Public Service Broadcasting in the European Union: No Longer Simply a Matter of Domestic Concern
2005-09-15When the six founding states signed the European Economic Community Treaty in 1957, it is unlikely that they envisaged European Community law would have much of an impact on their public service broadcasting systems. More recently, however, it has become clear that Community law has the capacity to bring into question not only the specific objectives that underpin public service broadcasting but also the mechanisms by which such services are funded and regulated. Community oversight has been triggered by commercial broadcasters who see their commercial viability and capacity to develop new services threatened by the activities of well established and, in their view, financially cushioned, public service broadcasters.
The Relevance of European Community Competition Law for Public Service Broadcasting
Complaints began to be made to the European Commission from the early 1990s onwards. The principal line of attack has been to argue that public financing constitutes unlawful state aid within the terms of Article 87 of the European Community Treaty (EC). Article 87 EC covers all forms of financial assistance provided by the state, such as licence fee revenue; government grants, guarantees or loans at a reduced rate of interest; tax relief; and free, or below cost, use of the spectrum, or other facilities such as property and equipment. The recipients of this aid have been public service channels which rely on both advertising and public revenues, as well as channels which depend solely on state revenue in the form of licence fees or state grants.
Where such aid 'distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods?and affects trade between Member States, it will be illegal unless it can be shown to be justified either under one of the limited exceptions to Article 87 EC or under Article 86 EC. Article 86 EC removes from the scope of Article 87 EC, under certain conditions, 'services of general economic interest' a term which includes public service broadcasting. In addition, the recent Court of Justice Altmark Trans ruling (case no. C-280/00) held that where a state makes a payment to compensate an undertaking for the cost of discharging a public service obligation, such payment will not be treated as state aid where certain conditions are met. These conditions require, inter alia, that the undertaking be selected either through a process of competitive tendering, or that the costs of the service are determined with reference to the costs of a typical, well-run undertaking.
Nature of the Commercial Broadcasters? Complaints
Commercial broadcasters argue that state funding distorts competition in a variety of ways, in particular, through over-funding, market foreclosure and cross-subsidisation. Over-funding occurs where the state grants more by way of financial assistance than is strictly necessary for the broadcaster to provide a public service. This may enable the broadcaster to dominate the purchase of attractive programme rights, in particular sporting events and films, or to reduce its advertising rates, thereby undercutting competitors. Many commercial broadcasters see themselves as offering a service very similar in terms of programme range and quality to their public service competitors; both may depend on advertising revenues, yet the public service operator is considered to have an advantage through its receipt of state finance.
The concern over market foreclosure is not so much with the anti-competitive activities of public service broadcasters as with their very existence. A successful public service broadcaster, supported by state funds, may render further market development uneconomic or even drive existing operators out of business. Attention is increasingly focused on the development by public service broadcasters of additional thematic digital television channels, as well as new internet sites.
Cross-subsidisation has become a concern because of the move by public service broadcasters to diversify into commercial activities in order to maintain their revenue stream. Many public service broadcasters are now involved in the provision of commercial cable or satellite services, internet services, and the publication of books and magazines. Some are even involved in theme parks. There is thus the risk that public funds may filter over to subsidise these purely commercial activities, whether provided directly by the public service broadcaster itself or through associated companies.
An attractive outcome for many commercial operators from these proceedings would be a restriction, if not a total ban, on the receipt of advertising revenues by public service broadcasters and a redefinition of public service provision to exclude the transmission of the most popular genres such as film and sports programmes. On this model, the public sector would be very much a rump service, solely dependent on state funds.
EU Standards for Public Service Broadcasting in Europe
To date, commercial operators have been largely unsuccessful in their actions. The Community institutions are aware of significant Member State opposition to European intervention in this politically sensitive field. In 1997 the Treaty of Amsterdam was adopted with a specific protocol on public service broadcasting. This confirms that public service broadcasting is 'directly related to the democratic, social and cultural needs of each society and to the need to preserve media pluralism? It also confirms that Member States are primarily responsible for the organisation and funding of public service broadcasting but acknowledges that this latitude, though wide, is ultimately bounded by Community law. The Commission, through its decisions and policy documents, has sought to clarify these boundaries and it is apparent that Community law continues to constrain Member State policy making in this area in a number of important respects.
Firstly, Member States must clearly establish the public service remit and formally entrust public service broadcasters with its realisation. The Commission here looks to see whether the service can be said to fulfil 'democratic, social or cultural needs?within the terms of the Amsterdam Protocol. The public service broadcasting remit can consequently be very wide ranging, framed in terms of general principle rather than specific programme requirements, and can extend to entertainment and sports programmes. This is perhaps not so surprising when one considers the role that entertainment and even sports can play in raising important social issues and providing information. Certain internet services, even if not technically broadcast services, may also receive public funding. In its decision in the BBC Digital Curriculum case, (N37/2003 of 1/10/2003) for example, the Commission approved UK funding for BBC provision of online educational services and the BBC additionally offers a range of online information and entertainment services linked to its broadcast services.
There may, however, be limits to the latitude afforded public service broadcasters when they venture into new fields. Recent Commission investigations into the financing of Dutch, German and Irish broadcasters has brought into question the legitimacy of state funding for mobile telephone services, e-commerce services, online programme guides and the acquisition of pay-TV sports rights. The uncertainty as to where the boundaries of legitimate public service activities should be drawn is unsatisfactory for public service and commercial operators alike. In an attempt to try to reduce some of the risks faced by commercial operators considering launching new digital or online services in the UK, the 2005 UK Government Green Paper on the future of the BBC suggests that any proposed new BBC services should be assessed to see whether their 'public value' clearly outweighs any potential adverse 'market impact'.
Secondly, an independent authority must monitor the actions of the public service broadcaster to ensure that it conforms to its remit. This authority should be independent not only of the public service broadcaster itself but also of commercial and governmental interests.
Thirdly, the state funding provided should not go beyond what is necessary to realise the public service tasks. In deciding what is proportionate it will not be appropriate simply to establish the cost of competing commercial services. This is because public service broadcasters tend to be subject to higher standards in terms of quality and reliability. In the complaint over the launching by the BBC of a 24 hour digital news service (NN 88/98 of the 14/12/1999), it transpired, for example, that the higher operational costs of the BBC were the result of its operating 47 offices worldwide with 64 full time staff. This contrasted with SkyNews which had only 8 such offices.
Fourthly, in order to prevent cross-subsidisation, public service broadcasters must keep separate accounts for their public service and commercial activities. The BBC, for example, has established an elaborate 'fair trading' policy in order to minimise the risk of its commercial subsidiaries obtaining an advantage from public funds.
Whatever the founding Members of the European Union might have thought, it is now clear that public service broadcasting is no longer simply a matter of domestic concern. An understanding of how public service broadcasting and new forms of online public services are likely to be regulated in Europe cannot therefore be obtained without considering the important role of European Community law.
■R. Craufurd Smith
Senior Lecturer, Europa Institute
University of Edinburgh
The Relevance of European Community Competition Law for Public Service Broadcasting
Complaints began to be made to the European Commission from the early 1990s onwards. The principal line of attack has been to argue that public financing constitutes unlawful state aid within the terms of Article 87 of the European Community Treaty (EC). Article 87 EC covers all forms of financial assistance provided by the state, such as licence fee revenue; government grants, guarantees or loans at a reduced rate of interest; tax relief; and free, or below cost, use of the spectrum, or other facilities such as property and equipment. The recipients of this aid have been public service channels which rely on both advertising and public revenues, as well as channels which depend solely on state revenue in the form of licence fees or state grants.
Where such aid 'distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods?and affects trade between Member States, it will be illegal unless it can be shown to be justified either under one of the limited exceptions to Article 87 EC or under Article 86 EC. Article 86 EC removes from the scope of Article 87 EC, under certain conditions, 'services of general economic interest' a term which includes public service broadcasting. In addition, the recent Court of Justice Altmark Trans ruling (case no. C-280/00) held that where a state makes a payment to compensate an undertaking for the cost of discharging a public service obligation, such payment will not be treated as state aid where certain conditions are met. These conditions require, inter alia, that the undertaking be selected either through a process of competitive tendering, or that the costs of the service are determined with reference to the costs of a typical, well-run undertaking.
Nature of the Commercial Broadcasters? Complaints
Commercial broadcasters argue that state funding distorts competition in a variety of ways, in particular, through over-funding, market foreclosure and cross-subsidisation. Over-funding occurs where the state grants more by way of financial assistance than is strictly necessary for the broadcaster to provide a public service. This may enable the broadcaster to dominate the purchase of attractive programme rights, in particular sporting events and films, or to reduce its advertising rates, thereby undercutting competitors. Many commercial broadcasters see themselves as offering a service very similar in terms of programme range and quality to their public service competitors; both may depend on advertising revenues, yet the public service operator is considered to have an advantage through its receipt of state finance.
The concern over market foreclosure is not so much with the anti-competitive activities of public service broadcasters as with their very existence. A successful public service broadcaster, supported by state funds, may render further market development uneconomic or even drive existing operators out of business. Attention is increasingly focused on the development by public service broadcasters of additional thematic digital television channels, as well as new internet sites.
Cross-subsidisation has become a concern because of the move by public service broadcasters to diversify into commercial activities in order to maintain their revenue stream. Many public service broadcasters are now involved in the provision of commercial cable or satellite services, internet services, and the publication of books and magazines. Some are even involved in theme parks. There is thus the risk that public funds may filter over to subsidise these purely commercial activities, whether provided directly by the public service broadcaster itself or through associated companies.
An attractive outcome for many commercial operators from these proceedings would be a restriction, if not a total ban, on the receipt of advertising revenues by public service broadcasters and a redefinition of public service provision to exclude the transmission of the most popular genres such as film and sports programmes. On this model, the public sector would be very much a rump service, solely dependent on state funds.
EU Standards for Public Service Broadcasting in Europe
To date, commercial operators have been largely unsuccessful in their actions. The Community institutions are aware of significant Member State opposition to European intervention in this politically sensitive field. In 1997 the Treaty of Amsterdam was adopted with a specific protocol on public service broadcasting. This confirms that public service broadcasting is 'directly related to the democratic, social and cultural needs of each society and to the need to preserve media pluralism? It also confirms that Member States are primarily responsible for the organisation and funding of public service broadcasting but acknowledges that this latitude, though wide, is ultimately bounded by Community law. The Commission, through its decisions and policy documents, has sought to clarify these boundaries and it is apparent that Community law continues to constrain Member State policy making in this area in a number of important respects.
Firstly, Member States must clearly establish the public service remit and formally entrust public service broadcasters with its realisation. The Commission here looks to see whether the service can be said to fulfil 'democratic, social or cultural needs?within the terms of the Amsterdam Protocol. The public service broadcasting remit can consequently be very wide ranging, framed in terms of general principle rather than specific programme requirements, and can extend to entertainment and sports programmes. This is perhaps not so surprising when one considers the role that entertainment and even sports can play in raising important social issues and providing information. Certain internet services, even if not technically broadcast services, may also receive public funding. In its decision in the BBC Digital Curriculum case, (N37/2003 of 1/10/2003) for example, the Commission approved UK funding for BBC provision of online educational services and the BBC additionally offers a range of online information and entertainment services linked to its broadcast services.
There may, however, be limits to the latitude afforded public service broadcasters when they venture into new fields. Recent Commission investigations into the financing of Dutch, German and Irish broadcasters has brought into question the legitimacy of state funding for mobile telephone services, e-commerce services, online programme guides and the acquisition of pay-TV sports rights. The uncertainty as to where the boundaries of legitimate public service activities should be drawn is unsatisfactory for public service and commercial operators alike. In an attempt to try to reduce some of the risks faced by commercial operators considering launching new digital or online services in the UK, the 2005 UK Government Green Paper on the future of the BBC suggests that any proposed new BBC services should be assessed to see whether their 'public value' clearly outweighs any potential adverse 'market impact'.
Secondly, an independent authority must monitor the actions of the public service broadcaster to ensure that it conforms to its remit. This authority should be independent not only of the public service broadcaster itself but also of commercial and governmental interests.
Thirdly, the state funding provided should not go beyond what is necessary to realise the public service tasks. In deciding what is proportionate it will not be appropriate simply to establish the cost of competing commercial services. This is because public service broadcasters tend to be subject to higher standards in terms of quality and reliability. In the complaint over the launching by the BBC of a 24 hour digital news service (NN 88/98 of the 14/12/1999), it transpired, for example, that the higher operational costs of the BBC were the result of its operating 47 offices worldwide with 64 full time staff. This contrasted with SkyNews which had only 8 such offices.
Fourthly, in order to prevent cross-subsidisation, public service broadcasters must keep separate accounts for their public service and commercial activities. The BBC, for example, has established an elaborate 'fair trading' policy in order to minimise the risk of its commercial subsidiaries obtaining an advantage from public funds.
Whatever the founding Members of the European Union might have thought, it is now clear that public service broadcasting is no longer simply a matter of domestic concern. An understanding of how public service broadcasting and new forms of online public services are likely to be regulated in Europe cannot therefore be obtained without considering the important role of European Community law.
■R. Craufurd Smith
Senior Lecturer, Europa Institute
University of Edinburgh
Chi-Wah LEUNG