18 October 2001 - A SUBMISSION BY AER TO THE EUROPEAN COMMISSION CONCERNING THE DRAFT COMMUNICATION REGARDING THE APPLICATION OF STATE AID RULES TO PUBLIC SERVICE BROADCASTING

The Association of European Radios (AER) represents the interests of private commercial radio operators in 11 EU countries and Switzerland.

AER is pleased to participate in the debate on the Commission’s draft Communication on the application of State Aid rules to public service broadcasting. We certainly welcome any attempt to introduce clarity and objectivity to an issue that over time has become increasingly unclear.

Before we present our comments to the draft Communication, we would like to expose our main conclusion after reading the document:

If there is real political willingness to solve the “public broadcasting” problem, the Commission and Member States must simply apply with no limitations or exceptions the measures presented in point 43 of the draft Communication. These are:

1. Clear definition of the public service remit;
2. Separation of public and commercial activities;
3. Existence of an official entrustment act of the public remit;
4. Existence of an independent control mechanism.

1. General Comments

First of all, a comment on the scope of the Communication. It is obvious to us that the Commission document has been drafted taking into account the outstanding complaints presented by commercial TV operators in relation to public funded television channels. However, we also understand that this Communication aims to set out the principles to be followed by the Commission in the future in the application of the Treaty articles relevant to State Aid to public service broadcasting in general and therefore radio as well as television.

Radio broadcasting falls clearly within the scope of the Communication, not only because it is an essential part of the broadcasting system of every country, but also because European radio operators are increasingly acquiring interests in radio stations in different EU countries and, in doing so, confront widely different rules relating to publicly funded radio services from country to country.

As regards the role of public vs. private radios, we believe that all radios, however they are funded, participate in the same way to the objectives of pluralism, ethics of information, respect of moral and democratic values, protection of the individual, as well as the promotion of consumer interests. Private radio, no less than public radio, must satisfy listeners’ choice and information requirements. Our large audiences in Europe support this. Therefore, we fully agree with the Commission that the role of commercial broadcasters should be recognised.

We welcome the Communication because it contains a systematic analysis, albeit general, of the significance of public financing of public broadcasters, in light of the Community rules on State aids, and clarifies the circumstances under which a State Aid, incompatible with Article 87 (1) can benefit from a derogation on the basis of Articles 87(2) and (3) or Article 86(2). Given that the latter is a derogating provision it must be applied restrictively.

The Communication clarifies the obligations of Member States – namely the definition of what the public service provisions should be, how they should be maintained, adhered to, and independently regulated. All this may help Member States and the Commission to carry out their tasks. However, while this represents an important step in the right direction, we continue to have serious doubts about its practical application. What instruments will the Commission use to act in case of failure on the part of Member States? And how, and with what instruments will the Commission measure clearly whether the public funding is proportional to the public service being delivered? What will be the exact role and scope of the control exercised by the independent regulator? AER believes these questions remain unanswered.

In practice, at this moment, the Commission does not have enough legal binding power to impose Member States the creation of an independent regulator or to oblige them to define the public service remit as indicated in the Commission’s Communication. This is why, in AER’s view, the Commission should consider to use the powers conferred to this institution in Article 86(3) of the Treaty CE, to adopt a legal act binding Member States on this issue.

As regards the proportionality test, there is in our view a serious misconception, which assumes that there remain public TV and radios not involved in commercial activities. Technological developments have allowed public operators to enlarge their sources of revenues (for example, on-line services or the creation of private companies) in addition to State revenues. This has also allowed public broadcasters to enjoy benefits of unchecked cross-subsidy and cross-promotion of their different products.

2. Transparency Directive

AER welcomed the approval last year of the Commission Directive on the transparency of financial relations between Member States and public undertakings, although the obligation of separate accounting does not apply to public service broadcasters whose activities are limited to the provision of services of general economic interest and which do not operate activities outside the scope of these services of general economic interest. Thus, the Commission should monitor the implementation process of this Directive into national laws, in order to guarantee the effective application of its principles at European level.

As far as the application of this Directive to the broadcasting sector is concerned, AER does not share the views expressed by the Commission during the public hearing on 10 September 2001. Commission officials said that it would be impossible to apply the Transparency Directive to the broadcasting sector due to the difficulty of identifying which costs within one programme are linked to commercial activities and which to public service activities. If this is true, there is little point in further work being done on the draft Communication to which this note is a submission.

Situations differ from one Member State to another but, in almost all, no attempt has been made to deliver public service broadcasting as required by Protocol 23 to the Amsterdam Treaty. Thus separating expenditure on public service matters from commercial activities is being deliberately and unnecessarily blamed by those responsible. Here are some examples.

UK

There is no definition of public service in the UK save it being what the BBC does and what certain independent television companies are required to do. The BBC is mainly funded by licence fee income but owns a commercial company called BBC Worldwide which is able to invest in any venture it fancies on the grounds that its profits help pay for output on publicly-funded broadcasting services. Thus it owns products and publications branded with publicly-funded programme names and is able to buy competition when it suits it and without any form of public scrutiny. For example, it now owns most important audio-book, recorded drama companies in the UK. It is unaccountable to anybody save the BBC in its activities. A strong Commission Communication would force the BBC to compete fairly.

The Netherlands

In the Netherlands, public radio has 5 national channels. The programming of the public channels is similar to that of commercial stations. This holds particularly true for Radio 2 and 3, the entertainment channels. There is no justification of why the formats of Radio 2 and 3 cannot be left to the commercial market. Indeed, Radio 2 and especially Radio 3 have, since the introduction of commercial radio in the Netherlands, adjusted their formats in such a way that they are no longer distinguishable from the commercial stations. This also can be deducted from the fact that the revenues from advertising of Radio 3 are by far the largest of all five public radio stations and almost sufficient to cover the complete exploitation of all public radio stations. It goes without saying that these revenues add up to the government financial grant.

Public radios in the Netherlands carry advertising. Public broadcasters are “double funded”; as we mentioned earlier, experts know that the amount of advertising revenues they get is enough to cover at least the costs of the five public radio channels. These costs are not transparent and an insight of these costs is refused.

The sales organisation of the Dutch public radio (STER) is the most dominant agent in the market with a share of 41% (on advertising). That market share and the fact that only public radio can offer national coverage to advertisers allows public radio to set the price for radio advertising in the market. Commercial radio can only follow the STER and ask for lower prices.

Germany

 In Germany, private radios find it difficult to compete with public broadcasters due to public radios’ advantages and their structural complexity, which lacks real financial control. The financial statements presented by public broadcasters ARD and ZDF to the KEF (the Commission responsible for establishing the financial needs of public broadcasters) are not clear particularly regarding the outsourcing of private subsidiary companies that carry out different activities (i.e. marketing, advertising, licensing, etc.) for public broadcasters. These companies are partly funded by the State; therefore the KEF should be able to evaluate how they are funded.

There are other problems in Germany, such as the expansion of public broadcasters into multimedia services without any relation to their public service remit, but the main problem remains the lack of transparency in the public broadcasters’ accounts.

Furthermore, some private radio companies suffer enormous losses in their advertising income due to prize dumping considered to be originated by public service radios. As public radios are already funded by public fees they can afford giving prize reductions on their advertising space. In fact, advertising is sold to non-market prizes. By doing so, public radios distort the market as they force private radios to adapt and lower prizes for advertising to compete.

Italy

In Italy, the public broadcaster RAI took the decision sometime ago to carry out commercial activities while maintaining its privileges of public entity. A holding was created to break up the different activities into different companies that compete in the open market.

This situation becomes more serious because there are no systems of control. Concerning the development of digital radio, for example, a complaint was presented to the Communications Authority by private radios, which denounced that RAI had used public funds allocated for this purpose to develop other services, without respecting the contract that had been signed with the Italian government. The Communications Authority declared itself non-competent for ruling this case and sent the dossier back to the Ministry for Communications. Since the Ministry is owner of the public broadcaster and at the same time is responsible for its public funding, its ruling on the case does not offer to private radios any guarantee of either observance of competition rules or a transparent use of public funds.

Spain

In Spain, there does not exist any separation between the public service and commercial activities of the public broadcaster RTVE (grouping TV and radio). This is deliberately mixed to cover an obscure financial system that has already created a public debt of more than 5,000 million Euro and that is supported every year with a direct public subvention. At the same time, the public broadcaster has a very large share of the advertising market creating a situation of unfair competition with private broadcasters.

Accounting systems are mixed for commercial and public service activities, and the public broadcaster has not shown so far any willingness to separate accounts since this would be a mechanism of control. The public broadcaster alleges that all programmes offered are in the “public service” therefore there is no need for separating accounts. This could be arguable if a serious analysis of the programmes is done. However, the lack of a clear definition of the public service remit makes this exercise impossible.

Based on a clear definition of what the public service remit is (which, as we said earlier, does currently not exist in Spain) Spanish private radios believe advertising revenues should only be used to fund the commercial activities of the public broadcaster, they should be accounted separately, justified to the competent parliamentary committee, published for the information of private broadcasters and limited on an annual basis. On the other hand, public money should be used to fund exclusively public service activities, it has also to be accounted separately and should not be increased using the procedure of accumulating debt (this to avoid cases as what is happening in Spain). The public broadcaster’s large debt causes a great damage to private broadcasters because this problem seems to justify an aggressive commercial policy from the public broadcaster’s side in detriment of private competitors.

Switzerland

Switzerland is perhaps the European country where national public service in broadcasting could justly be defined as an act of solidarity with minorities. All citizens get TV and radio services despite of the size of their community (50,000 Romanches or 4.5 million Allemannics). Private broadcasters do not contest the substance of this principle.

However, the situation becomes problematic when the public funded broadcaster SRG/SSR is left to define the “public service” to its very own, often commercial interests, and to re-define it constantly in order to construct arguments for a policy of systematic expansion, to the disadvantage of private broadcasters having to operate without public funds. One of the strategies seems to be copying any concept that works in private radio, such as the creation of format radio offers for very particular target groups, or the planned strengthening of SSR’s local studios in order to expand their regional programme windows – systematically under the pretext of applying their obligation to provide public service.

It goes without saying that the financial statements of SRG/SSR do not allow the public to identify the investments, cost and revenues of the various broadcasting and side activities. Yet, internally they do seem to be able to identify costs within one programme since they have even asked this to be the future base to calculate their copyright contributions owed to SUISA/Swissperform.

The role that regional and local private radios (there are no national licences) play in direct public service for their respective communities has much too long been ignored. Not only during natural or human disasters but also on average days, where thousands of municipalities only learn about their local and regional affairs thanks to the promptitude of private radios.