Union still tuning into the new economy

Date: 19/10/00

By Peter Chapman

MARIO Monti is probably sleeping a lot more soundly these days. After four months of intense pressure and speculation, the Competition Commissioner last week approved the biggest media merger of all time, worth a massive 150 billion euro.

In doing so, he showed that the EU can play a major role in policing huge business deals on the global stage - even as it struggles to boost its own media sector.

The shy Italian trust-buster and his merger task force skilfully untangled a complex web of commercial inter-relationships between Time Warner and America Online, including their agreements with partners such as Germany's dominant Bertelsmann. The process was tracked closely by press hordes on three continents and by financial institutions from Wall Street to the European Central Bank tower in Frankfurt.

But before giving his seal of approval to the deal, the economist-turned-Commissioner extracted a raft of concessions from the companies to ensure the EU's nascent market for music delivered over the Internet was not closed to competition from day one. Only a week before the Commission approved the landmark merger, Monti's demands forced Time Warner to pull out of a planned joint venture with the UK's EMI Music.

Monti's sway over such a deal - whose main players, apart from EMI, are not even European companies - reflects the enormous political and regulatory influence the Union now wields. But the sheer size of the AOL deal also puts the EU's attempts to prop up its own media sector into sobering context.

Monti had the power to say 'yes' or 'no' to a deal worth more than most people can imagine. But Union member states and MEPs are still bickering over the relatively paltry few hundred million euro they are going to spend on the next programme to subsidise Europe's film and audio-visual industries. With only three months to go until the funding is supposed to start being released, there is still no consensus on how much should actually be spent.

Culture Commissioner Viviane Reding wants to allocate 350 million euro over four years for 'Media Plus', but the Dutch are leading a group of member states which claim this amount is too high, while MEPs think it is too low and are demanding 550 million euro.

The final amount is likely to be closer to what the Netherlands' wants - around 300 million euro. But even this would represent a significant boost to theindustry, according to supporters of the plan.

They argue that not every firm is a Time Warner or AOL, and that it is Europe's relatively small-scale operations - along with its linguistic and cultural diversity - which give it its charm. Programmes such as Media Plus, they say, give the industry a chance of competing against Hollywood.

Plans to subsidise the Union's media may be in flux, but there are other sure-to-be significant developments bubbling just below the surface.

The EU is only just beginning to absorb the magnitude of this month's European Court of Justice ruling which overturned the planned ban on tobacco advertising. The verdict angered health campaigners but delighted the media industry, which had been steeling itself for the loss of one of its most lucrative revenue streams.

Meanwhile, Single Market Commissioner Frits Bolkestein has raised blood pressures in Washington with his controversial proposal to levy value added tax on imports of certain goods 'delivered digitally' over the Internet. The Americans would, of course, be the biggest victims of this tax.

Worse still for US e-commerce is the stance being taken by member states on the issue, with governments seemingly on the verge of endorsing amendments championed by the French presidency which critics claim would add an extra layer of bureaucracy. Bolkestein wanted firms to be able to choose one country in which they would register to pay VAT. But, fearing an exodus to low-tax Luxembourg, the French are pushing a plan which would require foreign companies to register for VAT in every member state where they do more than 5,000 euro worth of business.

The Union is also poised, after three years of wrangling, to adopt a fresh copyright framework updating 'old economy' rules to deal with the issues raised by the new Internet economy. The negotiations have not been easy, and further battles are likely before a final deal is struck, but MEPs are aboutto embark on the last leg of the long journey by scrutinising the proposals approved by internal market ministers in May.

As they do so, they will face a renewed a lobbying onslaught from celebrities and music-industry executives demanding tougher copyright rules to ward off what they claim is a threat to their livelihood: the potential for mass digital copying of their works. Other interested parties, such as music equipment manufacturers, will also be arguing for exemptions to the rules to, for example, allow home copying for private use.

European Commission Vice-President Neil Kinnock said at this year's Platinum Music Awards in Brussels that the Union must put in place "sensible laws to deter copyright abuse and combat piracy". Everyone agrees that if the EU finally gets its act together on this issue, it will be a great achievement.

Other successes on the media regulatory scene will, however, be harder to come by.

Efforts to standardise digital television technology, which will be the norm by the end of the decade, have come to nothing. Uniform standards for mobile telecoms networks are considered crucial to the success of the digital TV sector in the Union. But the Commission, stung by its abject failure to establish standards for high-definition television in the late Eighties and early Nineties, has taken a more restrained approach.

The Geneva-based European Broadcasting Union argues that the lack of compatibility between digital TV systems is holding back the market. But a Commission-funded study carried out by the Institut de l'Audiovisuel et des Telecommunications concluded that this did not seem to be a significant problem, with the industry placing more emphasis on securing the rights to top sporting events - their main magnet for pay-TV subscribers.

The regulation of Internet content is another area where concrete results are elusive. Hardcore pornography and other illicit material continues to litter web sites, but policy-makers have faced up to the fact that establishing Union-wide rules to protect citizens from this online onslaught will be difficult. They are focusing instead on less formal moves, such as setting up telephone hotlines or ratings systems.

Even though these rely heavily on the goodwill of Internet service providers, Webmasters or users, they are seen as the most promising ways to tackle the problem.

Policy-makers have also all but given up the idea of introducing rules to prevent media companies from owning too many newspapers or TV channels in a particular market. The 'media concentration' directive, promised in the mid-1990s when Monti was the Union's single market chief, is essentially dead.

That does not mean that in his new job, Monti lacks the tools to police the world's media Goliaths. He proved that was not the case during the Time Warner-AOL saga. But the sad irony for the EU is that its strongest media policy role is not selling its rich content across the globe, but rather playing anti-trust party pooper to oversized US mega mergers.

Article forms part of a survey 'EU and the media'.