Broadcasting - Competition Law - Sky - Football Association Premier League - European Commission
Introduction
|
|
The latest round of negotiations between the FAPL and the European Commission
appears to be the endgame of a protracted campaign by the Commission to
prevent Sky from owning the exclusive rights to televise live Premier
League football games in the UK. The Commission claims that it is acting
for the benefit of the ultimate consumer, the football fan, and that by
bringing to an end Sky’s monopoly it is ensuring better access to
live games. On the other hand, the FAPL claims that it is securing not
only the best deal for its constituent members, the clubs, but is also
brokering a deal that is in the best interests of football as a whole,
including the fans. Throughout the negotiations, the two cornerstones
of the FAPL-Sky deal, collectivity and exclusivity, came under almost
constant scrutiny.
|
1 |
In this context, collectivity is where a group of clubs act together
to form a league, play in competitions and negotiate commercial deals
as one entity. It is the last part of this definition, when the FAPL is
acting for commercial rather than for sporting reasons, that has concerned
the Commission as it raises the prospect that the FAPL may be acting as
a cartel/monopoly. This issue had been addressed previously by the Commission
in its Statement of Objections concerning UEFA’s selling of its
Champions League games (European Commission, 2001). The Commission claims
that by limiting the number of live games that can be televised, and thereby
maximizing its revenues, the FAPL is abusing its position as a monopoly
supplier. The FAPL counters this by arguing that its commercial agreements
need to be organised collectively in order to manage efficiently the interests
of its 20 members and to help maintain as level a playing field as possible
in respect of the distribution of the revenues received.
|
2 |
Exclusivity is the means by which a broadcaster can effectively guarantee
large audiences for a popular product. By paying an exclusivity premium
to the FAPL, broadcasters can ensure that consumers can only view the
event through one medium. This enables a satellite broadcaster such as
Sky to coax subscriptions from consumers with the enticement of programming
unavailable elsewhere. Such an arrangement is also extremely beneficial
to the rights holder, the FAPL, because it too can maximise its revenue
potential.
|
3 |
Whether exclusivity and collectivity can be reconciled with promoting
consumer choice and increasing competition in the broadcasting market
were the questions that the Commission sought to answer. The paradox remains,
however, that the Commission, in claiming to act in the best interests
of consumers, may perhaps be chasing an ideal that in reality may not
exist and further may be unwanted by the stakeholders whom it is seeking
to benefit.
|
4 |
The previous agreements and the problems of exclusivity
|
|
Since 1992, the FAPL and Sky have entered into four successive exclusive
deals, running from 1992-97, 1997-2001, 2001-04 and 2004-07 (McAuley,
2004 and Geey. 2004). Apart from during the currency of the first deal,
the Commission has been in almost constant discussion with the FAPL over
reducing the length of each successive deal and restricting the collective
and exclusive natures of the deals. Strikingly, when a challenge was made
during the second year of Sky’s first five-year contract with the
FAPL, an exception to the competition provisions was granted under what
is now Article 81(3) for the entire period of the contract (European Commission,
1993). The exception was acknowledged as being necessary because British
Satellite Broadcasting (who were about to merge with Sky to become BSkyB)
had only begun to broadcast in 1990 and needed the certainty of a longer
term contract in order to develop within the British broadcasting industry.
|
5 |
Yet since the ruling, Sky has signed deals with the FAPL for four years
in 1996 and three years in 2000 without the need for the protection that
it received during the first deal. The rationale for the decision was
understandable in 1993, with an infant broadcasting group, but there was
little need for this type of exclusive protectionism to continue unchallenged
once Sky became an established broadcaster. If exclusivity is to be used
to protect new entrants to the market, as was the reason for the initial
exception, it should not have the undesirable consequence of foreclosing
the market to others in a similar position. Far from encouraging new entrants,
the exclusivity conferred on Sky in 1993, and left unchallenged in the
next two deals, allowed Sky to become the dominant broadcaster in this
market rather than enabling the same concessions to be exploited by other
embryonic broadcasting companies. Sky’s entrenchment was further
guaranteed because new rival broadcasters would be unlikely to be able
to afford an exclusive rights package when faced with huge exclusivity
premiums and a broadcasting company, such as Sky, with a dominant and
entrenched position to protect and a huge cost base over which to spread
its rights expenditure.
|
6 |
The negotiations for the 2004-07 agreement signalled the beginning of
the end of a number of long-running debates between the FAPL and the Commission
concerning the use of a single broadcaster and the maintaining of a single
exclusive rights package to broadcast live games. The FAPL unbundled its
broadcasting rights into four distinct packages. The gold package covered
38 games to be played on a Sunday afternoon, the silver package 38 games
on Monday evenings and two bronze packages of 31
games each to be played at 1.45pm and 5.45pm on Saturday afternoons. The
different grades of package were designed to reflect the perceived attractiveness
of the games that they covered with the best games contained in the gold
package. These packages were marketed separately to ensure equality of
opportunity in the auction so that broadcasters who could not afford the
product as a whole, i.e. all four packages, could use their more limited
resources to bid for a single one of the packages.
|
7 |
The Commission surmised that this would liberalise the market for live
FAPL rights and be of benefit to smaller broadcasters who would no longer
be hampered by having to bid for one homogenous product that was prohibitively
expensive. There would be greater choice at both the supply and demand
level. The suppliers (broadcasters) would be exposed to greater competition
at the upstream level whilst the consumers would be able to choose their
preferred product from a range of different providers and, in theory at
least, pay lower prices for the product. The Commission was far from happy
when Sky bid for and won all of the packaged rights. It was adamant that
for the 2007-10 broadcasting deal, exclusivity would be a broadcasting
characteristic confined to the past and that at least one set of packaged
rights could not be purchased by Sky (IP/05/1441). If the same number
of games are sold as packaged rights for the next auction there will be
six packages of 23 matches each, with each package supposedly containing
games of equal appeal to football fans (Milmo, 2005 and Zetaria, 2005).
Indeed some have seen the proposed merger between NTL and Virgin Mobile
as potential competition to Sky and its attempts to maintain dominance
over FAPL games on its subscriptions channels.
|
8 |
With exclusivity no longer operating as a bar to entry into the FAPL
live rights market, speculation has been rife over which of the many current,
and indeed new, broadcasters may enter the fray in order to fight over
what the Commission and others have long viewed as being perhaps the most
effective subscription-driver and a major asset to, particularly, a pay-TV
broadcaster’s portfolio. Indeed only 15 years ago, Sky was on the
brink of extinction before securing the FAPL rights thereby establishing
itself at the heart not just of English football, but British broadcasting.
|
9 |
Despite the bar on exclusivity, Sky will still be able to bid for five
of the six packages, representing almost 85% of the available live games.
It was reported that the Commission was seeking to limit Sky’s live
penetration rates to not more than 50% of available games (Griggs and
Smith, 2005). Interestingly, a proviso to the last auction process was
added ensuring that the current deal would be the last where Sky would
be able to secure exclusive rights to live games. This agreement would
seem to suggest that although neither side is completely satisfied with
the outcome of the negotiations, concessions have been made and agreed
upon in order, at least on the face of it, to aid consumer choice, whilst
at the same time giving alternative broadcasters a platform from which
to enter a previously closed market. Sky welcomed the Commission’s
approval of the next auction process by stating,
It has been known since 2003 that live matches will be offered by more
than one broadcaster under the Premier League’s next rights agreements.
Today’s statements offer more clarity on those arrangements (Griggs
and Smith, 2005)
|
10 |
Collectivity, exclusivity and the new deal
|
|
Whereas the exclusive nature of the FAPL-Sky deals has been the main
focus of the Commission’s investigations, the collective nature
of the deals, where the FAPL negotiates on behalf of its constituent member
clubs, has caused far fewer problems. A league acting as a central organising
and negotiating body is far less anti-competitive for broadcasters and
consumers alike when compared to the effect of exclusivity clauses. Collective
bargaining ensures that the clubs are not competing against each other
in the market and can ensure a fairer distribution of revenues to its
members. In this way, collectivity could even be seen to be pro-competitive.
To this end, the German and US federal legislatures have found it necessary
to recognise the weight of such arguments by introducing statutory exemptions
to anti-trust legislation to prevent potential legal conflict with collectively
negotiated deals, respectively in section 31 GWB, BR-Dr, 852/2/97 and
The Sports Broadcasting Act 2000, 15 USCA ss1291-1294.
|
11 |
The disadvantages of collective agreements are supposedly twofold. The
first disadvantage is the ability of the selling league to fix the price
of the overall package at a disproportionately high level. It is able
to do this by restricting the flow of content to the market by not allowing
broadcasters to negotiate with individual clubs, instead forcing them
to buy a complete package from the central negotiating body, for example
the FAPL. The second is that the selling league can limit overall output
by restricting the number of games that can be televised. As both of these
restrictive practices occur with the collusion of the member clubs, the
risk is that the league is acting as a cartel and distorting the market
for its product contrary to Art 81(1) or that it is abusing its dominant
position in the market as the sole seller of the rights contrary to Art
82.
|
12 |
The Commission has been careful not to label collective selling as illegal
per se as the effects of collectivity do not necessarily foreclose markets:
Joint selling may be an efficient way to organise the selling of TV
rights. However, the manner in which the TV rights are sold may not
be so restrictive as to outweigh the benefits provided (European Commission,
2001).
Although not entirely conclusive in their assessment of collective
selling, it perhaps demonstrates a veiled criticism of exclusive agreements,
by way of the manner in which they are sold. It does lend more
weight to the argument that perhaps the Commission is more concerned
with the detrimental effects of exclusivity than collectivity.
|
13 |
Conversely, the most potent side effect of exclusivity is that by its
very nature it forecloses broadcasting markets by leaving one incumbent
broadcaster with the exclusive right to broadcast the product. The Commission
has therefore allowed collectivity to continue, where justifiable, whilst
abolishing exclusivity by requiring at least two broadcasters to purchase
the available packages of live rights. Its aim is to introduce more competition
to Sky, not to create competition between the clubs, and to make more
games more widely available (Cassy, 2003).
|
14 |
It seemed inevitable, therefore, that the FAPL would be forced to realign
its rights package auction process to conform to the reformed Champions
League deal of 2002 (IP/03/1748). This should have meant an end to Sky’s
exclusive deal and, if the UEFA format followed, all 360 Premier League
games being available for screening. Despite speculation that a terrestrial
broadcaster would be guaranteed one of the two available ‘bronze’
live rights packages, Sky successfully secured the rights to all of the
138 live games made available by the FAPL.
|
15 |
Although Sky won the live rights in an open auction by bidding the highest
amount, the Commission were still disappointed that Sky had been able
to retain its status as the exclusive broadcaster of FAPL games. This
in turn has resulted in the Commission forcing through the changes to
the bidding process that has just been completed for the 2007-2010 rights.
|
16 |
The Economic impact of the negotiations
|
|
Until recently, the received wisdom in broadcasting negotiations was
that income would be maximised if a premium could be charged for a single
exclusive package. Following the collapse of ITV Digital and the precarious
financial position of many clubs, fear was mounting that Sky would not
pay such a huge sum for a non-exclusive deal. This fear was fuelled by
the comments of BSkyB’s majority shareholder, Rupert Murdoch, who
publicly condemned the amount that Sky had been forced to pay for the
last FAPL deal (Campbell, 2002). As can be seen in figure one below, the
price per match that Sky now pays has jumped to astronomical levels over
the course of its relationship with the FAPL.
.
Figure 1
|
17 |
In light of these comments, it is interesting to note the price per match
decrease on the most recent FAPL contract. This was always likely to occur
because of the different broadcasting packages that were available and
the risk associated with a failure to secure exclusivity. Although the
total figure paid for the 2004-07 rights (£1.02bn) was similar to
that paid by Sky for the previous contract (£1.1bn) that it was
able to screen over twice as many live games for the investment marked
a significant shift in the balance of power. Despite a halving of the
price per game, the packaged model for tendering broadcasting rights could
be viewed as a successful strategy, especially in the light of the then
depressed advertising revenues and an increased unwillingness on the part
of broadcasters to pay what they saw as such exorbitant fees, even for
the guaranteed audiences associated with events like the FAPL.
|
18 |
In the future, a further fragmenting of the product may be the best approach
to maximising broadcasting revenues; a tactic that would also, conveniently,
appeal to the Commission and its attempts to purge football of exclusive
deals. Armed with its new approach to rights packages and negotiated in
conjunction with the Commission, UEFA received more money for the televising
of its Champions League competition through a non-exclusive contract with
ITV and Sky than it had previously done by solely and exclusively contracting
with ITV (Gibson, 2002).
|
19 |
Despite the amendments to the tendering process introduced for the 2004-07
FAPL live broadcasting rights, further changes have had to be made for
the next round of negotiations due to start in the summer of 2006. Although
the Commission has not sought to challenge the collective nature of the
FAPL as a rights-selling organisation, it will no longer accept that one
broadcaster alone can have the exclusive right to screen the limited number
of live games that will be offered. A specific term of the bidding process
is that no one organisation can hold the entirety of the FAPL’s
live broadcast rights, even if it has the will and financial capability
to do so. In view of the Commission’s warnings that exclusivity
is anti-competitive in the context of the right to broadcast a sporting
competition such as the FAPL, there was, in reality, little option but
to introduce a procedure along these lines. Following the re-formatting
of the Champions League broadcasting settlement between UEFA and the Commission,
the FAPL has followed this blueprint for its next round of negotiations.
|
20 |
Conclusions
|
|
At the beginning of the FAPL’s live rights auction in August 2003,
exclusivity of its broadcasting contract was viewed by many as a fading
memory. Market access was supposed to be secured for new broadcasting
companies whilst at the same time providing real competition to Sky in
the public tendering process. The negotiations were no longer supposed
to follow the model of a zero-sum auction where the company with the most
money was able to outmuscle other broadcasters from the bidding process.
Although Sky obtained the rights for all of the available packages for
three years from 2004, the newly implemented process did at least signal
to other broadcasters the Commission’s future intent; that Sky,
for the first time in nearly two decades, should face real competition
in the auction for the 2007-10 live rights packages.
|
21 |
One concern that may well be expressed, especially by Sky, is that the
exclusion from the complete auction process of any one broadcaster may
be anti-competitive in itself. The idea that the Commission, in guaranteeing
access to the market to other broadcasters, is open to the accusation
that it is distorting or even preventing competition by effectively barring
the incumbent broadcaster from freely participating in a fair auction,
is a strike at the very heart of the legality of its aims to protect competition
throughout the EU.
|
22 |
This determinedly interventionist stance is almost certainly explained
by Sky having maintained its exclusive hold on FAPL live games in 2004
by its bidding for and winning all of the available packages of rights.
This auction tactic outmanoeuvred the aims of the Commission and failed
to provide it with a satisfactory outcome. The absolute prohibition on
Sky gaining all six of the rights packages for 2007-10, thereby guaranteeing
access to FAPL live games for other broadcasters, ensures that what the
Commission intended would occur during the last round of negotiations
must occur this time around.
|
23 |
Neelie Kroes, the European Competition Commissioner, was encouraged to
state that the new deal would, ‘give British football fans greater
choice and better value’ (Griggs and Smith, 2005). Previously, there
had been accusations emanating from the Commission that earlier FAPL-Sky
broadcasting agreements had led to higher prices for consumers and reduced
innovation by the entrenched broadcaster (Griggs and Smith, 2005). Whilst
there is no direct comparator for Sky’s subscription fees, as no
other broadcaster can televise live FAPL games, it is difficult to argue
that Sky’s interactive digital services are anything other than
at the forefront of technical innovation.
|
24 |
Until the auction process is completed and the packages bought, the theoretical
benefits that the Commission ascribes to the new tendering arrangements
could in fact result in serious financial detriment to fans as they may
in future be required to purchase more than one subscription, should another
pay-TV channel secure one of the packages, and perhaps additional hardware,
such as an additional set-top-box, to be able to watch the various FAPL
packages on what will now be a divergence of channels. Very few people
have doubted the quality of Sky’s FAPL broadcasts and continue to
pay the not inconsiderable subscription fee of £34 per month to
view Sky Sports. With the end of exclusivity, consumers are likely to
have to pay more for their football in a market that may also be more
confusing than the current one-stop-shop provided by Sky (see further
Ofcom, 2005).
|
25 |
There appear to be four main reasons behind the Commission’s campaign
against Sky’s exclusive access to the FAPL’s live rights.
First, it claims that the abolition of exclusivity will promote consumer
choice by enabling access to the games through a greater number of broadcasters.
Secondly, that it will reduce consumer cost because a single broadcaster
will no longer need to pay an ‘exclusivity premium’ to secure
the entire package of live rights. Thirdly, that it is abolishing a monopoly
situation that could be abused to the detriment of the consumer through
artificially high subscription fees. Fourthly, that the collective, joint
selling, arrangement had the potential to operate as a cartel that could
(but currently isn’t) demand an artificially high price from the
broadcasters.
|
26 |
The Commission has focused its rhetoric on the first reason, consumer
choice, whilst focusing its action on the third, the abolition of the
exclusive, potentially monopolistic, nature of the deal. What it has not
considered is the lack of consumer complaint about the current broadcasting
deal and the potential for increased costs that will almost certainly
be faced by consumers when this deal is implemented. Although Sky has
created a monopoly situation by securing all of the available live rights
packages, it cannot be said to be distorting the market if it is paying
the market rate for those rights, nor is it abusing its dominant position
in the market by charging consumers market rates to watch their broadcasts.
All of which begs an intriguing question: is it really the Commission
that is distorting competition in the market for FAPL live rights by preventing
one organisation from securing all of the available rights in an open,
competitive auction? This summer, we will find out for sure whether the
Commission’s actions were genuinely for the benefit of the consumer,
or merely a witch hunt of a media organisation that it felt had simply
got too powerful.
|
27 |
Buck T and Terazono E (2005) ‘England deal on football TV rights’
Financial Times, 18 November
Campbell D (2002) ‘Adjust your set. New ways for fans to view matches
may come to their rescue’ The Guardian, 14 December
European Commission (1993), ‘British Broadcasting Corporation, BSkyB
and the Football Association’ OJ C 94
European Commission (2001), ‘The UEFA Champions League Background Note’ MEMO/01/271 (20 July 2001)
European Commission (2005) ‘Commission receives improved commitments
from FAPL over sale of media rights’ Brussels, 17th November
2005 (IP/05/1441)
Geey D (2004), ‘Collectivity v Exclusivity: conflict in the broadcasting arena’ Ent LR 15(1) 7
Gibson O (2002) ‘BBC eyes live Premiership Rights,’ The Guardian,
13 December
Griggs T and Smith G (2005) ‘EU loosens Sky’s grip on the Premiership’
Financial Times, 17 November
McAuley D (2004), ‘Exclusively for all and collectively for none: refereeing broadcasting rights between the Premier League, European Commission and BSkyB’ ECLR 25(6) 370
Milmo D (2005) ‘Premier League urges MP’s to tackle Brussels’s
TV rights ruling’ Financial Times, 26 September
Zetaria S (2005) ‘Formal antitrust actions still likely over English
football TV rights’ Financial Times, 29 September
Geey, Daniel and James, Mark, "The Premier League-European Commission Broadcasting Negotiations",
, ISSN 1748-944X, April 2006, <http://go.warwick.ac.uk/eslj/issues/volume4/number1/geey/>