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Brussels, 4th November 2008

State aid: Commission consults on revised rules for state funding of public service broadcasting - frequently asked questions

(see also IP/08/1626)

Why revise the Broadcasting Communication?

Seven years after the adoption of the 2001 Broadcasting Communication, European media markets have changed a lot. Technological advances, particularly digitalisation, are driving convergence. Changing consumption patterns mean new and modified business models for all media actors, including e.g. the written press. New services have emerged and are constantly developing across all media platforms – most obviously the internet.

A major consequence of these changes is that information providers with very different histories (TVs, newspapers, internet companies) find themselves competing in a new, very complex and multifaceted environment.

The legal environment around the 2001 Communication has also evolved since 2001. For instance, in 2005 the Commission adopted a framework which allows utilities to build up reserves of up to 10% of their annual compensation. Currently, the 2001 Communication does not refer to the possibility for public service broadcasters to maintain reserves. This has raised questions on the consistency of our policy.

All these changes raise questions which are not yet directly addressed in the Broadcasting Communication. Examples of open questions include charging a pay element for public broadcasting services, electronic press on the internet and free of charge on-line video stores.

In sum, we must modernise the Broadcasting Communication to enhance legal certainty in a fast changing media environment. Legal certainty is crucial to enable all players, be them public or commercial, to navigate in the new waters of media convergence, plan their activities and make the necessary investments.

What would be decided at EU level and what by Member States?

The draft Broadcasting Communication is flexible on many accounts. For instance, when designing the procedural safeguards for the definition of the public service remit for new services (the so-called Amsterdam test, section 6.1.3. of the draft) Member States would retain a wide discretion in deciding:

  • What assessment mechanism is the most suitable in the national context;
  • How resource-intensive the mechanism should be – this will mainly depend on the market position of the public broadcasters and their diversification strategies involving the launching of new services;
  • Who runs the Amsterdam test – each Member State is free to chose the best institutional arrangement in the national context;
  • How to ensure effectiveness (e.g. how third parties should be consulted in the ex ante assessment and within which deadlines);[1]
  • How to define the “significant new services" that would be subject to the test – the idea is not to test every new content but to concentrate on new categories of considerable importance;
  • What criteria to apply in the assessment – the Broadcasting Communication only provides guidance on relevant aspects.

With regard to basic principles, the draft provides some guidance, concerning in particular :

  • the aspects which should be considered in the market impact assessment[2]
  • safeguards for preventing a conflict of interest where the public service broadcaster itself is to decide on the Amsterdam test[3]

In both instances, the criteria set out are necessary to safeguard the effectiveness and objectiveness of the Amsterdam test. Most of them are common sense transparency and accountability considerations, which Member States would in any case have an interest in pursuing.

The objective of the Communication is to provide legal certainty as to the standards applied by the Commission. The Communication would not fulfil its role if it did not provide any guidance on how an effective procedure could be designed.

Will the revised Broadcasting Communication increase legal certainty?

The purpose of reviewing the Broadcasting Communication is in the first place to make it better and clearer. We want to increase subsidiarity through increased responsibility at national level, notably as regards the assessment of the market impact.

Since 2001, the Commission has adopted 24 decisions in the sector, most of which originated in complaints. Today, the trend is rising. Besides from commercial broadcasters, newspapers and other stakeholders also complain about the unrestrained use of public money on platforms like the Internet. They argue that private initiatives on the internet are "crowded out" and that competition is distorted.

According to recent experience, complainants see the Commission as the last resort, because they have not been properly heard in a national procedure that lead to the launch of a new publicly financed media service.

Of course the Commission will continue to pursue any illegal state aid. However, we firmly believe that the number of complaints will be significantly reduced if Member States have in place mechanisms to reflect on the value and impact of extending the public service remit to new services, including the possibility for all stakeholders to be heard at the national level. The merits of their case would be reviewed by the decision makers with the best knowledge of national public service broadcasters.

Under these conditions, the need for complainants to come to Brussels would greatly decrease. The Commission will of course maintain its role to check for manifest errors in the national procedures.[4]

Is this the right time for the review, given the number of appeals pending before the Court of First Instance?

Of course, Court judgments will be duly taken into account in the revised Broadcasting Communication, but there will always be pending cases.

Will you review the text in light of the recent TV2 judgement?

The recent judgement of the Court in the TV2 case, annulling a 2004 Commission decision, does not affect the grounds for the review. The need for consolidating our case practice, the need to adapt the text to the new realities of the marketplace and the need for legal certainty are unaltered.

The Court case also does not deal with the new issues raised by the ongoing expansion and diversification of broadcasting activities which characterise our present – and future.

While we will take due account of the judgement and of comments submitted in that respect, we do not believe that there is a need to review the current draft of the Broadcasting Communication. The TV2 judgement explicitly endorsed the Commission’s decision on the definition of the public service. Regarding overcompensation, the Broadcasting Communication and the case practice of the Commission were also implicitly recognised, including the right of broadcasters to maintain reserves.

Why does the Commission postpone the review of the Cinema Communication but not that of the Broadcasting Communication?

The two areas – albeit related – are governed by a different set of rules. State aid for films is assessed under Article 87.3.d of the EC Treaty, allowing aid for cultural purposes under certain conditions, whereas public broadcasting is governed by the provisions which apply to services of general economic interest.

In the field of broadcasting, our case practice and the regulatory framework have significantly evolved and there is thus a need for consolidating our existing practice. In the field of State aid for cinema, the rules of the 2001 Cinema Communication remain adequate in the short to medium term.

The ex ante test

Do you propose to assess the market impact of digital media services only?

No. In line with the Amsterdam Protocol, the assessment would apply for all new services, irrespective of their analogue or digital nature. This is a logical consequence of the principle of technology neutrality. However, in practice, most of the existing services are analogue by nature. Since the test is to be applied for new services only, in practice it will apply mainly to digital services.

This proposal would codify the Commission's administrative practice that already requires media services of public broadcasters to be in line with the criteria of the Amsterdam Protocol.

At which level will the test apply? Do Member States have to test individual TV shows?

The draft Broadcasting Communication does not require Member States to balance public value and market impact of individual TV programmes that are shown on a TV channel. Public broadcasters can be entrusted to provide balanced and varied programming.

However, the launch of a new, publicly financed TV channel should trigger an impact assessment for the overall programming concept. Member States should ask themselves whether, for instance, there is need for a special weather, sports or children channel and how it should be designed to serve the needs of society without unduly distorting competition on the market.

How does the market impact test relate to the Amsterdam Protocol?

The Amsterdam Protocol clearly calls upon Member States to exercise a certain restraint in the use of public money for funding broadcasting services. The Protocol says that the State funding must not "affect trading conditions and competition in the Community to an extent which would be contrary to the common interest". Hence, there are good grounds to test the market impact and we believe that Member States are best placed to do that in the course of an ex ante assessment.

Moreover, in its judgment of 26 June 2008 in the SIC case (T-442/03) the Court of First Instance insists on the necessity for Member States to enforce effective control procedures for Public Service Broadcasters, and even holds the Commission responsible for verifying the effectiveness of such procedures.

Our minimum requirements for the market impact assessment are common sense. They require looking at the effects on the viewer market as well as on the advertising market and on other markets that are logically affected by state aid to public broadcasters. [5] Again, it will be for each Member State to define in more detail which markets are indeed to be assessed. We trust that this will soon become a matter of routine.

What is the impact of the recent Court of First Instance judgment in the Danish TV2 case for the proposed market impact text?

First of all, it is important to bear in mind that the Court of First Instance has endorsed the Commission’s decision as regards the definition of the public service remit of TV2. Indeed, it is not the Commission's task to define the actual programming delivered by public service broadcasters.

Second, there is no contradiction between the CFI’s reasoning and the need to avoid disproportionate distortions of trade and competition. The latter is enshrined both in the EC Treaty and in the Amsterdam Protocol.

The Commission’s aim is to secure the development of public service broadcasters, while safeguarding a balanced media landscape in the long run. Public broadcasters' offers do not need to be restricted to areas which are not served by commercial broadcasters and should not be measured against the existing commercial offers. On the contrary, we believe that public broadcasters should be measured against the qualitative criteria established by the State, as the CFI rightly emphasises.

The objective of a market impact test is not to constrain public broadcasters. The goal is to make sure that the state financing does not lead to harmful effects. It is in the public interest to make sure that new public services are offered where there is a public need and that a healthy market is maintained with a variety of – public service and commercial - broadcasting offer.

Will the proposed ex ante assessment have an impact on innovation?

We believe that the Amsterdam test would promote innovation by giving public and private broadcasters alike more legal security and the capacity to plan ahead.

For innovative services in particular, the proposal includes the possibility for running pilot projects without conducting the Amsterdam test immediately. [6]

Would the proposal not impose a disproportionate administrative burden on the resources of public service broadcasters, in particular for smaller Member States?

We do not think so. The Communication would not impose a single model, but Member States would have discretion to find the solution which best suits their needs. Ireland and Belgium (VRT) for instance are about to introduce specific ex ante tests which are tailored to the size of their public service broadcasters.

Clearly, some administrative effort is required to execute an Amsterdam test. However, subsidiarity does not mean a blank cheque. Someone has to assess the market impact and if Member States don't do it, the Commission would be obliged to carry out the full assessment itself under the EC Treaty rules. However, the Commission's ex post intervention is likely to be significantly more 'invasive' than an ex ante reflection at national level on the shape new services should take.

Pay services

Should public broadcasters be allowed to offer pay services?

Currently, the 2001 Broadcasting Communication does not deal with the question whether services including a pay element can be part of the public service remit and thus receive state support.

We learned from the 1st public consultation (see IP/08/24) that market patterns are changing and that services which include a pay element should not be excluded from state aid simply because the consumer is required to share a part of the cost at the point of consumption.

Our current orientation in the draft Broadcasting Communication (§§ 53 to 55) is that a remuneration at the point of sale should not per se exclude the public service character of a service but may affect its universality. However, some pay services of a clearly commercial nature could never qualify as public service (manifest error).

Examples of these manifest errors are (§ 54):

  • Premium content on a pay per view or subscription basis
  • Viewer's participation in prize games by dialling a premium rate number

On the contrary, some services clearly qualify as public service despite a pay element at the point of consumption (§ 54)

  • Pass-on of pure network transmission costs to final consumers (mobile TV);
  • Coverage of incremental cost for providing access to particularly advanced technological features.

Other services are part of a grey area and should be assessed through the Amsterdam test (§ 55).

Transparency and overcompensation

What are the main changes regarding the separation of commercial and public service activities?

There are no significant changes in this respect. The current rules already require public service broadcasters to clearly separate the accounts for public service and commercial activities (Transparency Directive). We maintained the status quo, even though we point to functional and structural separation merely as "best practice".[7] This is based on the 1st public consultation which showed that functional and structural separation is commonplace in many Member States.

What are the main changes regarding the possibility to build reserves?

In order to help Public Service Broadcasters adapt to the challenges of the new media age, the draft Broadcasting Communication is rather flexible on reserves. This is based on the outcome of our 1st public consultation and discussions with the Public Service Broadcasters.

First, the draft Broadcasting Communication codifies our administrative practice to allow reserves, to the extent that they are necessary to deliver the public service.

Second, the draft Communication goes beyond the Framework applicable to Services of General Economic Interest by fixing the maximum reserve not with respect to the "annual compensation" but to the "annual budgeted expenses". This is intended to eliminate the disadvantage that the strict application of the rule of the Framework applicable to Services of General Economic Interest would bring to dually-funded PSBs.

  • Example: Imagine a public service broadcaster with advertising income that makes up 50% of its total budget. Under the Framework applicable to Services of General Economic Interest, the 10% reserve would be calculated on the basis of its licence fee income (around 50% of its total budget). According to our proposal, the same broadcaster would be able to keep a reserve of 10% of its total budget.

Third, the draft does not exclude the possibility to hold reserves above 10% of the annual budgeted expenses "in exceptional and duly justified cases." (§ 94 and 95). This could be the case for example in the situation of restructuring where assets of a Public Service Broadcaster are sold, leading to an exceptional one-time surplus in that year's budget, or major technological investments necessary for the fulfilment of the public service mission. This can also facilitate the adaptation of Public Service Broadcasters to the new media environment.

[1] (§ 59 "interested third parties shall have the right to give their views on the envisaged new service prior to its authorisation").

[2] § 61.

[3] § 62.

[4] § 64 "Of course this is without prejudice to the competences of the Commission to verify that Member States respect the Treaty provisions, and to its right to act, whenever necessary, also on the basis of complaints or on its own initiative".

[5] § 61.

[6] § 63.

[7] § 86 "(...) the Commission invites Member States to consider functional or structural separation of significant and severable commercial activities, as a form of best practice".

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