tells THR that EU copyright and competition laws "could not be harmonized without destroying copyright."

The official complaint is called a statement of objections, which in an antitrust case often is followed by a fine of as much as 10 percent of a company's most recent global annual sales. For Disney, that would mean forking over nearly $5 billion. Fox could pay more than $3 billion, Sony more than $7 billion.

In a statement, Disney called the EU action "destructive of consumer value." Warners and NBCU said they would cooperate with the EU's investigation. Paramount, Fox and Sony had not commented at press time, and Sky UK said it will "respond in due course."

The EU investigation could take months, and Sanford C. Bernstein analyst Claudio Aspesi believes that if territoriality falls, studios would suffer huge losses because not many buyers could afford rights throughout the continent; plus, more "local competitors means higher revenues."