Ent Law Review Article 2004 Collectivity v Exclusivity: Conflict in the Broadcasting Arena DANIEL GEEY

Transcription

1 Ent Law Review Article 2004 Collectivity v Exclusivity: Conflict in the Broadcasting Arena DANIEL GEEY

2 This article seeks to explore the tension between the European and domestic approaches to English football broadcasting rights. It has been suggested by the English Courts that exclusivity is a beneficial tool in the sports broadcasting market. Contrary to this assertion, the purpose of this article is to assess why exclusivity only hinders competition, especially in the longer term. Definitions The two constant themes running through this paper are the notions of collectivity and exclusivity. Collectivity is the term used to describe a group of clubs acting in concert, forming a league, playing in competitions, and negotiating as one entity in commercial and television deals. It is the last part of this definition, which has raised and continues to raise much consternation, and concern for regulatory bodies. This is due to the criticism that has been levelled at the Premier League, which claims it is acting as a cartel. Whilst many commentators view the Premier League in this way, because it limits the number of live games and maximises revenues, others counter this by analysing that the League needs to be organised in this manner in order efficiently to manage the twenty competing clubs. Therefore they conclude the Premier League is not a cartel because its members do not act like rational competitors in the market place. The Restrictive Practices Court decision (RPC) and the Monopolies and Mergers Commission decision (MMC) especially, add great weight to the debate surrounding collective agreements and the possible consequences which could follow if certain restrictions were to be outlawed. It is my aim to assess, in the light of these rulings, whether the collective selling of rights is in the best interests of the clubs, broadcasters and supporters. Exclusivity is the means by which a broadcaster can effectively guarantee large audiences for a popular product. By paying an exclusivity premium, consumers can view a selected event through one medium. This enables a satellite broadcaster to coax subscribers into paying money for a programme no one else can broadcast. In turn this is extremely beneficial to the rights holder (i.e. the Premier League) because it can maximise its revenue potential, given the exclusivity premium it has been paid. One of the aims of this paper is to assess whether notions of exclusivity and collectivity can be reconciled with the objective of improving consumer choice, whilst increasing competition in the broadcasting market; or whether as at present, with the European Commission investigations, these two competing concepts are quite immiscible. Introduction Exclusivity is a producer-orientated device. This paper seeks to emphasise that collectivity does not in itself lead to broadcasting monopolies but may lead to disruption in output (i.e. the number of televised games) and the allegation that clubs work in concert. The fact remains that the Premier League clubs can still collude to restrict the number of games which can be 1

3 broadcast, and share different packaged rights with various broadcasters. These disadvantages may be anti-competitive and fall within the ambit of domestic and European competition law legislation, yet it is contended that exclusivity is the manifestation of an artificially stifled market. Although it remains an extremely beneficial tool to broadcasters and rights holders alike, in limiting the availability of a product, prices are driven up in a zero sum auction. The winners, (usually the larger more established, dominant broadcasters that can afford the large sums involved,) take all, thereby increasing the risk that they abuse their dominant position. At the core of this paper is the current enquiry by the European Commission into the selling of broadcasting rights in the Premier League. Unfortunately, the law in this area (in England and Wales) is particularly undeveloped. There has never been a ruling on the legality of the Premier League as a cartel, 1 and many have questioned the decision by the Restrictive Practices Court (RPC) 2 concerning the exclusivity clauses in the broadcasting agreement between the Premier League, BSkyB and the BBC in A more appropriate view appears to be emanating from the recent enquiry by the European Commission into the notion of exclusivity. 3 Far from the Commission s argument that exclusivity and collectivity are detrimental to competing broadcasters, the judges in the RPC held that an auction with only one winner, held only in intermittent intervals, was preferable to a situation in which more than one broadcaster could gain access to the rights to live broadcasts. The Court stated: If the exclusivity clauses were struck down, competition between broadcasters would be significantly diminished. It is to the benefit of the public that such competition should be vigorous. Its diminution would therefore deprive the public of a specific and substantial benefit. 4 Ironically, the judges backed the dominant broadcaster, BSkyB, to become even more forceful in the broadcasting sector, because perversely they thought competition would be enhanced. The Restrictive Practices Court v The Commission There are numerous papers, which have analysed the reason for the conclusion reached by the judges in the RPC. 5 But it is worthy of elucidation because many interesting comparisons can 1 The judges in the Restrictive Practices Court did not come to any conclusion as such investigation was outside the scope of the now defunct Restrictive Trade and Practices Act Re an Agreement between the FAPL and BskyB [2000] E.M.L.R. 78, [1999] UKCLR 258 (Restrictive Practices Court). 3 Commission opens proceedings into joint selling of media rights to the English Premier League IP/02/1951, 20/12/ Re an Agreement between the FAPL and BskyB [2000] E.M.L.R. 78, [1999] UKCLR 258 (Restrictive Practices Court) p e.g. Sloane, Peter The Restrictive Practices Court case, broadcasting revenues and league balance, in Sean Hamil, Christine Oughton and Steven Warby Footbal in the Digital Age, Who s Game is it Anyway, eds. (Mainstream, London, 2000), or Spink, Paul and Philip Morris, The Battle for TV Rights in Professional Footbal in Caiger, A. and Gardiner, S., Professional Sport in the EU: 2

4 be made with the Commission s current investigation, and it is possible to assess why such highly placed authorities conflict on elemental parts of competition law theory. The most widely held belief is that the Court was placed in a very difficult predicament. The now repealed Restrictive Trade and Practices Act 1976, was extremely restrictive in its approach to the remedies that would be available to the Court if the exclusivity clauses were struck down. There was a definite fear that if the clauses were abrogated, a football free-for-all would ensue, leaving many clubs close to financial melt down, with the larger clubs negotiating separate, highly lucrative deals. Faced with this dilemma and the knowledge that the Court would not be able to regulate a football industry, which had just been completely deregulated, the only other option was to find a reason to sustain the current football climate, and maintain the existing football broadcasting contract. To achieve this result it was vital to dismiss the anti-competitive effects of exclusivity whilst simultaneously championing its virtues. Equally as important, was the need by the judges to define the market for English football as broadly as possible. Exclusivity as a beneficial notion Exclusivity has been viewed as an extremely beneficial means by which rights holders can maximise their revenue potential from an individual broadcaster. In 2001 the Premier League collectively negotiated an overall television package totalling 1.6 billion pounds with various broadcasters, most notably BSkyB, who paid 1.1 billion for the exclusive live rights to 66 games. In turn the rights holder, usually a sports association such as the Premier League, or the Football Association of Ireland (FAI) would then have the resources to benefit the wider community. This is achieved by redistributive means, for example by parachute payments to relegated Premier League teams to soften the financial blow of relegation, and by contributing to the good of the wider community. 6 The benefit to the consumer stems from the value of exclusivity to broadcasting companies, which have sufficient incentive to invest heavily in new technologies, safe in the knowledge that they can recoup their sunken costs and make sufficient profit. 7 Therefore exclusivity reduces the financial risks for broadcasters and furthers the potential for research and development to enhance long term consumer welfare. Regulation and Re-regulation, (Asser, The Hague, 2000) or Rush, Jonathan, Broadcasting and Football: Premier League Broadcasting, (1999) Ent. L.R Current Premier League projects include The Football Foundation, The FA s Football Trust, The Football Foundation, and Football Aid. The Football Foundation received over 45 million this season, which is targeted towards improving grassroots football facilities. During the 2001/02 season the FA Premier League donated 500,000 to Football in the Community scheme alone. 7 For example Re: Footbal Association Case IV/ BBC, BSB and FA [1993] O.J. C94/06 and German Film Producers O.J. C284 3/10/89 3

5 Why a wide market definition was paramount The Court needed to stress that the Premier League was only one competition in the structure of televised football games, which included the FA Cup, Worthington Cup, European Competitions, and England international games. This wide definition would have the effect of diluting the potential anti-competitive features of Premier League exclusivity, because there would be many competing broadcasts and broadcasters, and the Premier League would only be one such product. By defining this market as widely as possible; i.e. by including all English football competitions, the anti-competitive effect of exclusivity on the Premier League alone would be much less significant. This market definition is worth comparing with another landmark football decision. The results of the Monopolies and Mergers Commission (MMC) decision into the proposed takeover of Manchester United by BSkyB, provide an interesting alternative definition of the English football market. The comparative market definitions are almost irreconcilable, and clearly contradict the other. The MMC held that there was a separate market for Premier League rights, and that there were no readily available substitutes; whereas the RPC considered the competitions mentioned above were readily substitutable. If the RPC had come to the same conclusion as the MMC, it would have found it extremely difficult to advocate the virtues of exclusivity, because one broadcaster (BSkyB) would be dominant in one market (the Premier League). These two issues were crucial in the RPC case, because once the judges in the RPC held that exclusivity was beneficial, a wider market definition had to be determined to avoid the conclusion that they were protecting an entrenched broadcaster from outside competition. To this extent, the Court needed this approach to justify the end result. The European Commission however was under no such constraints in its recent investigation, and perhaps it is a direct consequence of the failure of the Director General to triumph in the case, that the Commission has taken its particular stand. The Current Debate It is important to note that in the current climate of increasing European regulation, and the recent compromise deal between UEFA and the Commission over Champions League television rights, it is now inevitable that England (and Germany) will have different television deals, compared to previous broadcasting contracts. The former exclusive, one broadcaster per Member State contract deal, was recently substituted by a number of varied, packaged rights for the Champions League season commencing in These new packages include primary and secondary live games, internet access, mobile 3G licences along with the possibility of individual clubs marketing their own games. In Britain, from the season BSkyB and ITV will have such Champions League access. The current Premier 4

6 League position is still unclear, whilst the media continue to speculate about the outcome. 8 The most likely conclusion is a similar model as the restructured Champions League broadcasting format, which would be much more likely to overcome the Commission s objections to the current exclusive BSkyB deal. It was recently reported that the Premier League s in-house lawyers advised against talks with BSkyB over an extension of the current exclusive deal, 9 for fear that it would almost certainly fall foul of the Commission s objections, with the ultimate sanction of a 10 per cent penalty levied against the value of the entire contract. In the light of falling broadcasting revenues, the Premier League has been extremely wary of maintaining the current value of the Premier League product. There has however been much debate about the correct strategic path to choose. Many, including opinions from the judges in the RPC case, 10 felt that exclusivity was, and is the only way to maximise rights holder revenues, whilst others, including an unnamed Premier League chief executive suggest that breaking up the current arrangements into smaller packages would prove more lucrative. There are only two ways we re going to get more money next time. Either the main domestic deal yields more, which is unlikely, or there s more fragmentation of our rights, and we get the same money or more by making up any gap in the cash for our main packages by selling more packages. 11 This logic would suggest that the sum of all the packages sold to different broadcasters would be worth more than just one exclusive deal with a sole broadcaster. This second option would conveniently address the Commission s concerns, yet it remains to be seen what would result in relation to the collectivity principle. In the Champions League reorganisation, UEFA, the European football governing body, was able to continue in its role as a supervising entity, collectively ensuring that the clubs have an organised structure. This seemed to suggest that exclusivity was the Commission s major concern. However, one of the main faults with the collective agreement is said to be the problem of restraining output. In this instance, it translates into an artificial limit on the number of games available for television viewing. At present, in three of the main European football countries, Germany, Italy and Spain, all games can be viewed live through a combination of free-to-air, pay-tv and pay-per-view portals. This is still not possible in England with the Premier League (see Table 1). The current Premier League contract which expires in 2004 only permits 66 exclusively live games to be broadcast by BSkyB and a further 40 pay-per-view games per season. With the 8 e.g. Cassy, John, A Level Playing Field? The Guardian, April 7, 2003 or, Paul Waugh, Collective TV deal vital to game, say MPs, The Independent, April 3, Campbell, Adjust, Guardian. 10 Premier League football s... value on a non-exclusive basis... would be substantially less [because] diluting exclusivity for live matches would devalue the rights very significantly. It was contended for the Director General that this loss of value might be recouped if significantly more matches were sold. This is possible, but we think unlikely. In Re an Agreement between the FAPL and BskyB [2000] E.M.L.R. 78, [1999] UKCLR 258 (Restrictive Practices Court) pp Denis Campbell Adjust your set. New ways for fans to view matches may come to their rescue, The Guardian, December 14,

7 inception of packaged live rights, and the need to cater for different broadcasters, it may be that in order for the Commission to rule the Premier League as a non-colluding, non anticompetitive entity, certain concessions will have to be made on the issue of the number of games which are to be made available to armchair football viewers. 12 On June 19, 2003, the Premier League after in-depth consultations with the European Commission, decided to revamp their entire tender process for future Premier League television deals. 13 Instead of the previous exclusive deal with a single broadcaster, following the Commission warnings that exclusivity is anti-competitive in the current setting, the Premier League had to formulate a new tendering procedure. It came as no surprise, when it was announced that three packages would be available for the screening of live Premier League football on multiple broadcasting platforms. The re-regulation of the Champions League broadcasting settlement, between UEFA and the Commission seems to be mirrored in the current context. 12 This has indeed happened. There will be 138 games per season being broadcast from 2004 compared to the 104 currently available. 13 Owen Gibson, Premier League s pounds, The Guardian, June 20, 2003 p.19. 6

8 Table 1: Live broadcasts of national league matches in certain Member State countries in 2000 Total number of games Free to air Pay TV Pay Per View Matches broadcast live England (40 after the 2001 tv negotiations) 16% Germany % Italy % Spain % (Source: Soccer Investor) Premier League Reorganisation From the 2004/5 season, up to three broadcasters could have the opportunity to bid for screening live Premier League football. The three packaged rights available are illustrated below. New packages Amount of games Potential revenue worth per season 14 Actual revenue received per season 15 Gold Silver Bronze Totals Speculation was that BSkyB would ensure they outbid their competitors for at least the gold package which would give the company first pick from each complete fixture list. The silver package would give a broadcaster second choice, and accordingly, the bronze package third pick. 16 It would seem that the League in trying to increase, and safeguard the value of their product, and to make the bronze package more attractive, have used the incentive of making more live games available to be purchased. A broadcaster would therefore get better value per 14 Estimates from financial consultants UBS Warburg in Owen Gibson, Shifting the goalpoasts of TV soccer, The Guardian, June 20, Grant Clark, BSkyB scores UK soccer rights, Financial Review, August 11, But as of the August 10, 2003, BSkyB won the rights to all three packages. 7

9 game. Inside opinion suggested that a combined ITV and BBC bid for either the silver or bronze packages would have been the best ploy by the free-to-air broadcasters, to attract Premier League football back to terrestrial screen, at a reasonable price. However this has not materialised because BSkyB bid for, and won, all three packages. 17 It is interesting to note two contrasting figures from the new 2004/5 Premier League tender documents. The Commission was concerned about the number of games that were previously being screened on British television. As previously assessed, BSkyB was only able to screen 66 live games up until 2004, and this was considered by the Commission as an unacceptable restriction of output by the Premier League. As a result, over double the number of games will be screened from 2004, thereby giving consumers greater choice. 18 On the charge that the value of the Premier League product would fall dramatically, UBS Warburg estimated that the new differentiated packaged deal would be worth up to 400m per season, which would equate to 1.2billion over the three-year contract. Interestingly, this figure does not include revenue for any of the highlights packages, 3G licences, and full match, delayed highlights on individual club stations, or the increasingly lucrative foreign contract to screen Premier League football around the world. Although UBS Warburg was not far from predicting the correct price ultimately paid by Sky, the packaged model for tendering broadcasting rights could be viewed as a successful strategy, especially in the light of depressed advertising revenues, and a greater unwillingness on the part of broadcasters to pay exorbitant fees even for large sporting competitions and events. 19 The Commission had thought that by their consultation with the Premier League prior to the publication of the tender document for the television contract, they had rendered exclusivity obsolete. This may however be a premature assessment. Nevertheless, one could now point to the RPC s decision in assessing that exclusivity was pro-competitive, as a complete fallacy, as was their assumption that rights holders could only maximise their revenue potential by maintaining exclusivity, thereby ruling out the packaged model of rights dissemination. Before the recent Premier League auction in August 2003, exclusivity in the Premier League contract was viewed by many as distant memory, giving market access to new broadcasting companies and the provision for real competition in the public tendering process. There is no longer the model of a zero-sum auction with the company with the most money able to bully other broadcasters out of the bidding. With three live packages available for tender, BSkyB, for the first time in a decade, had real competition which will continue when its current 17 This would be an extremely controversial plan by BSkyB because this would not alleviate the Commission s concerns over one broadcaster retaining the exclusive rights to the whole competition. It was even be that the Premier League stipulates that one broadcaster cannot bid for all three packages or at least cannot purchase all three. 18 Many supporters groups are unhappy that more live television will eat into the lower league attendances, and that the amount of live games should indeed decrease. See Nick Harris, TV deal to cause kick-off turmoil, Independent, June 20, The actual figure to be received by the Premier League from the start of the 2004 season is 1.02bn from BSkyB.+ 8

10 exclusive rights package expires. 20 BSkyB s reaction to this increase in competition has been emphatic by scooping all three available deals. Whilst the wish of the European Commission is that the different packaged rights were not auctioned off solely to BSkyB, the Premier League has accepted the three highest bids from BSkyB. Consequently, the Premier League and BSkyB may indeed face the wrath of the European Commission for fragrantly ignoring their wishes, given that BSkyB has maintained its exclusive hold on the Premier League. This was precisely the reason why the Commission insisted that the Premier League product should be split into more affordable packages, to allow greater broadcaster access. The Commission can only view this latest development with great unease and as Mario Monti s spokesman stated, If we find that there was little competition then we will go back [to the Premier League] and ask them to restructure the packages differently to hold the auction again. 21 Far from the BSkyB deal bringing a conclusion to the latest round of negotiations, it may only be the beginning of a drawn out process that could even spell danger for football viewers at the start of next season s television viewing, if indeed, the European Commission challenge the deal. 22 Collectivity v Exclusivity It may seem that too much emphasis is being placed on exclusivity, but it appears that its debilitating effects may be more potent than the problems associated with collectivity. In these circumstances exclusivity seems to be the most serious restrictive concern. Some seem to view or confuse the anticompetitive features of exclusivity with collectivity s pitfalls. The EC has demanded that the practice of wholesale distribution of games through a central body should end because it deems it anti-competitive on the basis that companies not successful in the tender process are excluded from showing matches... The EC believes that individual clubs should be allowed to sell the rights to their own home games. 23 (emphasis added) There are two different issues that are haphazardly being thrown together. A central league organising body is far less anti-competitive for broadcasters and consumers alike than exclusivity clauses. 24 The main disadvantages of collective agreements are supposed to be the 20 See Matthew Garrahan, SkyB risks losing grip on live football, The Financial Times, June 20, 2003 p.1 21 Clayton Hirst, BSkyB nets TV rights but the referee could rule it out, The Independent, August 10, Indeed Dermot Desmond shareholder in Celtic and Manchester United has signalled his intention to lodge a formal complaint with the Office of Fair Trading and the European Commission. 23 Simon Stone, League warns of disastrous effect of United TV proposal, The Independent, April 3, Some have even argued that collective selling is pro-competitive. In German and American legislatures they have found it 9

11 price fixing of the overall package, and that the League/cartel limits output (i.e. the number of games televised) by the continuing collusion between clubs. Therefore the effects of collectivity do not necessarily foreclose markets. 25 Yet the argument in the above extract suggests otherwise. Exclusivity s main and most potent side effect is that it does foreclose broadcasting markets. By deregulating exclusivity, a side effect of collectivity, namely the restriction on output can be alleviated, because more than one packaged live programme becomes possible. 26 Conclusion Whilst collectivity is certainly not pro-competitive, exclusivity seems to be its far uglier anticompetitive twin. It was thought highly likely that exclusivity would be banished from the Premier League, and would be replaced by a number of packaged rights, containing more games than ever before but this has not materialised. Whilst terrestrial broadcasters were thought to have a real opportunity to purchase Premier League rights for the first time on over a decade, the status quo (BSkyB) has prevailed. It will be of great interest to see whether or not the Commission challenges BSkyB before the new contract comes into force. necessary to recognise the weight of certain arguments by using types of statutory exemptions to circumvent potential legal conflict. e.g. The Sports Broadcasting Act, 15 USCA ss (2000) (America), and s.31 GWB, BR-Dr, 852/2/97 (Germany 25 In a Background Note in re of the Champions League Statement of Objections, the Commission was careful not to label collective selling as illegal per se. 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. Although not entirely conclusive in their assessment of collective selling, it perhaps demonstrates a slight veiled criticism of exclusive agreements, by way of the manner 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. The UEFA Champions League Background Note, European Commission, MEMO/01/271 (July 20, 2001). 26 This is an extract from my dissertation that encapsulates the distinction between the pitfalls of collective agreements and the disadvantages of exclusivity clauses. 10