Kroes told a business leaders' convention in Brussels that pirates had done what single market regulations could not and established the borderless distribution of audio visual material over the internet. She said that the EU nations must work together to create a legal single market in digital goods.
"There is a huge Digital Single Market for audiovisual material. The problem is that it's illegal, and it's not monetized," she said. "We have effectively allowed illegal file-sharing to set up a single market where our usual policy channels have failed."
"While the internet is borderless, Europe’s online markets are not. It is often easier to buy something from a US website than online from the country next-door in Europe. Often you cannot buy it at all within Europe," she said. "Consumers can buy CDs in every shop but are often unable to buy music online across the EU because rights are licensed on a national basis. No wonder the US market for online music is five times bigger than Europe's."
Kroes said that the solution to the problem was to implement the EU's 'digital agenda'. This includes the creation of 'multi-territorial' licences for content so that consumers can buy material from any one of the EU's 27 member states.
When introducing the agenda last year, the Commission said that national borders should no longer govern what content consumers could buy or watch or hear.
Kroes emphasised again this week the need to harmonise copyright laws to ease the distribution of content.
"We must do better," she said. "Creating the legal Digital Single Market will lead to a wealth of options for citizens. It will strike a blow against piracy and benefit authors and artists. And it will do this without endangering the open architecture that is essential for the internet. It is obviously common sense to fix problems like this."
Kroes said that Europe could fall behind in the digital economy as the US maintains a lead and other countries, such as Brazil, progress faster than the EU.
"Why do we let the US complete fives times as many venture capital deals as Europe? Europe is a bigger market: we should actually attract more venture capital than the US," she said. "The European Commission's ICT R&D budget is smaller than Google's. And our digital markets are uneven – for example 74% of Dutch people use online banking, but only 5% of Greeks."
"Europe does not maximise the benefits of interoperability. Weaknesses in standard-setting, public procurement and coordination prevent digital services and devices from working together as well as they should," she said.
Kroes said that the answer to many of these problems lay in breaking down the trading barriers erected by copyright law.
"Our Single Market has delivered us the highest prosperity for the longest period of time in Europe's history. We must deliver a Digital Single Market too," she said.