EUROPEAN COMMISSION Brussels, 25.5.2016 SWD(2016) 168 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services in view of changing market realities

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{SWD(2016) 169 final}



TABLE OF CONTENT 1.Context 2.What is the problem and why is it a problem? 2.1 Conclusions of the ex-post evaluation of the AVMSD under REFIT 2.2 Description of the problems and their drivers 2.2.1 Insufficient protection of minors and consumers in video-sharing platforms 2.2.2 Lack of a level playing field and internal market weaknesses 2.2.3. Rules on commercial communications no longer fit for purpose 2.3 What is the EU dimension of the problem? 2.4 How would the problem evolve, all things being equal? 3.Why should the EU act? 4.What should be achieved? 5.What are the various options to achieve the objectives and what are their impacts? 5.1 Options addressing the problem of insufficient minors and consumers protection in video-sharing platforms 5.2 Options addressing the problem of the lack of a level playing field and internal market weaknesses 5.2.1 Promotion of European works 5.2.2 Protection of minors in on-demand services 5.2.3 Country of origin principle

5.2.4 Independence of Regulators 5.3 Option addressing the problem of the rules on commercial communications no longer fit for purpose 5.4 Discarded option: Prominence of content of general interest 5.5 Impact of the combination of the preferred options 6.How would actual impacts be evaluated or monitored? 6.1 Monitoring 6.2 Evaluation ANNEXES……………………………………………………………………..………………..…....58 1.Context The objective of the Audiovisual Media Services Directive (AVMSD) is to create and ensure the proper functioning of a single European market for audiovisual media services, while contributing to the promotion of cultural diversity, providing an adequate level of consumer protection and safeguarding media pluralism. The AVMSD is based on the 'country of origin principle' ("COO"). Under COO audiovisual media service providers are subject only to the rules of the Member State where they are established. By abiding by these rules they can freely provide services across the EU. As such, the AVMSD has facilitated the cross-border transmission of TV channels and 'Video On-Demand' (VoD) services. The AVMSD sets some minimum harmonization standards, which implies that Member States are free to enact stricter rules at national level. The AVMSD contains some limited exceptions to the operation of of COO. The AVMSD applies to television broadcasts and on-demand services if all the following conditions are met (i) providers have editorial responsibility, (ii) providers have as their principal business purpose the provision of programmes to inform, entertain or educate the general public; and (iii) these programmes are comparable, in form and content, to television ("TV-like"). The AVMSD does not cover activities that are primarily non-economic.

The overall size of the European audiovisual sector in 2014 was around EUR 105.8 million. It is mainly formed by large companies (for more details on the overall impact of AVMSD on SMEs, see ANNEX 3). The audiovisual media landscape is changing at a rapid pace due to ever increasing convergence between television and services distributed via the Internet. Consumers increasingly access on-demand content via smart/connected TVs and portable devices. Consumers, in particular the young ones, watch videos, including audiovisual content generated by private users ("UGC"), on the Internet. Traditional broadcasting in the EU remains strong in terms of viewership, advertising revenues, and investment in content (around 30% of revenues). However, new business models are emerging. Broadcasters are extending their activities online and new players offering audiovisual content via the Internet (e.g. on-demand service providers and video-sharing platforms) are getting stronger and competing for the same audiences (for more details see ANNEX 6). However, TV broadcasting, on-demand services and video-sharing platforms are subject to different rules and varying levels of consumer protection. The Digital Single Market (DSM) strategy calls for a modernisation of the AVMSD to reflect market and technological developments. It requires the Commission to consider whether the scope of the AVMSD should be broadened to encompass new services and players currently excluded. In carrying out this review the Commission should bear in mind the objectives of the Directive, namely the protection of minors, consumers and promotion of European works. The overall vision of the DSM strategy is to create an internal market for digital content and services and ensure that Europe is a leader in the global digital economy. 2.What is the problem and why is it a problem? 2.1 Conclusions of the ex-post evaluation of the AVMSD under REFIT The Impact Assessment has been carried out in parallel to the AVMSD ex post evaluation under the Regulatory Fitness and Performance Programme (REFIT) (see ANNEX 4). The overall conclusion is that the AVMSD objectives are still relevant. If the Directive were repealed the audiovisual internal market would collapse since providers would no longer benefit from the COO, but would be subject to 28 different regimes and jurisdictions. This would increase their costs and undermine their propensity to provide cross border services, particularly into smaller Member States. Consumers would lose out because they would have less choice. The REFIT evaluation concluded that there is scope for simplification, specifically of the procedures that support the application of the COO principle (i.e. the criteria determining jurisdiction over providers and the derogation and cooperation procedures limiting freedom of reception and retransmission in specific cases). Some other rules are no longer fit to attain these objectives, primarily due to market developments and changes in viewing patterns. In particular, the REFIT evaluation has shown that there is room for improving and updating the rules on commercial communications. The REFIT evaluation has identified three main sets of problems: -Insufficient protection of minors and consumers when consuming videos on video-sharing platforms. -Lack of a level playing field between traditional broadcasting and on-demand services, and internal market weaknesses stemming from the fact that some of the AVMSD rules are not sufficiently precise. -Rules on commercial communications no longer fit for purpose It has also emerged from REFIT that there are different accessibility requirements of audiovisual media services for people with disabilities. In December 2015, the Commission adopted a proposal for a European Accessibility Act, which sets accessibility requirements for a wide range of products and services including audiovisual media services. As such, this Impact Assessment will not address the issue of accessibility. 2.2 Description of the problems and their drivers 2.2.1 Insufficient protection of minors and consumers in video-sharing platforms

Video-sharing platforms (like Youtube) host professionally produced videos and UGC. UGC can be violent, gory and pornographic and harmful to children. Children identify video-sharing platforms as mostly linked with violent, pornographic and other harmful content risks . Among the children who link risks to specific platforms, 32% mention video-sharing sites such as YouTube, followed by other websites (29%), social networking sites (13%) and games (10%). In the UK, ATVOD found that at least 44 000 primary school children accessed an adult website in one month alone . ATVOD has found that 23 of the top 25 adult websites visited by UK internet users provide instant, free and unrestricted access to hardcore pornographic videos. Hate speech is also increasingly accessible via video-sharing platforms. Based on data provided by some national law enforcement or other public bodies, the Fundamental Rights Agency reported an increase in anti-Semitic incidents online in numerous Member States. In the same vein, 73% of respondents to an anti-Semitism survey thought that anti-Semitism online had increased over the past five years . Video-sharing platforms employ tools like Autoplay (switched on by default for all videos in Youtube) which enable direct exposure to potentially harmful content and incitement to hatred. Exposure to harmful content or content inciting to hatred may also be fostered via new technical features such as streaming audiovisual content live on the Internet. The AVMSD, and its rules on protection of minors and hate speech, do not apply to UGC offered on video-sharing platforms since these platforms often do not control the selection of the content. These platforms are subject to the e-Commerce Directive (ECD) which does not require them as intermediaries to monitor content hosted by them nor to take any other pro-active measure. The ECD, however, requires platforms to remove illegal content if they are notified of such content, for example through a court order. The rationale of this ex-post system called "notice and takedown" lies in the fact that intermediaries cannot in principle technically control the content before it is posted. The e-Commerce Directive is therefore focused on illegal content and does not deal with harmful content. The main video-sharing platforms do take some pro-active steps to protect minors from such harmful content and consumers from hate speech, but assess content against their own standards, which may differ from those set in the AVMSD. As a result of this different regulatory treatment consumers and minors are less protected when watching videos on these platforms. For example, the music video "College boy" of the group Indochine, containing graphic images of violent bullying of a school boy, is freely available on YouTube. However, the same video is subject to a watershed on TV in France under the application of the AVMSD. In another case, while YouTube removed a video of a woman being forced by her husband to walk naked in the street for violation of YouTube's Community guidelines, the same video still appears on the website Liveleak.com. By contrast, access to this type of videos is restricted under the AVMSD. While a number of harmful activities are carried on the Internet, the specificity of video comes from its power to best capture the attention of initially passive users. Thus, seeing violent sexual images, violence or hate speech are online risks that are most likely to be driven by audiovisual images. It must be borne in mind that in 2014, Internet video stood for 64% of total consumer internet traffic. This share is expected to increase up to 80% by 2019. The consumption of videos offered by video-sharing platforms is on the rise. Among minors, video viewing is one of the earliest Internet activities carried out by young children. In the 2015 public consultation most consumer organisations said that the current rules do not deliver sufficient consumer protection as they do not take into account the increasing importance of video-sharing platforms. Most of the Member States and regulators who called for an extension of the AVMSD rules to video-sharing platforms expressed a similar opinion. This view is also confirmed by ERGA (the European Regulators Group for Audiovisual Media Services). The impact of some self-regulatory initiatives in this field has so far been limited in particular in addressing certain types of harmful content, such as gory and violent videos, and hate speech. For example, the initiative You Rate It, the only one providing a rating tool for UGC, has not been taken up by YouTube. When it comes to protection of minors, ERGA acknowledged that self and co-regulation initiatives have an important role to play but said that existing initiatives have to be reinforced. There is no EU-wide code covering these issues. For more information on these initiatives and their limitations see ANNEXES 8 and 18. Based on available evidence, no consumer protection issues were identified in relation to commercial communications online. In the Public consultation, a consumer organisation and two other stakeholders pointed to a possible lack of transparency as to the advertising nature of certain content on YouTube. This is a matter covered by the Unfair Commercial Practices Directive (UCPD), which applies to misleading commercial practices. As regards the advertising of tobacco products, the existing prohibition ensures the required consumer protection. In general, self-regulatory advertising codes apply to advertising on all media (including TV, on-demand, print media, radio, and online). On this basis, Member States' self-regulatory and regulatory bodies are taking ation in this field, whether by issuing guidelines or by decisional practice. As such, there is no need to address this issue in this impact assessment. 2.2.2 Lack of a level playing field and internal market weaknesses 2.2.2.1 Lack of a level playing field The AVMSD foresees stricter requirements for TV broadcasting than for on-demand audiovisual media services notably in the fields of promotion of European works and protection of minors. Such a different treatment is no longer justified in view of changing consumer habits. An increasing number of consumers watch video on-demand. In the 28 Member States total on-demand consumer revenues soared from EUR 919 million in 2010 to EUR 2.5 billion in 2014, an increase of 272% and a CAGR in the 5 year period of 28% . In 2014 there were more than 2 563 VoD services in Europe, including catch-up TV services of broadcasters (932 services), branded channels on open platforms (408 services), VoD services providing access to a catalogue of programmes (1 126 services), and news portals (97 services): Figure 1: Total on-demand Consumer Revenues – EUR (M) by year and country – 2010-2014 Source: IHS The lighter rules applying to on-demand services undermine protection of minors and cultural diversity and distort competition.

A. Unequal level of contribution to promotion of European works and lack of effectiveness of the rules applying to on-demand services The AVMSD foresees measures to encourage support to European audiovisual production and distribution. TV broadcasters must reserve a majority of their transmission time for European and/or independent works. TV broadcasters must, where practicable, reserve a majority proportion of their transmission time to European works and at least 10 % of their transmission time or of their programming budget for European works created by independent producers. The provisions applying to on-demand services are lighter and more flexible. This results in diverse implementation by Member States (see ANNEX 13) and in video on-demand service providers not contributing significantly to the objective of promoting European works. The investment of the main TV groups in original programmes in 15 countries amounted to EUR 15.6 billionin 2013, i.e. 24 % of TV broadcasters revenues (EUR 65 billion). In comparison, on-demand providers made a minimal or even no contribution to the production and the promotion of EU works. They invested EUR 10 million in original content i.e. less than 1% of their total revenues (EUR 1.5 billion). As a result, some Member States intend to make on-demand service providers that are not under their jurisdiction contribute financially to European works if they target consumers in their territories. For example, Germany and France intend to apply levies to on-demand services coming from other Member States and targeting German or French audiences. This uncoordinated approach calls into question the operation of the Directive. Cultural diversity is also undermined by the limited contribution of on-demand services to the promotion of European works objectives. B. Differing level of protection of minors The AVMSD foresees that TV broadcasts shall not include seriously harmful programmes (pornography and strong violence) but may include potentially harmful programmes (erotic content and mild violence) provided measures are put in place to prevent children from hearing or seeing them. On-demand service providers are required to take appropriate measures so that minors would not normally hear or see seriously harmful content. No restriction applies to potentially harmful programmes provided in on-demand services. This difference in treatment is no longer justified since younger consumers watch about half less television than the average consumer. Their average TV viewing in 2014 was 2:03 minutes per day. A key factor is the rapidly growing availability of portable screens like smartphones and tablets used to access on-demand services. In the UK, in 2015, more than four in ten 5-15s (44%) watch on-demand television content, rising to half (51%) of 12-15s. One in five 5-15s (20%) who watch on-demand TV content, watch it daily, with around three in four (73%) watching at least weekly. Much of this is via portable devices. The above-mentioned different regulatory treatment has led to a competitive disadvantage for TV broadcasting and to a lower level of consumer protection in on-demand services. 2.2.2.2 Threats to the integrity of the audiovisual internal market A. Complex rules on COO and derogations The COO principle is the cornerstone of the Directive. It has facilitated the growth and proliferation of audiovisual media providers offering services across borders. At the end of 2013, 5 141 TV channels (no local and windows) were established in the EU. Almost 1 989 of them targeted foreign markets (either EU or extra EU). This share has increased from 28 % in 2009 - year of implementation - to 38 % in 2013. As far as VoD services are concerned, in 2015, on average in Member States, 31 % of the VoD services available are established in another EU country (see Section 2.3). A majority of Member States, regulators and industry participating in the 2015 consultation stressed that the COO approach has been effective. It also emerges from the comments made by Member States that there is a continued broad support for the COO principle . However, the rules underpinning its operation are too complex and difficult to apply. Most Member States and regulators responding to the 2015 Public consultation have experienced problems in determining which Member State has jurisdiction. For example, it can be difficult and time consuming to find in which Member States a satellite up-link is used or to determine the country having jurisdiction when operators have broadcast licenses in more than one Member State. In practice, there have been issues of unclear jurisdiction regarding Greece/UK and Spain/UK. Moreover, in a recent case concerning the restriction of the retransmission of a Russian language channel in Lithuania, the issue as to whether Sweden had jurisdiction over this channel was contentious.

The procedures allowing Member States to exceptionally derogating from the COO are imprecise and uncertain (e.g. they do not specify how the providers' right of defence should be exercised). Different procedures apply to TV broadcasting and on-demand services without there being a justification for such a difference. In the last years, there has been an increasing number of situations where Member States were reluctant to allow the retransmission of certain broadcasts coming from abroad into their territories and resorted to these procedures. These cases concern several Russian language channels broadcast into Lithuania and Latvia and allegedly containing incitement to hatred. In addition, Sweden considered that certain channels broadcasting from the UK infringed its stricter national rules on alcohol advertising. In other instances, concerns were raised regarding protection of minors. These ineffective and overly complex procedures pose a threat to the integrity of the internal market and create legal uncertainty and a lack of predictability (see ANNEX 9). B. No EU requirement on regulatory independence The independence of audiovisual regulatory bodies is considered to be very relevant for the effective enactment and application of the AVMSD, in particular in the areas of audiovisual commercial communications, jurisdiction and protection of minors and for the preservation of free and pluralistic media. Many respondents to the 2015 public consultation, in particular regulatory authorities, commercial broadcasters as well as NGOs and citizens, mentioned the current problems in relation to the lack of independence of regulatory authorities with a majority of respondents supporting the strengthening of the current rules. However, the AVMSD does not set any requirement for Member States to have an independent regulatory body. The absence of a formal obligation has contributed to diverse regulatory structures and varying degrees of independence (See Section 5.2.4). Yet, regulatory independence both from political bodies and commercial interests is essential to ensure effective market supervision, proper application of the rules of the Directive and to guarantee media freedom and pluralism. A captive regulator may treat differently the various players competing on the same market clearly distorting competition. This is why many EU regulatory frameworks in other domains (i.e. telecom, gas, electricity, postal services and personal data protection) mandate regulatory independence (see ANNEX 12). As examples in the audiovisual field, in the context of the Klubrádió case, the company sued the national regulator in Hungary for an economic loss resulting from an alleged unfair treatment which led to a delay in the granting of a license. Liberty Global also lodged a complaint against the Hungarian Media regulator that led to the preliminary ruling by ECJ concluding that the Hungarian Regulator had illegally requested Liberty Global to obtain a license in order to operate in Hungary . The association of commercial broadcasters (ACT) commented on the recent developments in Greece, pointing to the negative impact on the market of a transfer of powers from the Regulator to the Government. There is also evidence that the independence of audiovisual regulatory authorities has an impact on the providers' willingness to establish in an EU Member State and serve audiences in several Member States . Moreover, in the audiovisual sector, regulatory authorities lacking independence are not in a position to guarantee media freedom and pluralism. In many countries where independence of national regulatory bodies is weak, challenges to media freedom and pluralism over the last years have been reported . This was the case for Romania in the period from 2007 to 2012, where the Commission identified problems with ensuring media freedoms and with the independence of the audiovisual regulatory body . The same happened in Hungary in 2010, where a number of provisions of a draft law raised concerns related to media pluralism. The Commission , the European Parliament, the OSCE Representative on Freedom of the Media, the Council of Europe and other international bodies and NGOs active in the area of human rights and civil liberties, and Member States have all raised concerns related to both media freedom and the independence of the regulator. The OSCE Representative also recently called for respect of regulator's independence in Latvia following the dismissal of the Regulator chairman. 2.2.3. Rules on commercial communications no longer fit for purpose The REFIT evaluation confirmed that some of the rules on commercial communications are too rigid in the light of the evolution of the market. The AVMSD contains rules that apply to all audiovisual media services (e.g. on product placement, sponsorship and alcohol advertising). However, it lays down more rules that apply only to TV broadcasting. They set a maximum of 12 minutes of advertising per hour on television (i.e. 20% per hour), define how often TV films, cinematographic works and news programmes can be interrupted by advertisement, and set the minimum duration of teleshopping windows. Nowadays, the TV broadcasting specific rules are too rigid in a world where viewers are likely to switch to alternative offers, in particular without advertising. For example, in the USA where there are no minutage limitations, viewers overwhelmed with TV advertising, turned to other video offers (e.g. video on-demand) thereby disciplining the behaviour of TV broadcasters, who were forced to decrease the amount of advertising on their channels. In the EU, most broadcasters consider that the lack of flexibility of the 12 minute and insertion rules and the restrictive character of its exceptions prevent them from maximising their revenues around peak periods. The monitoring of advertising in Member States has indeed shown that this rule is regularly breached in a number of Member States. The rigidity of the rules on product placement and sponsorship has prevented these advertising formats from delivering their full potential in terms of revenues. Some regulators and Member States confirmed that the rules create legal uncertainty for stakeholders, discouraging them to invest in product placement. As a benchmark, in the US, where there is no material regulation of product placement, this format represents almost 5% of the TV ad spend market. In the UK, it represents a share of only 0.1%. In their replies to the public consultation, most broadcasters, advertisers and stakeholders from the alcohol sector consider that the AVMSD rules on alcohol advertising work well. They point to the efficiency of most self- and co-regulation developed in this area. However, the public health sector underlines that the rules should be reinforced .

The study to measure minors' exposure to alcohol advertising shows that "on average, a minor in the EU saw 200 alcohol impacts and an adult over 450 during one year (2013)". This means that 1.8% of all advertising seen by minors (under age 18) in 2013 was for alcoholic beverages (as compared to 2.2%. for ads seen by adults). In other words, children are exposed to one impact every two days, and at nearly half the rate of adults. Member States have been active in this domain in order to protect viewers, and in particular minors, from exposure to alcohol advertising: 24 of them have adopted stricter rules in this area and a number of them have defined the time before which alcohol advertising cannot be broadcast (i.e. watersheds). However, one major pitfall of such watersheds may be a shift of alcohol advertising just after peak time, at a time when minors, although less numerous, are still watching television quite massively. As the study on minors' exposure to alcohol advertising showed, when the time is not well adapted, minors may be exposed quite heavily to alcohol advertising just after the watershed. Moreover, given the divergences among Member States in peak viewing times for minors, when coupled with the COO principle, watersheds appear less efficient. The applicable watershed would be the one at the country of origin, while minors might be still watching TV in the country of destination. At the same time, the majority of countries have self- or co-regulatory schemes in place. Some of them are very efficient, while for others, there is scope for improvement. As regards commercial communications for HFSS foods, an evaluation of the Platform for Action on Diet, Physical Activity and Health concluded that stakeholders’ initiatives in the field of marketing and advertising have made good progress. However, their reach could be further strengthened. Marketing of foods and beverages is often a topic of intense discussion during the Platform meetings, and also those of the High Level Group on Nutrition and Physical Activity, with many stakeholders advocating for stricter frameworks (for instance, the High Level Group requested on 28 October 2015 that the WHO Nutrient Profile be used as a basis for dialogue with industry on the issue of food marketing to children). 2.3 What is the EU dimension of the problem? The AVMSD is the regulatory framework underpinning the audiovisual single market. Since the last revision of the Directive in 2007 this market has kept growing. As mentionned in Section 2.2.2.2, at the end of 2013, 38 % of TV channels established in the EU targeted foreign markets and 31 % of the VoD services available in the Member States are established in another Member State. The entry of video-sharing platforms and the corresponding changing viewing patterns and associated risks is a phenomenon, which affect all the Member States. The upcoming revision of the AVMSD is deemed to comply with both subsidiarity and proportionality by preserving the harmonization approach and cooperation mechanisms allowing Member States to take national specificities into account. The Directive minimum harmonisation approach has contributed to the completion of the internal market, while respecting the subsidiarity principle. Usually, Member States only adopt stricter or more detailed rules in those areas that are of particular importance to them. This has been the case for protection of minors (see ANNEX 14) and promotion of European works (see ANNEX 13) in on-demand services. It is proposed to reduce the disparities between the Member States by increasing the level of harmonisation and create more regulatory convergence. In the field of video-sharing platforms full harmonisation is proposed. 2.4 How would the problem evolve, all things being equal? The market for on-demand and online services will continue to increase and so the potential competitive disadvantage of TV broadcasting and the lower level of consumer protection. From a static point of view, the TV broadcasting market is still the strongest audiovisual market. In 2013, the linear television revenues in the EU 28 were EUR 83.6 billion. In comparison, the total consumer revenues of VoD and SVoD services amounted to EUR 2.5 billion i.e. 3% of the TV broadcasters' revenues.

However, from a dynamic perspective, the domination of TV broadcast is less obvious. Their growth rate has decreased from an average annual rate of 2.8% from 2009 to 2013, to only 0.3% in 2013. In the meantime, as mentioned in Section 2.2.2.1, the total on demand consumer revenues in the 28 Member States increased by 272 % increase at a compound annual growth rate of 28 %. According to the industry, by 2020, projections suggest that more than 20% of European households will have a specific, paid account with a SVoD provider. As a result of this, the projected turnover of all VoD services in Europe should increase by 15% annually to 2020, reaching EUR 6 billion. Mobile consumption is deemed to increase in the near future. It is expected that, by the end of 2020, the number of smartphones in Europe will have doubled, reaching 800 million, meaning that more than 70% of mobile subscriptions will be for smartphones. As said above, by 2019 80% of all mobile data traffic worldwide will be from video (compared to 64 % today). If the status quo were maintained, the problems identified would evolve as follows: -Consumers, in particular minors, would be increasingly exposed to harmful content and hate speech on video-sharing platforms. -TV broadcasting would continue to be at an unfair competitive disadvantage to video on-demand services. The differences in regulation would hurt competition and promotion of European works. -The integrity of the audiovisual internal market would suffer from the unclarity of some of the rules and procedures of the Directive. This would undermine the COO, which is the cornerstone of the AVMSD. -Regulators in certain countries would continue lacking independence, which would undermine the internal market and media freedom and pluralism. -Rules on commercial communications would remain inadapted to the market evolution. 3.Why should the EU act? As indicated above, the DSM Strategy announces the review of the AVMSD with a view to creating an audiovisual media framework fit for purpose for the 21st century. In the Council Conclusion of 25 November 2014 on European Audiovisual Policy in the Digital Era, the Council invited the Commission to "urgently complete the exercise of the review of the Audiovisual Media Service (AVMS) Directive in the light of the rapid technological and market changes resulting from the digital shift, and on the basis of the outcome of this review submit an appropriate proposal for the revision of this Directive as soon as possible, in respect of the principle of subsidiarity". The EP resolution towards a DSM urges the Commission to revise the AVMSD. 4.What should be achieved? The goal of the revision is to address the problems identified in Section 2.2: General objectives Specific objectives Enhance consumer and minors protection Enhance consumer and minors protection, in video sharing platforms Ensure a level playing field, preserve the integrity of the internal market and enhance legal certainty Establish more effective and fair rules on promotion of European works Ensure more effective and fair rules on the protection of minors in on-demand services Simplify and clarify the procedures to apply the COO rules Ensure regulatory impartiality across the EU Simplify the legislative framework Making more flexible and clear the rules on commercial communications 5.What are the various options to achieve the objectives and what are their impacts?

The present Impact Assessment includes the description of the options and their impacts in the same Section. For a detailed description of all the options presented below, see ANNEX 20. The options are grouped according to the problem they intend to address: In the first group (Section 5.1), the options intend to address the insufficient protection of minors and consumers in video-sharing platforms (Section 2.2.1): In order to partly address the deficit in consumer protection, both Options, A and B, seek to ensure that the AVMSD rules apply to certain new types of audiovisual content, such as short video-clips and stand-alone video sections embedded in other services. Option A, in addition, requires Member States to encourage video-sharing platforms without editorial responsibility to adopt self-regulatory measures regarding content harmful to minors and inciting to hatred (See Section 5.1.2). Options B goes beyond this by imposing on Member States an obligation to ensure that video-sharing platforms put in place appropriate measures with a view to protecting minors from harmful content and all viewers from hate speech. Member States would be encouraged to implement this provision via co-regulation (See Section 5.1.3). In the second group (Section 5.2), the options intend to address the lack of a level playing field and internal market weaknesses (See Section 2.2.2): When it comes to the uneven level of contribution to the promotion of European works between TV broadcasting and on-demand services, both Options, A and B, seek to achieve a level playing field. Option A does so by giving more flexibility to both TV broadcasting and on-demand services. Option B seeks a better balance between achieving a level playing field and ensuring cultural diversity. It does so by maintaining the status quo for TV broadcasting but reinforcing the rules for on-demand services (See Section 5.2.1.3). As regards the differing level of protection of minors, Option A strengthens the requirements related to the protection of minors on on-demand services. It also seeks to improve the level of information made available to consumers as regards the harmful nature of content and to simplify the notion of harmful content (See Section 5.2.2.2). In order to address the complexities of the rules on COO and derogations, Option A seeks to facilitate the identification of the country having jurisdiction over AVMS providers. This is done, on the one hand, by simplifying the rules that determine jurisdiction and, on the other hand, by ensuring transparency among Member States as to which of them has jurisdiction over each provider. Option A also improves the cooperation mechanisms foreseen in cases of exceptions to the COO. The objective is to render the procedures more effective and therefore preserve the COO principle (See Section 5.2.3.2). As regards the absence of EU requirement on regulatory independence, Option A seeks to increase the level playing field among providers across the EU by ensuring that all EU regulators are independent. It does so by introducing a legal requirement of independence and a minimum set of features that regulators need to meet (See Section 5.2.4.2). In the third section (Section 5.3), the option intends to address the problem of the rules on commercial communications no longer fit for purpose (See Section 2.2.3): Option A (See Section 5.3.2) seeks to address the lack of level playing field caused by the regulatory burden on providers when it comes to audiovisual commercial communication (AVCCs) rules while encouraging the development and improvement of codes of conduct to protect minors from alcohol advertising and from inappropriate AVCCs for HFSS foods.

5.1 Options addressing the problem of insufficient minors and consumers protection in video-sharing platforms 5.1.1 Status quo option The AVMSD does not apply to UGC in video-sharing platforms (e.g. YouTube). Video-sharing platforms are covered by the ECD, which warrants them limited liability for illegal content under certain conditions. The AVMSD applies to television broadcasts and on-demand audiovisual media services for which providers have editorial responsibility. To be covered by the Directive: (i) services must have as their principal purpose the provision of programmes to inform, entertain or educate the general public and (ii) programmes should be comparable, in form and content, to television ("TV-like"). Most recently, the ECJ has clarified the "TV likeness" and "principal purpose" requirements in the "New Media Online GmbH" case . Economic outcome Existing costs: Maintaining the status quo would not entail additional compliance costs or administrative costs. Outcome on the Internal market: As a result of the ECJ judgment in the "New Media Online GmbH" case, short videos can qualify as "TV like". In addition, according to the Court, the AVMSD applies when the audiovisual media content is in content and form independent of the main service offered by a provider (whether it is messaging, UGC, press articles, etc.). This is the case even when the main service is of a different nature, e.g. text, and is not merely an indissociable complement to that activity, in particular as a result of the links between the audiovisual offer and the offer in text form. As a consequence, more on-demand audiovisual media services (e.g. videos of short duration or self-standing video sections in a newspaper website) will be covered by the Directive. This will enhance legal certainty, the level playing field and consumer protection in the Internal Market. For these reasons, any revision of the AVMSD should include the codification of this judgment. Outcome on competitiveness: Players being covered by the Directive are at a competitive disadvantage compared to video-sharing platforms because the latter are subject to a lighter regulatory regime (the ECD). This was confirmed in the 2015 public consultation where most respondents from the Member States, regulators, and consumer organisations, as well as around half of public service and commercial broadcasters, flagged that the current framework can lead to the lack of a level playing field. Social outcome

Consumers and minors are not sufficiently protected in video-sharing platforms. 5.1.2 Option A: Self-regulation for protection of minors and consumers on video-sharing platforms 1) The AVMSD scope would be adapted to cover all audiovisual content under the editorial responsibility of a provider including short video clips placed by providers. This would be achieved by removing the "TV like" requirement. In addition, it would be clarified that the AVMSD would also cover other type of content such as stand-alone video sections in newspapers' websites. This would be achieved by codifying the interpretation of the “principal purpose” criterion in the light of the ECJ recent case-law in the case of "New Media Online GmbH". 2) Member States and the Commission would encourage video-sharing platforms to adopt self-regulatory measures to restrict access to content harmful to minors or inciting to hatred. Video-sharing platforms would be defined as those that exercise a degree of control, short of editorial responsibility, over the presentation of audiovisual content (including UGC), and whose principal business purpose is the provision of audiovisual services . This degree of control would include automatic means (such as tagging and sequencing a large amount of audiovisual content), including algorithms. This would exclude services such as mere hosting, caching, cloud computing, mere conduit, search engines and business services, which are subject to the ECD. The notions of content harmful to minors and incitement to hatred would be the same as the ones applying to audiovisual media services under the AVMSD. The Commission would play a facilitating role in encouraging the development of European codes of conduct by providing examples of measures that could be adopted by video-sharing platforms (these could include some of the examples of on-going initiatives mentioned in ANNEX 8 and 18). The general provisions on self- and co-regulation (Article 4(7)) would be reinforced by indicating new benchmarks for the effectiveness of existing and new codes. Economic impacts: Substantive compliance costs: When it comes to encouraging video-sharing platforms to adopt self-regulatory measures, the impact of this Option should not be significant for the large platforms which have already in place community standards/guidelines (see ANNEX 8) along with some voluntary monitoring and reporting systems not only for illegal but also for harmful content (e.g. self-harm). All large video-sharing platforms apply techniques which employ both software and human element to handle "content moderation". This means that normally users flag content deemed inappropriate. User complaints are then processed by an algorithm prior to sending it to a moderation team for verification. However, if they decide to respond to the Directive call they would have to adapt their terms and conditions to the AVMSD notions of content harmful to minors and incitement to hatred and put in place more effective tools for restricting access to harmful content (particularly violent videos) and curb hate speech.

Administrative costs: Given the purely self-regulatory nature of this option the costs for the public authorities would be limited. To counter incitement to hatred, some Member States are already encouraging self-regulation . Impacts on the Internal market: The impact on the Internal market would depend on the effectiveness of the self-regulatory measures and the number of players that would decide to adhere to the codes, including eventually EU codes. The risk is that this option may result in a patchy approach with varying levels of protection across the internal market. Impacts on competitiveness: The codification of the ECJ recent case-law will ensure that stand-alone video sections of a wider service are covered by the AVMSD. The related impact would be limited as it derives from the application of the recent case law of the ECJ. Similarly, while the removal of the "TV-like" criterion implies a formal change in the AVMSD, the wide interpretation provided by the ECJ already has a similar effect in practice. However, this Option would not provide an effective solution to the concerns regarding the level playing field as purely self-regulatory measures, without a regulatory backstop, have proven insufficient in the past (see Section 2.2.1). In addition, despite the ECD requirement to Member States and the Commission to encourage codes of conduct, despite an initial follow-up – which related primarily to codes of conduct related to trust mark schemes and labels – activities related to the promotion of codes of conduct have since then slowed down. Impact on SMEs: Self-regulation for video-sharing platforms may entail compliance costs for SMEs but only if they decide to adhere to the codes. The Commission has estimated these costs as ranging between 100 000 (incurred for a pilot tool developed to inform parents and children on the content of user generated video) and EUR 320 000 (incurred by a major Danish ISP to conduct parental control, website, education and information). However, much more developed systems of content moderation may imply significantly higher costs. For example, one third of a large platform total employees deal with content moderation. Social impacts: When it comes to encouraging self-regulation for video-sharing platforms, the level of consumer protection would improve on large platforms if they decide to adapt and tighten their self-regulatory tools. In smaller platforms, the level of protection may improve considerably but only if they decide to participate. If the Commission manages to carry out its coordination role effectively, this may improve the present situation whereby there are no codes of conduct at EU level. Impact on fundamental rights: As it would rely on voluntary measures, Option A would not guarantee a contribution to the protection of fundamental rights enshrined in the EU Charter, including children's right to protection and care as is necessary for their well-being (Art. 24). 5.1.3 Option B: An obligation of means imposed on video-sharing platforms for protection of minors and hate speech, implemented through co-regulation 1)The "TV like" requirement would be removed and the ECJ recent case-law in the case of "New Media Online GmbH" would be codified as under Option A. 2) Member States would have to ensure that video-sharing platforms put in place appropriate measures to: - Protect minors from harmful content; access to which would have to be restricted; - Protect all citizens from content containing incitement to hatred. Video-sharing platforms would be defined as those that exercise a degree of control, short of editorial responsibility, over the presentation of audiovisual content (including UGC), and whose principal business purpose is the provision of audiovisual services . This degree of control would include automatic means (such as tagging and sequencing a large amount of audiovisual content), including algorithms. This would exclude services such as mere hosting, caching, cloud computing, mere conduit, search engines and business services, which are subject to the ECD.

The notions of content harmful to minors and incitement to hatred would be the same as the ones applying to audiovisual media services under the AVMSD. The terms and conditions of the platforms would have to be brought in line if necessary with these notions and other relevant rules of the Directive. Member States should not impose on providers any general obligation to monitor content ex ante. Member States would require video-sharing platforms to develop co-regulation providing mechanisms (e.g. age-verification systems, content description, age rating systems) to achieve these objectives. These mechanisms would have to be chosen by the industry which would be subject to an obligation of means (i.e. to use all reasonable means to achieve the desired results). The AVMSD would not mandate adoption of specific technologies or tools. The terms and conditions of the platforms should contain an appropriate reference to these mechanisms. This would be a maximum harmonization provision under which Member States shall not be able to impose more detailed or stricter rules on video-sharing platforms. The Commission and ERGA would facilitate exchanges of best practices on co-regulatory systems across the EU. If considered appropriate, the Commission would facilitate the development of EU codes on which ERGA might be requested to give an opinion. A complaint mechanism for consumers and minors should also be foreseen at national level in case of non-compliance. Any sanction should be proportionate and take into account as mitigating factor the fact that video sharing platforms lack proper editorial responsibility. For the specific purpose of this provision, a video-sharing platform would be under the jurisdiction of the Member State in which it, its parent company, one of its subsidiaries or an entity within the same group is established within the meaning of Articles 49 to 55 of the Treaty on the Functioning of the European Union. Economic impacts Substantive compliance costs: Large video-sharing platforms, pursuant to their corporate policies, already take steps (see ANNEX 8) to protect minors and all users not only from illegal but also from harmful content (e.g. pornography and self-harm). Filtering and fingerprinting mechanisms are widely used by major video-sharing platforms and they could be used also to comply with the new requirements under Option B without having to incur substantial additional costs. For example, there are several age verification systems on the market, which are widely used online by VoD service providers. Assessing whether content is harmful is generally more complex than assessing whether it is illegal because the notion of harmful content is broader than that of illegal content. It can however be expected that by putting in place mechanisms to protect minors, platforms would gain in brand power. No precise indications of the costs to implement this provision can be provided. They would depend on the size of the company and on the specific mechanisms that the company will decide to put in place. These mechanisms are also likely to evolve over time due to technology advancements. The costs incurred at present by the industry to enact measures to protect citizens either according to corporate policies or to other arrangements can be used as a benchmark for possible substantive compliance costs. As indicated above, the costs for putting in place rating mechanisms may range between EUR 100 000 and EUR 320 000. More developed systems of content moderation may entail higher costs. Administrative costs: If the monitoring of video-sharing platforms is done via a complaint based mechanism, the related administrative costs for all EU regulators have been estimated at EUR 600 000 . If the Member States decide to put in place co-regulatory mechanisms, figures regarding existing self-regulatory mechanism can be taken as a reference to estimate the associated costs for the industry. For example, the self-regulatory systems in place in the majority of Member States on commercial communications are either funded by membership fees or a levy system from the industry and their cost ranges from EUR 250 000 to EUR 1 million .

Impacts on the Internal market: Option B would prevent fragmentation by introducing a maximum harmonization preventing Member States to impose more detailed or stricter rules on video-sharing platforms. Impacts on competitiveness: The impacts of the codification of the ECJ recent case-law would be limited as explained in Option A. Option B would improve the conditions of competition between TV broadcasting, video on-demand providers and video-sharing platforms. This option lays down flexible and future-proof rules allowing companies scope for innovation and ensuring the continued relevance of the rules over time. Impacts on SMEs: SMEs platforms that do not have already mechanisms in place to moderate harmful content either proactively or upon notification would incur important compliance costs. The others will have to adapt their standard terms and conditions and become more effective. In particular, SMEs may need to make new investments in filtering and fingerprinting technologies which, on the other hand, major companies have already available. Yet, by putting in place mechanisms to protect minors, SMEs could gain in branding power. Social impacts: Option B would help overcome some of the limitations of existing industry-led and self-regulatory initiatives (See Section 2.2.1) and meet the AVMSD objective of protecting consumers, including minors. Option B is likely to address the concerns on the level of protection voiced in the 2015 Public consultation by most of those who called for an extension of the rules, i.e. a majority of Member States and regulators who replied to this question, most consumer organisations and approximately half of all broadcasters who replied. These stakeholders want to apply to additional services (including platforms) at least the rules on protection of minors and hate speech which are seen as a basic level of protection online. On the other hand, a small number of Member States, some regulators as well as the Internet, ICT, the press publishing sector, telecom, cable, satellite and advertising industries believe that the AVMSD rules on material scope ensure sufficient consumer protection also in light of the broader EU regulatory framework. Option B will level up the standard of protection from harmful content in video-sharing platforms with the one applicable to on-demand services (See Section 5.2.2). Moreover, it is likely that any improvement of the level of protection for audiovisual content pursuant to Option B will have a positive spillover effect on other types of content (such as text/comments functionalities accompanying video content). Impacts on fundamental rights: Option B would have a direct positive impact on the protection of fundamental rights enshirned in the EU Charter, such as: human dignity (Article 1); right to the physical and mental integrity of persons (Article 3); non-discrimination (Article 21); children's right to protection and care as is necessary for their well-being (Article 24); general consumer protection (Article 38). Given that Option B provides for a regulatory backstop, it would ultimately be up to the Member States (and not to private operators) to assess the legitimacy of possible decisions to restrict access to content in specific cases. Given that the Member States are bound by the EU Charter of Fundamental rights when implementing EU law, there would be a guarantee that: any limitation to the exercise of freedom of expression and information as enshrined in Article 11 of the Charter is provided by law; respects the essence of this freedom; is proportionate; and only takes place when it is necessary and genuinely meet the objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others. As a consequence, the fundamental right to conduct a business (Article 16 of the Charter) would be respected. 5.1.4 Comparison of options Costs and savings Status quo Option A Option B No administrative costs or compliance costs Compliance costs: Depending on the nature of the mechanisms, the costs can vary from EUR 100 000 for the EU (cost of a user generated rating system) to EUR 3.1 million per year for the EU (cost of a moderation system in a large platform). Administrative costs : EUR 600 000 per year for all EU Regulators (complaint based mechanism). Compliance costs: -Depending on the nature of the mechanisms, the costs can vary from EUR 100 000 for the EU (cost of a user generated rating system) to EUR 3.1 million per year for the EU (cost of a moderation system in a large platform). -Cost of co-regulatory structure can vary from EUR 250 000 to EUR 1 million per year and per Member States. Effectiveness and subsidiarity test Option B most effectively delivers on the objective of protecting consumers including minors by setting out co-regulation. This would be done at a limited additional cost given the fact that most platforms have already in place similar mechanisms. In a co-regulatory system, the costs are shared between the industry and regulators. The added value of Option B in terms of consumer protection lies in the obligation of means to protect minors from harmful content on video-sharing platforms. For hate speech, while this is already covered as illegal content by the ECD system of notice and action, Option B would introduce an obligation to adopt proactive measures. From a political viewpoint, Option B is the one that most effectively strikes a balance between the call from a number of Member States and the European Parliament for enhancing the protection of minors and viewers online and the need to preserve and promote freedom of speech, freedom to conduct a business and the ability for companies to innovate. EU intervention under this option remains proportionate and is mainly based on co-regulation, allowing for national specificities to be taken into account. Option B it also proportionate as it would leave to the industry leeway to implement a regulatory obligation on a best effort basis. Option B is the preferred option. Option General objective and related impacts Costs (administrative and compliance) Effectiveness Coherence Feasibility (technical and political) Preferred option Safeguard the protection of minors and consumer protection (social impacts) Status quo 0 Low Low High Low Option A + Low Low High Medium Option B + + Medium Medium Medium Medium X

5.2 Options addressing the problem of the lack of a level playing field and internal market weaknesses 5.2.1 Promotion of European works 5.2.1.1 Status quo option Under the AVMSD, TV broadcasters must, where practicable, reserve a majority proportion of their transmission time to European works and at least 10 % of their transmission time or of their programming budget to European works created by independent producers. An adequate proportion of this quota has to be reserved to "recent" independent works. On-demand service providers, where practicable, must promote the production of and access to European works. The Directive gives the following examples of how this can be done but leaves the choice of the measures to Member States: i) financial contribution to the production and rights acquisition of European works; ii) a share of European works in the catalogues; and/or iii) prominence of European works in the catalogues. Economic outcome Existing costs: Maintaining the status quo would result in no additional compliance or administrative costs for regulatory authorities or media service providers. As regards existing compliance costs, most commercial broadcasters estimate that compliance with the requirement on the majority proportion of transmission time generates medium/high costs for their business. Some thematic and small channels bear higher costs to comply with quotas . For on-demand services, the costs vary depending on how Member States have implemented Article 13 AVMSD (see ANNEX 13). The existing administrative costs for regulators to monitor TV broadcasting services have been estimated at 220 000 for all EU Regulators. In the case of monitoring compliance of on-demand services, only some Member States have put in place a legal obligation for on-demand service providers to communicate data on compliance to national regulators. The cost of monitoring has been estimated at 10 000 for all EU Regulators. TV Broadcasters and on-demand service providers have reported medium to high existing administrative costs in relation to reporting obligations on the promotion of European works. In practice, estimations show that annual administrative costs for all TV broadcasters in the EU are likely to vary among Member States and would approximately amount to EUR 200 000 annually. For all EU on-demand services, administrative costs has been estimated at EUR 110 000 annually. Outcome Internal market: TV broadcasters devote widely the majority of qualifying time to European content. In 2012, European works enjoyed an average of 64.1% of the total qualifying transmission hours. For on-demand services, as the Directive simply gives examples of how on demand services may promote European works, only 19 Member States have imposed obligations and they have done so in varied ways, i.e. through financial contribution, share and/or prominence in their catalogues, contributing to a high level of fragmentation (see ANNEX 13). Outcome on competitiveness: The different treatment between TV broadcasting and on-demand services has resulted in TV broadcasting services operating under more constraints than on-demand services. Looking at the fast-development of on-demand services in Europe as well as the worldwide medium term growth prospect (see section 2.4), this different treatment can be expected to increase. Ultimately, the existence of larger constrains for TV broadcasting could reduce their flexibility to adapt to the viewers demands therefore undermining their attractiveness and thus their competiveness. On-demand services also have a greater flexibility and incentives to benefit from the internal market by establishing themselves in a particular country and distribute across Europe . The existence of lower constraints on their editorial policy may have an impact in their choice of establishment, which may reinforce their competitive advantage compared to TV broadcasting services .

The results of the 2015 Public consultation confirm a perceived lack of fair treatment between TV broadcasting and on-demand services: 61% of the contributors who expressed an opinion believe that the current rules are not fair. 4 Member States and 4 national regulators pointed out that the asymmetry in TV broadcasters and on-demand services regulation is unjustified. In their contributions to the 2015 Public consultation 3 Member States and 5 national regulators supported maintaining the status quo. On the industry side, most on-demand service providers and members of the digital/Internet industry (9 out of 17 contributions) would also prefer to maintain the status quo. On the contrary, some commercial broadcasters (7 out of 30) called for repealing all current rules on promotion of European works, which would be then only subject to national rules. As for public service broadcasters, the majority (10 out of 16) would favour other options and mainly to reinforce rules on on-demand services. Social outcome: The current rules aim to ensure that consumers have access to European content. As mentioned above, the current rule for TV broadcasters resulted in European citizens being exposed to a significant amount of European works. This was particularly important in a context where viewer hours for European works have declined (down from 74 % in 2007 to 69 % in 2010). As regards on-demand services, the low level of requirements imposed by some Member States has created gaps in the supply and promotion of European content on those services. Even if, given the size of the on-demand market, this impact is not yet very high, the growth prospect on this market may imply that the negative impact on cultural diversity will be higher in the future. 5.2.1.2 Option A: giving more flexibility to providers in the way they implement the obligations to promote European works Member States would allow TV broadcasters either to reserve the majority of their broadcasting time to European works or to invest at least 50% of their programming budget in European works. Providers would be obliged to choose at least one option. In addition, Member States would allow on-demand services to promote European works either through a share of European works, their prominence in the catalogues or through a financial contribution. On-demand service providers would be obliged to choose at least one option. It will be up to Member States to decide on the level of requirement for each measure. Substantive compliance costs: Option A would generate no additional costs for TV broadcasters who would be able to decide to move from a share of their broadcasting time to direct investment only if they are able to recoup the costs. For on-demand services, the costs of complying with the new rules are difficult to assess as it will depend on the level of requirements set at national level. In those Member States where a share of European works in catalogues is currently in place, the minimum share of European works in the catalogues varies from 10% to 60% (see ANNEX 13). On average in the EU, the share of EU films in 75 big EU VoD catalogues was 27% in 2015 and 30% in 16 big SVoD catalogues. As regards prominence, there are not such quantitative thresholds in the Member States. Recently, the European Audiovisual Observatory tried to identify the promotional spaces for each of the services of a sample of on-demand service providers in DE, FR, UK. According to this study, "European films were allocated between 21% (in the UK) and 33% (in France) of promotional spots". As for financial contributions, 9 Member States have included such obligations for on-demand services and they vary from 1% to 12% (see ANNEX 13). Consequently, this option would create zero or low additional costs for on-demand services established in those Member States where there are obligations in place. On the contrary, on-demand services established in the 10 Member States where there is no obligation would have to face the cost of complying with at least one of the promotion measures (shares, prominence or financial contributions). However, the costs are expected to be limited since on-demand services would opt for the less costly measure. Administrative costs: The additional administrative costs for regulators when implementing option A as regards TV broadcasting services would be zero. The costs of supervising on-demand services would depend on the choice made by on-demand service providers and on the monitoring system applied by the regulators. In this context it is not possible to estimate precisely the related costs but they are likely to be close to the costs incurred under the status quo.

The additional administrative costs for TV broadcasters, if any, would be marginal as they would have to report on their programming budget instead of reporting on broadcasting time if they decide to invest a share of their programming budget in European works. In countries where such systems are already in place, there would not be any additional costs. For on-demand services, due to the existing significant differences in national legislation and the variety of implementation measures in force, the monitoring costs for regulators would vary. In the 10 Members States where there are no requirements for on-demand service providers (see ANNEX 13), administrative costs would increase. Impacts on the Internal market: Option A is unlikely to result in a wider circulation of European works across Europe. It is questionable whether a flexible requirement for on-demand services (in particular, to opt either for a share or prominence of European works in their catalogues) would be effective. A share in the catalogue alone would not necessarily lead to more consumption of European works. Prominence would only make sense if a diverse catalogue would be available in the first place. Impacts on competitiveness: Option A is not expected to significantly impact TV broadcasting. As mentioned in the status quo option in 2012, European works enjoyed an average of 64.1% of the total qualifying transmission hours. Broadcasters are expected to stick to this requirement they already comply with. Under Option A the impact on competitiveness of on-demand services would be limited since they would choose the less costly measure to fulfil their promotion obligations. Option A would, based on the way providers choose to implement these measures, address the competitive disadvantages of TV broadcasters compared to on-demand services. In their contributions to the 2015 Public consultation 4 Member States and 4 national regulators pointed out that the asymmetry in TV broadcasting and on-demand services regulation is unjustified and rends the current rules unfair. This view was also supported by 4 of the 9 public broadcasters that commented on the issue of fairness. Impacts on SMEs: More flexibility would have a positive impact on small channels, including eventually SMEs and micro enterprises that would be able to implement the promotion measures most appropriate for their business strategies. In any event, TV broadcasts that are intended for local audiences and do not form part of a national network (which generally are not very large companies) are often exempted (see ANNEX 3). Social impacts: Under Option A consumers are not likely to be more exposed to European works than they are today. If TV broadcasters were to choose to invest a proportion of their programming budget in European content, there would be no assurance that it would be shown in peak hours. This would be particularly the case if this proportion is low. For on-demand services, as explained above a choice between a share and prominence of European works in their catalogues is not expected to lead to greater diversity. Impacts on cultural diversity: Given the amount of flexibility given to providers, the impact on access to information and culture (Article 22 of the Charter) would be negligible. 5.2.1.3 Option B: Maintaining the status quo for TV broadcasters and reinforce the rules for on-demand service providers For TV broadcasters the status quo would be maintained. For on-demand service providers, Member States should require them to secure at least a 20% share of European works in their catalogue and give prominence to those works. In addition, on-demand service providers would be required to report to the Commission on their compliance with these obligations.

A Member State would be allowed to require a contribution (e.g. levies and/or direct investment in content) to the production of European content from video on-demand service providers established in other Member States if: -they target consumers in its territory, -the contribution applies only to the revenues generated in that Member State and -these revenues are not already subject to an equivalent contribution in the Member States of establishment. Member States would be required to introduce exceptions for low audience and thematic on-demand service providers or for small and micro enterprises. Economic impacts: Substantive compliance costs: Compliance costs for on-demand services would vary across the Member States. In the 10 Member States where there is no obligation, they would have to face the cost of complying with the obligations to reserve at least 20% share in the catalogue and to ensure prominence. As indicated above, the average share of EU films in 75 big EU VoD catalogues was 27 % in 2015 and 30% in 16 big SVoD catalogues. However, there are great disparities among catalogues of pan-European on-demand service providers (from almost 0% to to 70%) and among Member States (from an average of less than 10% to an average of almost 60%). Taking into account these disparities, a share of 20% would ensure some level of cultural diversity while avoiding excessive compliance costs for on-demand providers (ANNEX 19). In addition any potential compliance cost would be limited by the fact that usually on-demand services business model is based on revenue sharing. It means that they do not incur any costs related to the acquisition of content upfront. They pay a share of the revenue generated to right holders. For on-demand service providers targeting other Member States which impose a financial contribution extra-territorially, the cost would vary across the EU. Currently, 9 Member States have financial contributions (i.e. direct contribution to production) in place and only 4 Member States apply levies nationally (i.e. contributions made to a film fund). All things being equal, we estimate that the costs for Netflix and i-Tunes to roll out their services in the five biggest EU markets would be respectively EUR 5.8 and 8.2 million per year and per provider (see ANNEX 10). This would stand for respectively 2 % and 0.4% of their turnover. However, this compliance costs would translate into investment in content that service providers may be able to recoup. Another estimation where Member States would impose levies extraterritorially would result in costs between EUR 4.7 million (in the lower bound) and EUR 11.7 million (in the upper bound) for all providers of on demand services in the EU. Administrative costs: Regulators may incur additional costs depending on how Member States have implemented the current AVMSD provisions so far. In France, where on-demand services must comply with requirements in terms of share and prominence of EU works, the cost of monitoring these two obligations has been estimated at EUR 2 000 (see ANNEX 16). The new requirements on on-demand services will be accompanied with reporting obligations. For providers of on-demand services established in Member States where they are not subject to such obligations, the new requirement would increase their administrative burden. It should be noted, however, that reporting obligations would to some extent foster transparency in the on-demand services' business which would be a pre-requisite for assessing what role those players can play in the financing of content.

In Member States imposing financial contributions extraterritorially, there might be limited additional costs for businesses to declare, pay and audit financial contributions if turnover is used as a fiscal base. In their contributions to the 2015 Public consultation, the majority of the Cinema, Film and TV industry contributions (17 out of 30); all consumers organizations that expressed an opinion (8); all employees organizations and trade unions that expressed an opinion (5); and the majority of right holders (10 out of 16) favor reinforcing current rules for on-demand services. 5 Member States and 3 national regulators call for reinforcing current rules on promotion of European works. Impacts on the Internal market: The combined obligation for on-demand services to reserve a share for European works in on-demand services catalogues and to give prominence to those works would reduce the current fragmentation resulting from the very diverse approaches adopted by Member States (see ANNEX 13). As regards the possibility for Member States to impose financial contributions services providers may have to comply with different legislations. The level of fragmentation would depend on the number of Member States implementing financial contributions as well as on the number of service providers potentially concerned. Allowing flexibility for Member States to impose financial contributions is considered as a justified and balanced way to limit forum shopping practices without undermining the COO principle and the objectives of the DSM. Impacts on competitiveness: For on-demand services established in the 15 Members States where there is already either an obligatory share of European works or prominence requirements in place, option B would lead to more level playing field. The flexibility for Members States to impose financial contributions on on-demand service providers located outside their territory would result in a more level playing field between on-demand services competing on the same market. According to many of the contributions to the 2015 Public consultation the strict application of the COO principle and the fragmentation on the transposition of Article 13 may have led to "forum shopping" practices (i.e. on-demand services establishing themselves in Member States with light regulation on promotion of European works). This has in turn created competition distortions and has undermined the effectiveness of the current rules. This is the position of 5 Member States and 1 national regulator; a few public broadcasters (4); some members of the Cinema, Film and TV industry (5); and the majority of telecom operators and right holders who expressed and opinion (5 out of 9 and 5 out of 7, respectively). Impacts on SMEs: Option B would have a limited impact on small on demand players, including SMEs. As detailed in ANNEX 3, the audiovisual sector is highly concentrated and small on demand service providers would benefit from exemptions. Social impacts: The combination of share and prominence obligations on on-demand services would lead to consumers of on-demand services being more exposed to European works than they are today . In 2013, the Belgian CSA analysed two major VoD catalogues: out of the top 50 works, 19 were EU works of which all but 3 had been promoted . The imposition of financial contributions would have a positive impact on the creation of European audiovisual content as on-demand services providers may be required to increase their current contribution to content creation. The imposition of financial contributions extraterritorially may have a negative impact on the provision of cross-border on-demand services in some territories where some providers - most probably smaller ones - may not be able to recoup the financial contributions and the related administrative costs. Option B would have a positive impact on small independent producers. Impacts on cultural diversity: The imposition of mandatory obligations on on-demand services providers would have a positive impact on cultural diversity (Article 22 of the EU Charter of Fundamental Rights) as on-demand services providers may be required to increase their current contribution to content creation. 5.2.1.4 Discarded option: introduction of sub-quotas for non-national European works 82% of the respondents (that is, 104 out of 126 of the contributions across different categories of stakeholders) to the public consultation who expressed an opinion on this issue are interested in watching more content produced in another Member State.

However, there was very limited support to increase diversity by introducing sub-quotas for non-national European works. Indeed out of the 25.8% of respondents from various categories of stakeholders which chose the option to reinforce the rules on the promotion of EU works, only a very marginal part – one Member State, one regulator and two content distributors – supported the introduction of these sub-quotas. In addition, there is no evidence that the industry would be able to recoup the cost of adapting their offer to the new sub-quotas in the absence of audience. Some Member States have flagged their opposition to this approach. This could even reinforce the existing deficit of competitiveness of TV broadcasters vis-à-vis on demand services. This option has therefore not been impact assessed. 5.2.1.5 Comparison of options Costs and savings Status quo Option A Option B Compliance costs: nc Administrative costs: -Regulators: for monitoring TV broadcasting services: EUR 220 000 per year for all EU Regulators and for monitoring on-demand services: EUR 10 000 per year for all EU Regulators. -Service providers: cost of reporting is EUR 200 000 for all EU TV broadcasting services per year and EUR 110 000 for all EU on-demand services per year. Compliance costs: nc Administrative costs: -Regulators: for monitoring TV broadcasting services: around EUR 220 000 per year for all EU Regulators. The cost of supervising on-demand services is not possible to estimate precisely but is likely to be close to status quo. -Service providers: cost of reporting would be EUR 200 000 for all EU TV broadcasting services and EUR 110 000 for all EU on-demand services. Compliance costs: -Costs related to the application of contributions extra territorially: between EUR 5.8 and 8.2 million per year for one major EU provider. For levies only costs can vary between EUR 4.7 and 11.7 million per year for all EU providers. The cost of complying with the 20% share is deemed to be limited as on-demnad services business models are based on revenue sharing. The cost of complying with prominence requirements is not quantifiable. Administrative costs: -Regulators: for monitoring TV broadcasting services: EUR 220 000 per year for all EU Regulators. The cost of monitoring on demand services in the Member States with the highest requirements is EUR 2 000 per year. -Service providers: cost of reporting is EUR 200 000 for all EU TV broadcasting services. Cost of reporting for on-demand services would be higher than status quo but not quantifiable. Effectiveness and subsidiarity test The status quo for TV broadcasters proposed under option B has proven to be efficient to promote cultural diversity while preserving their capacity to innovate. By reinforcing the mandatory character related to the share and prominence of European works in catalogue, option B will ensure that Member States take measures. In turn this would increase the level of harmonisation while still leaving flexibility to Member States. This would entail limited administrative and compliance costs. The most significant costs result from option B and the possibility to apply financial contribution extra-territorially. However, financial contributions to audiovisual content creation are very close to cultural policy, which is a subsidiarity field. Option B seeks to bring this prerogative back to Member States, as intervention at EU level had not resulted in increased harmonization. This option is therefore in full compliance with the subsidiarity principle. In addition, allowing Member States imposing financial contributions on on-demand service providers where their turnover is generated is the most efficient way to secure the contribution of those services to cultural diversity while increasing the level playing field in each national market. Option B is the preferred option. Options General objectives and related impacts Costs (administrative and compliance) Effectiveness Coherence Feasability (technical and political) Preferred option Establish the conditions to ensure competitiveness (impacts on the competitiveness) Support European cultural diversity (social impacts) Status quo 0 0 Medium Low High Medium Option A + - - Low Medium High Medium Option B + + + Medium High Medium High X 5.2.2 Protection of minors in on-demand services 5.2.2.1 Status quo option TV broadcasts must not include seriously harmful programmes (pornography and strong violence). They may include potentially harmful programmes (erotic content and mild violence), but should do it in a way which prevents minors from hearing or seeing them. On-demand service providers are also required to take appropriate measures so that minors would not normally hear or see seriously harmful content. There are no restrictions for potentially harmful content for on-demand services. Economic outcome: Existing costs: Maintaining the status quo would result in no additional administrative or compliance costs for regulatory authorities or media service providers. Existing administrative costs incurred by the regulators in most Member States relate to monitoring and enforcing compliance with these requirements. For TV broadcasting, this is done on the basis of complaints or on a systematic recording of all television programmes . For on-demand services, the majority of regulators do not regularly monitor compliance with the rules. Most of them act on the basis of complaints. Some regulators monitor these rules through spot checks. The cost for reviewing and enforcing the provisions on the protection of minors amounts to approximately up to EUR 800 000 per year per regulator . Compliance costs for providers (this includes telecom, cable, satellite, broadcasters and on-demand services) can be divided into two categories: i) direct costs, such as the costs of classifying audiovisual content as harmful to minors (i.e. the costs of applying for a rating as well as the time spent managing the process) or of implementing technical control measures and ii) indirect costs e.g. lost revenues which would otherwise be obtained in the absence of classification.

For TV broadcasting, the majority of Member States impose the use of techniques based on the time at which the content is transmitted, i.e. watershed-based restrictions . As regards on-demand services, the majority of Member States require the use of technical measures to ensure that minors will not see or hear harmful material. The use of a PIN access code is one of the most common measures . Direct costs are difficult to estimate as they are usually absorbed by the provider. Both Pay TV and on-demand service providers reported significant costs for the provision of technical solutions to control the access and to provide information on harmful content. Costs related to control measures increase in relation to the number of new devices on the market such as tablets, smartphones or HDMI keys, which usually require ad hoc developments and investments. A German service provider reported a cost for age verification mechanisms for 16 + on TV platforms of EUR 1.25 million yearly. It also reports a cost for a strict post-ID system for adult content of EUR 1.1 million in total for the period 2010-2015. In the public consultation, some TV broadcasters reported a range of direct and/or indirect costs from EUR 100 000 to EUR 2 million per year at EU level for a pan-European audiovisual group. However, these costs cover measures that are not necessarily required by the AVMSD. Some indirect costs can emerge when classifying content as potentially harmful to minors, as it can narrow the targeted audience and have an impact on the number of transactions and subscriptions (VoD and SVoD) or on the attractiveness of the programmes for advertisers (catch-up TV). In principle, indirect costs for on-demand services could be expected to be lower, because the access to potentially harmful content is not restricted by the AVMSD. However, a majority of Member States have adopted stricter measures and require some form of protection (e.g. PIN codes, content filtering) for potentially harmful content . Outcome on the Internal market: The lack of full harmonisation of the concept of harmful content and the lack of a harmonised age rating system has not been a reason not to provide cross border access given its limited cost. Outcome on competitiveness: Because of the different levels of requirements of the AVMSD, TV broadcasting is under more constraints than on-demand services. This situation creates an undue competitive advantage for on-demand services, in particular with respect to Pay TV operators, with which they share similarities. The results of the public consultation indicate that, with the exception of some telecom operators and on-demand service providers, the majority of the respondents believe that this distinction is no longer relevant, effective or fair. Conversely, a high number of TV commercial broadcasters consider this distinction still relevant. However, some Pay TV operators consider the distinction as no longer relevant. Social outcome: The changes in viewing patterns, especially of younger generations, highlighted in Section 2.2.2.1 B and the growing convergence between TV broadcasting and on-demand services has led to a situation where minors are less protected online than watching the same content on TV. 5.2.2.2 Option A: increasing the level of protection of minors for on-demand audiovisual media services, simplify the notion of harmful content and encouraging of EU co-regulation on content descriptors. The rules on protection of minors applicable to on-demand audiovisual media services would be strengthened by requiring them to restrict access to any kind of "harmful content" (gratuitous violence, pornography erotic and mildly violent content) . The same rule would apply to TV broadacsters. The most harmful content, such as gratuitous violence and pornography, shall be subject to the strictest measures providing a high degree of control, such as age verification pin codes or even by a "by default" mechanism that would not make this type of content available except when activated by an adult. In addition Member States would have to ensure that all audiovisual media service providers provide sufficient information to consumers about the possible harmful nature of the content in programmes by means of co-regulatory systems. The Commission and ERGA would facilitate exchanges of best practices on co-regulatory systems across the EU. If considered appropriate, the Commission would facilitate the development of EU codes on which ERGA might be requested to give an opinion.

The general provisions on self- and co-regulation (Article 4(7)) would be reinforced by indicating new benchmarks for the effectiveness of the existing and new codes. Economic impacts Substantive compliance costs: On-demand service providers would need to assess and classify all offered programmes to see whether they fall within the scope of "potentially harmful" programmes. There are on average 5 764 titles available in VoD catalogues . A broadcaster reported a EUR 550 000 cost per year to implement classification and ratings for TV broadcasting and on-demand services, and a on-demand operator a one shot cost of EUR 1.1 million cost for launching from scratch in a new country based on a catalogue of 5 000 titles . There could be also additional compliance costs as regards technical control mechanisms. However, these compliance costs would be mitigated as at national level, Member States already require some form of protection (e.g. PIN codes, content filtering) for seriously harmful content and most of them also for "potentially harmful" content. Programming the most harmful content would be a business decision that TV broadcasters will take if they are able to recoup the underlying investment. Audiovisual media service providers would have to comply with the new information requirements. The associated costs would be mitigated in those Member States where similar mechanisms, such as age rating, are in place (see ANNEX 14). The studies available provide information on the costs of rating content according to different age groups, but no specific information on the cost of describing the harmful nature of the content. However, age rating costs detailed in the above paragraph can be used as benchmark as, once the content is classified and labelled (as in the majority of the Member States), the additional cost of providing a description of the content is minimal. Most Member States use rating systems (all except Denmark, Estonia, Italy and Sweden) and in most countries five age groups are defined. Although the age groups may vary, the different classifications are all generally based on similar criteria: presence of discrimination, drugs, imitative behavior, coarse language, nudity, sex, threatening content and violence. Only in two countries, Finland and the Netherlands, the system is a combination of legally binding age rating and content descriptors indicating different categories of content (violence, sex, anxiety, drug in Finland; violence, fear, sex, discrimination, drug and alcohol abuse, coarse language in Netherlands). Despite the costs incurred, some media service providers reported, in the 2015 Public consultation and the data gathering on costs and benefits, that a reliable system for the protection of minors can create a competitive advantage. Being identified as a family-friendly provider can be a strong marketing argument and contributes to the positive branding of the operator. Indeed according to BBFC, 86% of parents in the UK would encourage/ensure their children to watch online channels with clear age ratings. Administrative costs: There would be additional administrative costs for regulators for monitoring compliance with the new rules by providers of on-demand services, in particular in the 9 countries where there are no stricter rules in place (see ANNEX 14). Regulators already supervise the implementation of appropriate measures by on-demand services to protect minors from seriously harmful content. They would need to go beyond and verify that those measures are applied to potentially harmful programmes. Depending on the compliance procedures in place at national level, a single category of harmful content may imply an increase in the number of checks and/or of complaints to deal with. For example, a voluntary self-monitoring body in a Member State reported a cost of EUR 126 000 for handling complaints (2 612) in 2014. For on-demand service providers, there would be some administrative costs in relation to a potential increase of complaints due to the wider scope of application of the provision on the protection of minors. Regulators and media service providers would face administrative costs related to the implementation of the information requirements, via co-regulation, in those Member States where similar mechanisms are not in place. The administrative costs related to the implementation of co-regulation will depend on the approach adopted. In an ambitious scenario, this could imply setting up a system based on the creation of a specific organisation, rules and processes. The PEGI system can give an idea of the administrative costs linked to such an approach at EU level .

Impacts on the Internal market: simplifying the definition of harmful content could result in the most harmful content (for example, but not limited to, hardcore pornography) being consistently subject to effective access controls, across the EU. Requiring information on content would also have a positive impact on the internal market by providing more harmonization across Member States and TV broadcasting and on-demand services. This would be facilitated by the Commission and ERGA intervention. Impacts on competitiveness: Harmonising the level of requirements between TV broadcasting, in particular pay TV services, and on demand services will increase the level playing field. In the frame of the data gathering on costs and benefits, pay TV reported high costs for the provision of technical solutions to control the access and provide information on harmful content. Two of them complained about the lower set of restrictions applied to on demand services while both type of services provide similar technical measures to restrict the access to harmful content. For on-demand services, the extension of the existing requirements to potentially harmful content is likely to have an impact in terms of their revenues in particular in the countries where there are no stricter rules in place. Less content would be accessible to their widest possible audience. On-demand service providers may therefore incur a loss of revenues be it in terms of number of transactions and subscription (VoD and SVoD) or of advertising (catch up TV). Impacts on SMEs: Option A may generate additional costs for SMEs providers. Social impacts: In a context where children consume significant quantities of on-demand content (see Section 2.2.2.1 B), Option A would ensure a higher level of protection. Several surveys have found that consumers expect seamless protection in online video services . This is why in the majority of Member States, industry has already adopted self-regulatory measures to protect minors also from potentially harmful content even in the cases where no regulatory measures are in place regarding this type of content. The possibility for TV brodacsters services to broadcast the most harmful content wil be mitigated by the fact that this content shall be subject to the strictest measures, such as encryption and PIN codes. In some Member States erotic content which would most probably be considered as pornographic in other Member States is subject to encryption and PIN codes without posing a threat to the protection of minors. In addition new generation of devices such as Smart TV will add a second possible layer of protection. Against this backdrop, the majority of ERGA-members supported the idea that the most harmful content could be allowed on TV broadcasting services, provided an adequate access control mechanism is in place. Requirements on the provision of information would have a positive impact on consumer protection by ensuring transparency on the potential harm of content. Impacts on fundamental rights: Option A may be perceived as an undue limitation to the right of freedom of expression and access to information on on-demand services. Yet it still remains more limited than for TV broadcasters. Moreover, by way of analogy, in the context of Article 3 of the AVMSD, the legislator made an express choice in Directive 2010/13/EU to limit the freedom of expression of audiovisual media services in two specific circumstances, namely for the protection of minors and the incitement to hatred based on race, sex, religion or nationality . Setting requirements on content information would have a limited impact on freedom of expression as it does not imply age rating but only transparency measures. 5.2.2.3 Comparison of options Costs and savings Status quo Option A Administrative costs: EUR 800 000 per year and per regulator (FR, DE, IT). Compliance costs: costs can range from EUR 100 000 to a maximum of EUR 2 million at EU level per year and per TV broadcasting service. The costs provided by TV broadcasters cover measures that are not implemented as a direct result of the AVMSD. The costs directly resulting from the AVMSD would be lower. Administrative costs: not substantial Maximum compliance costs: Cost of self-regulatory schemes for content information up to EUR 2 million per year for the EU (proxy= budget of two entities in charge of the classification of media content is EUR 2 million). For most on-demand services the costs would be limited as some Member States require some form of protection (e.g. PIN codes, content filtering) for "potentially harmful" content . Effectiveness and subsidiarity test Option A would tackle the current deficit of fair treatment between TV broadcasters and on-demand services and would improve the level playing field. Option A would also have a positive impact on the internal market through an increased level of availability of information at a limited cost (co-regulatory mechanisms). This approach through co-regulation would also be more effective in terms of protection of minors and would be achieved without impinging on Member States subsidiarity and in line with the minimum level of harmonisation feature of the AVMSD. Option A is the preferred option.

Options General objectives and related impacts Costs (administrative and compliance) Effectiveness Coherence Feasability (technical and political) Preferred option Establish the conditions to ensure competitiveness (impacts on the competitiveness) Safeguard the protection of minors and consumer protection (social impacts) Status quo 0 0 Low Low High Medium Option A + + + + Medium Medium High Medium X 5.2.3 Country of origin principle 5.2.3.1 Status quo option The AVMSD is based on the COO. In order to determine which Member State has jurisdiction over an audiovisual media service provider, the AVMSD focuses on a number of criteria (place where editorial decisions are taken, head office, etc.). The AVMSD foresees limited derogations (derogation procedure) to the COO principle. For TV broadcasting, derogations should be based on grounds of incitement to hat