28 February 2000 - A SUBMISSION BY AER TO THE EUROPEAN COMMISSION NOTICE CONCERNING A DRAFT DIRECTIVE AMENDING COMMISSION DIRECTIVE 80/723/EEC ON THE TRANSPARENCY OF FINANCIAL RELATIONS BETWEEN MEMBER STATES AND PUBLIC UNDERTAKINGS

The Association of European Radios (AER) is a Europe-wide trade body representing the interests of private commercial radio operators in France, Germany, Greece, Italy, Portugal, The Netherlands, Spain, Sweden and the UK.

This paper follows the Commission’s publication of the draft Directive amending Commission Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings.

In general, AER welcomes the publication of the draft Directive. Our members are directly concerned by its application since the radio sector is considered to consist of services of general interest as referred to in the Commission’s Communication entitled "Services of general interest in Europe". As AER has stressed in the past, all radio services licensed by Member States, public or private, share the same objectives. They endorse the concept of pluralism, wish the information they broadcast to be accurate and fair, have respect for moral and democratic values, seek to protect the individual, and promote consumer interests.

Despite these similarities, however, public and private radios are financed in different ways.

Public radios, in most EU Member States, receive both public funds and revenues from advertising. Therefore, many public radios are double funded. Private radios rely only on advertising revenues. This difference inevitably distorts competition and can lead public radios to abuse their dominant position.

Furthermore, AER has long denounced the lack of transparency in the finances behind public broadcasting in some Member States. Publicly funded broadcasters throughout Europe have long enjoyed the anticompetitive benefits of un-checked cross-subsidy, cross-promotion and state funded risk investment. AER believes that all public radios should be included in the scope of this draft Directive. None of them should be exempted under the terms of Article 4 point 2 a), b) or c), now included in article 1 point 5 of the draft Directive.  In this context, AER believes that the draft Directive should provide the Commission and the Court of Justice with an efficient instrument which guarantees fair and effective application of the competition rules to public broadcasters.

In some cases, the lack of public broadcasting financial transparency in Member States appears to AER members to prevent the European institutions from verifying whether or not the funds granted are State aid as stated in Article 87 of the EC Treaty.

From AER's point of view, the notion of public service has nothing to do with whether a programme is commercially funded or not. It means simply "broadcasting which informs and entertains the public". Private radio is in the public service. It has to be. Shareholders of private broadcasting companies can only expect reward from advertisers if their output serves the public. That being said, they may not choose to serve a particular audience if it is not sufficiently large or demographically interesting to attract advertisers. Therefore, if such audiences are to be served, we need to find a noncommercial way to do it. This is where public subsidy comes into play. The problem is not public service broadcasting but whether and how aspects of it should be publicly funded.

AER therefore recommends that Member States should ensure that public broadcasters maintain separate accounts that follow the cost accounting principles. The accounts should distinguish between different activities, the methods of cost and revenue assignment and allocation and the use of net revenues generated by a specific activity. Separate accounts should be available in relation to, on the one hand, products or services in respect of which the Member State has granted a special or exclusive right or entrusted the undertaking with the operation of a service of general economic interest (corresponding to the “public service remit”), as well as, on the other hand, for each other product or service (including “commercial activities”). This requires a better control and the prevention of any violation of competition law by public broadcasters. AER agrees that in order to effectively apply competition rules, Member States should adhere to Article 5 point 3 now included in Article 1 point 5 of the draft Directive. This foresees that “Member States shall, where the Commission considers it necessary so to request, supply to it the information referred to in paragraphs 1 and 2, together with any necessary background information, notably the objectives pursued”.

 In conclusion, AER supports the draft Directive’s aims. However, if they are to have the desired outcome, Member States need to clearly define public service remit6 and the “objectives” of the public broadcasters.