By Lina Enriquez, vice president for legal at DIRECTV Latin America, and Angel Melguizo, vice president for external and regulatory affairs at VRIO Latin America
The Inter-American Development Bank recently released a study, which Netflix supported, that found that approximately $5.7 billion was invested in audiovisual production in Latin America and the Caribbean in 2019. This drove the creation of more than 1.6 million direct and indirect jobs.
Potential value chains are created when this industry interacts with new business activities, such as eGaming or eSports, and other more traditional ones such as tourism. Beyond new economic activity, creative industries can drive labor inclusion for talented women, youth and minorities in Latin America and the Caribbean.
But in order to fully take off in Latin America, the sector requires more investment, new skills and smart regulation. Among the different regulatory principles (such as technological neutrality, public-private cooperation and global regulation), we would highlight prioritizing innovation, as there are several things that regulators in many jurisdictions are still debating. This includes even very basic market conditions. For instance, whether traditional audiovisual platforms and over-the-top (OTT) products compete head-to-head or are complementary products. We need a way for regulators and the industry to experiment before taking traditional approaches that may stifle innovation.
The good news is that these are not just aspirations, and digital technologies and data availability can enable new real-time ways to regulate the digital eco-system. Below, we will focus on so-called “sandboxes,” which could be a step toward smarter regulation of the audiovisual digital industry.
What are sandboxes?
Regulatory sandboxes, a term borrowed from software development, are “safe spaces” in which incumbent and entrant businesses can test innovative products or services without having to comply with the regulatory conditions imposed on traditional products or services.
The U.S. Federal Communications Commission designed the first registered sandbox for the communication sector. After that, the concept expanded to the financial sector (starting with financial services in Britain). Today, it includes different dimensions of the digital economy such as data privacy and artificial intelligence, 5G deployment, rural connectivity, and a wider range of industries, such as transportation (drones, autonomous vehicles), energy (smart meters) and health (mobile health apps), according to research from the OECD. They have even been adopted by more traditional bodies such as the European Council in 2020, which encouraged the implementation of regulatory sandboxes as a tool for an “innovation-friendly, future-proof and resilient regulatory framework that masters disruptive challenges in the digital age.”
In the absence of significant regulatory reforms to deal with new business models and technologies, sandboxes are seen as a way for regulators to promote competition by fostering and unleashing disruptive innovation. Additionally, regulatory sandboxes allow authorities and industry players to gather information on new markets and services, where the behavior of agents, such as firms and consumers, might still be unknown and unpredictable, or that at least should not be taken prima facie as identical to other services.
In essence, different sandbox regimes around the world seek to create flexible landscapes where innovations that serve the public interest, improve access to products and services and do not pose risks to consumers; are developed free of the restraints of rigid or outdated regulations that were created years ago for traditional services. When qualifying requirements are met, authorities grant the applicants a permit or some sort of flexible authorization to operate in the market under certain minimum restrictions (for example, territorial scope, time and number of users). This also exempts them from complying with regulatory obligations that are applied to existing traditional services. The authorities reserve the right to impose reasonable conditions on the businesses that are eligible to enter into a sandbox, in order to guarantee consumers’ basic rights. Authorities can also suspend the sandbox regime when needed.
Potential positive effects of sandboxes
Disruptive innovative services and products that challenge traditional business models are a key factor in promoting competition in the market place. Absent a structural regulatory reform to deal with new audiovisual products and technologies in the industry (such as OTT services), regulatory sandboxes can assure that innovative services and products can flourish, unleashed from outdated licensing requirements and regulatory burdens that were imposed decades ago on traditional audiovisual services.
An audiovisual regulatory sandbox is likely to deliver effective competition by reducing the time and cost of getting innovative ideas to market and by offering consumers more choices.
Audiovisual regulatory sandboxes can also provide invaluable information on real-world behavior of consumers and firms. This helps to design better regulations and institutions. Sandboxes could allow governments to define a set of flexible and reasonable rules applicable to audiovisual innovative products such as OTTs, so they can get to market at a fast pace and without representing risks to consumers. These innovative rules can even be extended to traditional markets with the objective of deregulating products and services that have historically been subject to distorting or outdated regulation.
Moreover, sandboxes could help newborn convergent regulators responsible for telecommunications and audiovisual industries to get a deeper knowledge of the interactions of both industries. As seen in the financial sector, sandboxes have fostered collaborations between traditional audiovisual firms and OTTs (for example, launching a joint service covering a sports competition), where both contribute with their comparative advantages, widening consumer choice.
How sandboxes in the audiovisual sector could work
To foster the development of innovative markets and services, audiovisual regulatory sandboxes could include, among other measures:
- General authorization regimes, replacing burdensome licensing requirements;
- Minimum and reasonable reporting obligations (as experimented during the Covid-19 lockdowns);
- Tax and economic fees rationalization, some with employment, re/up-skilling and investment requirements or goals;
- Balanced and adequate protection of privacy and security, with a focus on advertisement-based models (AVoD);
- “Safe” innovation on anti-piracy efforts, including site blocking (technical feasibility, costs, speed) and traffic analysis (for example, volume of illicit contents, and its substitution with legal content).
The evidence on the impacts of regulatory sandboxes is, so far, thin due to their novelty, but it is positive. One of the most comprehensive surveys by the World Bank, 73 unique fintech sandboxes in 57 countries created in 2018-2020, including Brazil, Mexico and Colombia, confirmed that “they can prove to be useful tools when properly designed, implemented, and monitored.”
Also, the implementation of audiovisual regulatory sandboxes requires certain conditions, such as institutional capacity (especially on regulation and supervision), a developed private sector capable of implementing, monitoring and scaling the sandbox and informed customers. The OECD’s Molly Lesher adds to the caveats, pointing to the costs sandboxes can carry and questions over their scalability.
Sandboxes are not for everyone, everywhere, and they need to be country-specific. However, trying them would be worth the effort, considering the potential for growing the Latin American audiovisual digital industry today and given its solid institutions and modern approach to incentives, as shown in the audiovisual free trade zone in Uruguay.
Latin America is young, urban, technology-savvy and full of talent. It can aspire to be a key actor in, and not just a consumer of, audiovisual content. Let’s make sure regulation helps.
The opinions expressed in this post are those of the authors. They do not purport to reflect the opinions or views of VRIO, DIRECTV Latin America, the Inter-American Dialogue or the Latin America Advisor publications.
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