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In July 2008, the Department for Culture, Media and Sport published a consultation on proposals for the implementation in the UK of certain aspects of the Audiovisual Media Services Directive 1 (Consultation).
The Directive was adopted on 19 December 2007 and EU Member States have until 19 December 2009 to transpose it into national law. The Directive revises and updates the existing Television Without Frontiers Directive 2 (TVWF Directive). The deadline for responses to the Consultation is 31 October 2008.
The Consultation focuses on the Government’s proposals regarding four specific issues covered in the Directive, namely the introduction of a system for regulating video-on-demand services; the introduction of a system for regulating advertising in video-on-demand services; a new product placement regime; and controls over the content of non-EU satellite channels that are uplinked from a ground station in the UK.
This article summarises the main provisions of the Consultation, focussing on the proposals for regulating VOD services, advertising on VOD services, product placement and prop placement. The article concludes by asking what the television industry is likely to think about the Government’s “light touch” approach to the regulation of VOD, as against the “don’t touch” approach favoured in respect of the current prohibition of product placement in UK programmes.
Scope of the Consultation
The Consultation seeks views on the UK Government’s proposals in relation to four specific issues in the Directive that are expected to require legislation in order to implement them in the UK. These are:
- the extension of the scope of regulation to video-on-demand services and the clarification of the application of the Directive to scheduled television broadcasting services delivered over non-traditional platforms;
- the introduction of a system for regulating the programme and advertising content of video-on-demand services which are established in the UK;
- a formal prohibition in UK law of product placement in television and video-on-demand programming, subject to certain possible exemptions; and
- controls over the content of satellite television broadcasts from outside the EU that can be received within the EU and are uplinked to a satellite from a ground station in the UK.
What the Consultation does not cover
The Directive introduced a number of other provisions that are not dealt with by the Consultation:
- The Directive allows television broadcasters to take short extracts from other broadcasters' exclusive coverage of sports and other major events for use in news reports. The Government is considering this issue separately.
- The rules on advertising breaks in television broadcasting have been liberalised. Ofcom consulted on changes to the rules applicable in the UK 3 and has introduced a new Code on the Scheduling of Television Advertising 4 , which will replace the Rules on the Amount and Distribution of Advertising from 1 September 2008.
- The Directive introduced changes to the amount of advertising allowed in television broadcasting, and Ofcom proposes to consult on the implementation of these changes later in 2008.
- Certain other aspects of the Directive do not require legislation, and the Government does not propose to consult on implementation action in respect of them.
What is an “On-demand Audiovisual Media Service”?
Before addressing the Government’s proposals for regulating on-demand services, it is important to understand exactly which services are intended to be regulated. Taking the Articles and the Recitals from the Directive together, an on-demand audiovisual media service 5 is covered by the Directive if all the following conditions are met:
- it is operated by a ‘media service provider’ 6 within the jurisdiction of a Member State of the EU/EEA ; 7
- the media service provider exercises editorial responsibility ; 8
- the principal purpose of the service is the provision of programmes ; 9
- the programmes are intended to inform, entertain, or educate the general public ; 10
- the media service provider sends the programmes to the user for viewing at a time chosen by the user ; 11
- it is a mass media service intended for reception by the general public and with the potential to have a clear impact on a significant proportion of the public ; 12
- it is ‘television–like’ 13 in that:
- it competes for the same audience as television broadcasting; and
- the nature and means of access to the service mean that reasonable consumer expectations of it (in terms of regulatory protection) would be the same as for television broadcasting.
It follows from the definition outlined above that many on-demand services that include audiovisual material are not covered by the Directive. The Recitals give some examples of services that are excluded from its scope:
- services that are primarily non-economic and not in competition with television broadcasting;
- services allowing users to share user-generated content;
- private correspondence and e-mails
- services where the audiovisual content is incidental to the main purpose of the service;
- gaming and gambling services;
- online games;
- search engines; and
- electronic versions of newspapers and magazines.
Recital 25 of the Directive makes it clear that all the criteria set out above must be satisfied in order for a particular service to be covered. A service is therefore excluded from the terms of the Directive if, for example, its principal purpose is not the provision of ‘programmes’, or if it is not competing for the same audience as television broadcasting.
The current position in the UK in respect of the regulation of VOD services
The BBC's VOD services are overseen by the BBC Trust. Other VOD services fell within the definition of broadcasting services and were regulated by Ofcom before the implementation of the Communications Act 2003. Since then, these services have not been regulated by any statutory body, but the industry has set up two self-regulatory bodies: the Association for Television On Demand and the Independent Mobile Classification Body, of which membership is voluntary.
The Government’s preferred option for the regulation of VOD services
Because there is no statutory body with responsibility for regulating VOD services, the Government needs to legislate to empower one or more regulatory bodies to draw up and enforce codes of practice for providers of VOD services.
Firstly, the Government proposes to legislate by way of amendment to the Communications Act 2003 to transpose into UK law the definition of on-demand audio-visual media services in the Directive and, in particular, to delineate the class of video-on-demand services and advertising in such services to which regulation will apply, and to identify the type of service providers to be regulated. The Government is particularly keen to ensure that only those services that include programmes similar to those available on television broadcast services should be regulated.
While the Directive encourages Member States to use co- and self-regulation where possible, the Government’s view is that self-regulation for on-demand audiovisual media services is not sufficient to implement the Directive’s other requirements. The Government therefore plans to implement these requirements under a system of co-regulation that would allow the UK VOD industry itself to take the lead in setting and enforcing standards for the content of its services. There would need to be legislation that gave either the Government or Ofcom backstop powers to intervene if necessary, although this would be very much a last resort.
Under the Government’s preferred option, it would assign powers to Ofcom on the basis that Ofcom would devolve responsibility for the day to day operation of the regulatory regime to the co-regulatory institution. The final decision on the selection of this body would be a matter for Ofcom in conjunction with the DCMS, subject to further public consultation. The co-regulator will be responsible for drawing up and maintaining a standards code, in consultation with the industry and agreed with Ofcom. It would also be responsible for complaints handling and have some enforcement powers including the ability to sanction service providers in the event of code breaches. Ofcom, however, would retain backstop powers, enabling it to impose sanctions in the event of serious breaches, and to intervene on evidence that systemic failure has occurred in the operation of the co-regulatory body. Ofcom would therefore have overall responsibility for overseeing content regulation in both television and on-video-demand services.
The Government’s preferred option for the regulation of advertising in VOD services
The Directive requires advertising ("audio-visual commercial communication") to be regulated where images accompany or are included in a programme. The consultation discusses the different nature of advertising on the internet, where advertisements do not simply sit within programmes (as in conventional television broadcasting), but may appear on the screen regardless of the programme requested, because the viewer has accessed a particular video-on-demand service, and discusses the possible interpretations of the definition of "accompany or are included in a programme".
The Government’s preferred option is to regulate advertisements in relation to the service being accessed, as opposed to regulating simply in relation to advertisements that appear within or adjacent to programmes.
The consultation discusses options for appointing a regulator of advertising in video-on-demand services. The Government would prefer the Advertising Standards Authority (ASA) to be the regulator, as it already is for television broadcast advertising. This would mean that the ASA could continue to act as a one-stop shop for all public complaints and concerns about advertising in the UK. The ASA would need to draw up a new code specifically for video-on-demand services to add to its two existing codes for broadcast advertisements (BCAP) and advertisements in other media (CAP)..
The current position in the UK in respect of product placement
The UK interpreted the requirements of the TVWF Directive as a prohibition on product placement in television broadcasting and so prohibited product placement in television programmes produced or commissioned by broadcasters within its jurisdiction 14. The rule does not apply to VOD services.
Ofcom’s Broadcasting Code also means that UK television broadcasters are able to show cinema films and non-UK television programmes that contain product placement. There are numerous examples of this. This is recognisably a compromise, but the rationale is not merely practical: broadcasters will have acquired the programme on the basis of audience appeal, rather than because they have been paid by an advertiser, and the commercial element must still avoid “undue prominence”. In some cases therefore the product or brand reference concerned may be pixellated or otherwise edited.
Product placement under the Directive
Article 3(g) of the Directive requires Member States to implement a general prohibition on product placement. However, by way of derogation, Member States may allow product placement in certain genres of programme if they wish.
The Government’s preferred approach to Product Placement
Although it stresses that it has not taken a final decision, the Government’s initial view is that it is right to continue so far as possible to prohibit product placement on television in the UK, not to take advantage of the permitted derogations, and that the UK’s rules in this area should apply equally to television and VOD services. As such, the Government’s preferred option is to legislate to prohibit produce placement in all types of programming produced in the UK, including VOD services.
The Consultation sets out the Government’s central intention - to ensure continued viewer and consumer confidence in the integrity of television and VOD programming and to maintain a reasonable distinction between editorial and commercial material.
The Consultation recognises that following its 2005-6 consultation 15 , Ofcom concluded that product placement was an issue on which there was no consensus. Commercial broadcasters and advertisers generally favoured a controlled introduction of product placement, but consumer and viewer groups were strongly opposed.
On the pro-relaxation side of the debate, the Consultation acknowledges that it is argued that income from product placement will help broadcasting, including commercial public service broadcasting, to compete more effectively with other forms of entertainment at a time of increasing competition for people’s attention and for advertising revenues. This was the principal reason cited by the European Commission when bringing forward its proposals. Very significant levels of potential income have been quoted: in the 2005 consultation document, Ofcom noted that PQ Media estimated television product placement in the USA to be worth $1.87 billion in 2004 and due to grow by 30% in 2005. On the other hand the US figure remained small compared with traditional television advertising spot revenues there (about 3.3% of spot revenues) 16 .
Ofcom’s analysis suggested that in the UK income of some £25-35 million a year after five years might be achievable; if US levels of 3.3% of spot advertising could be achieved, there would be potential to reach £120-125 million (at end 2005 prices). But the Consultation goes on to propose that these figures are likely to be overstated, given the limitations which were introduced into the Directive on the genres in which products could be placed, entirely excluding children’s programmes, and the addition of conditions designed to protect editorial integrity and maintain the prohibition against undue prominence. Furthermore, UK audiences would be unlikely to find acceptable significant levels of product placement, certainly in the early years of any liberalisation. By way of conclusion, Ofcom also noted that the ‘predicted economic benefits’ of product placement ‘appear to remain modest’ 17.
The Consultation also notes that there is increasing concern in the US about levels of product placement - it has been reported that in last season’s American Idol there were 4,349 product placement occurrences, and 3,291 in the first three months of 2008 alone. The Federal Communications Commission is examining the introduction of a requirement for better information for viewers about who has paid for their products to be featured.
Balanced against the economic benefits of a relaxation of the rules governing product placement, the Government suggests that allowing product placement in the UK would risk damaging viewer and consumer confidence in the integrity of UK-produced programming.
For the Government, the key issue therefore is whether the comparatively modest additional income that is forecast, at least in the short term, would justify abandoning the long-held principles of European and UK broadcasting. According to the Consultation, an important element of the success of broadcasting in the UK, and especially of public service broadcasting, has been the trust audiences have been able to have in broadcasters. This has been challenged by recent abuses of premium rate telephone charging and there must be a priority now for broadcasters to re-build audience trust in their integrity and maintain their distinctiveness from other media.
While the Consultation stresses that the Government remains open to other options, the Consultation devotes pages and pages to a justification of its preferred approach to product placement. Just one paragraph is given over to canvassing views on other options. This should give some indication of how entrenched is the Government’s view on this.
Prop Placement
The blanket prohibition expressed in Rule 10.5 of Ofcom’s Broadcasting Code exempts from the definition of product placement so-called “prop placement”, i.e. the use of products or services that have been supplied for less than value or for free, provided that their inclusion is justified editorially, conforms to the rules on editorial independence and avoids undue prominence.
The Directive imposes some restraints in this area. It requires the UK, like every other Member State, to introduce a “significant value” threshold for the goods or services involved in a prop placement. Above that ‘significant value’ the goods or services involved fall to be treated as product placement.
The Government is inviting views on what should constitute “significant value”. The Consultation states that the “significant value” for prop placement purposes does not necessarily have to represent the retail or wholesale cost of a particular item that has been provided free of charge. The Government’s view is that it should represent the value to the broadcaster or programme-maker. For example, in the case of a car loaned for the production of a television programme, it might represent the hire cost for the period. The Government is also interested in views as to whether a specific amount should similarly apply in the UK and, if so, at what level it should be set. In Austria, the authorities have a set benchmark of €1,000 as the dividing line between prop placement and product placement. One alternative approach, for example, might be to apply a value that is related to the overall cost of the production and that therefore varies from one programme to another.
Whatever is decided as the “significant value”, the UK will be able to allow prop placements above the “significant value”, provided that it ensures that they are subject to rules set out in the Directive about permissible genres and notifying viewers. A key issue is whether signalling should take the form of a generalised announcement, such as “this programme contains product placement”, or something more specific. This will be left to Ofcom and the VOD-regulator to decide.
Satellite Uplinks
The Directive changes the criteria for determining which Member State has jurisdiction over non-EU television channels intended for reception in the EU. Under the TVWF Directive, such channels are assigned to the jurisdiction of the Member State responsible for the satellite capacity being used. Under the Directive, it is the Member State with responsibility for the satellite uplink that has jurisdiction over these non-EU channels. The Directive requires the UK to ensure that non-EU channels uplinked from the UK meet minimum EU standards and to take prompt action against services, if, for example, they broadcast race hatred material.
In this respect, the Government’s intention is to subject non-EU broadcasters to licensing in the same way as media service providers established in the UK. They would be subject to the Ofcom Broadcasting Code and required to pay a licence fee. In order to ensure that Ofcom could effectively sanction such channels, the plan is to introduce a contingency power to take a channel off air by issuing an instruction to an uplink provider. In other words, the uplink provider would be required to stop uplinking the channel to a satellite.
Comment
Taking the regulation of VOD services first, the Consultation is unlikely to satisfy everyone, particularly the few who believe VOD services should be entirely unregulated. Such a position is now becoming increasingly untenable in the light of the development in recent years (and long before the Directive) of a regulatory culture for audiovisual media services predicated on protecting children and the vulnerable from harmful content.
The Government was opposed to the extension in the scope of the TVWF Directive, and was instrumental in negotiating the inclusion of provisions to enable implementation to be via co-regulatory schemes. It is therefore no surprise to see the Government advocating co-regulatory schemes in the Consultation.
On the basis that self-regulation is out of the question, the more mainstream operators are likely to welcome the fact that the issue of the appropriate way to regulate VOD services is being dealt with under a mercifully “light-touch” approach overseen by Ofcom, an organisation in which the Government seems to have much faith.
More controversial is the issue of product placement, or the continued lack of it. In its 2005 Consultation on issues related to product placement 18 , Ofcom sought to anticipate a relaxation under the proposed Directive, as it then was, of rules on product placement. At the time, there was much talk of opening up what could eventually be a rich revenue stream for broadcasters and independent production companies facing the dissipation of advertising revenue from traditional TV spot advertising. At the time, Ofcom appeared to share those sentiments, at least to a degree, and among many there was a strong sense from the 2005 Consultation that the communications regulator was prepared to see product placement in television programmes, and indeed in on-demand services, insofar as the new Directive would allow.
One view is that the Government’s hands are tied in respect of a relaxation of the rules governing product placement. Since audiences “would be unlikely to find acceptable significant levels of product placement” 19 , and since it is doubtful “whether the comparatively modest additional income which is forecast…would justify abandoning the long-held principles of European and UK broadcasting” 20, perhaps it is not surprising that in the circumstances the Government feels the need to trumpet the principles of safeguarding audience’s interests while at the same time avoiding any perception that it is acquiescing in the erosion of audience trust.
A contrary view, however, it that the Government has taken a reactionary line and missed an opportunity to address a serious concern - that with the reduction in levels of income generated by spot advertising, broadcasters continue to need to find alternative financing to invest in their programmes.
Article to be published in the Entertainment Law Review Volume 20 Issue 1 2009. Reproduced here with permission of Sweet & Maxwell.
1 Directive 2007/65/EC (Directive).
2 Directive 89/552/EEC, amended by 97/36/EC.
3 Review of television advertising and teleshopping regulation - Proposals on advertising distribution, and options for the amount of advertising and teleshopping, published by Ofcom on 19 March 2008.
4 Code on the Scheduling of Television Advertising - Revised rules on the scheduling of advertisements, published by Ofcom on 24 July 2008.
5 For ease of reference, VOD services is used interchangeably with this phrase.
6 As defined in Article 1(d) of the Directive.
7 As defined in Article 2.
8 As defined in Article 1 (c).
9 As defined in Article 1 (b).
10 Article 1(a) and Recital 18.
11 Article 1(g).
12 Recital 16.
13 Recital 17.
14 Rule 10.5, Ofcom Broadcasting Code.
15 Product Placement: A consultation on issues related to product placement, published by Ofcom on 19 December 2005.
16 Product Placement: A consultation on issues related to product placement, published by Ofcom on 19 December 2005, paragraph 3.15.
17 See Product Placement: summary of responses to consultation on issues relating to product placement, published by Ofcom on 18 October 2006, paragraph 1.4.
18 See Summary of responses to consultation on issues relating to product placement, published by Ofcom on 18 October 2006, paragraph 3.14 et seq.
19 Consultation, Part 4, paragraph 32.
20 Consultation, Part 4, paragraph 34.
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