Examination of Witnesses (Questions 1646
- 1659)
TUESDAY 10 JANUARY 2006
Mr Philip Lowe
Q1646 Chairman:Mr
Lowe, welcome to you. Thank you very much for coming over. We
are very grateful. As you know, we are conducting a review of
the BBC in the context of the Charter Review and we have already
produced one report, but we are now looking at a number of areas
which we could not do justice to in the first report. One of these
is the issue of sports rights. Can we start from the beginning?
We are obviously interested in what you are proposing as far as
the Premier League is concerned. Could you explain first why the
Commission is involved in the first place in television rights
and the Premier League, given that the present system appears
to allow Premier League to maximise its income?
Mr Lowe: The involvement of the Commission in
the sale of audiovisual rights for football originated from complaints
made to the Commission before 2002. Since 2004, we have a parallel
application of European competition law by national and European
authorities. Perhaps this case would have been dealt with directly
by the OFT and the Competition Commission if necessary were it
to take place today. However the historical aspects of it were
that we received complaints. We also received complaints in respect
of similar cases in Germany and with respect to the sale of rights
of UEFA Champions' League and the EBU. The essential basis for
those complaints and our initial concerns that while any individual
company selling its services has a right to restrict output and
fix prices, if there is collective selling of rights, there is
prima facie a case for saying that that could be in the
interests of restricting output and simply maximising revenue
for the companies concerned at the expense of the consumer. Our
main concern in attacking this case and indeed all our competition
cases is the ultimate benefit to the consumer. The Commission's
line on the Premier League case and in its previous decisions
on the German Bundesliga and on UEFA Champions' League is based
upon the following principles: that joint selling is possible
in this area in particular given the specific nature of sports,
contrary to other areas where it might be considered a cartel.
If you think of companies operating to fix output and price together
elsewhere, it might be regarded as a cartel but in this area there
are specifics. The reason why we believe it is permissible under
certain conditions is where the product being offered has a value
added for the consumer over and above the particular services
offered by individual clubs. If Manchester United, Chelsea or
any other club in the Premier League was marketing its own audiovisual
rights to its matches, that would represent a certain value but
there is an added value from the Premier League's marketing of
its rights, a showcase for competition which makes sense.
Q1647 Chairman:
Even if the proposals that you put forward lead to a drop of income
for the individual clubs?
Mr Lowe: I will come back to that later on.
Our case started principally on the basis of saying, "Under
what conditions would it be acceptable for joint selling to take
place?" First, there must be value added ultimately for the
benefit of consumers or something extra for consumers. Secondly,
there should be open competition for the rights in a transparent
way and, thirdly, any exclusivity which was given to any broadcaster
at the end should be of limited duration and scope, offering the
maximum choice for consumers. That is where we started from. We
were particularly concerned in the Commission in 2002-03 that
the successive purchase of all the live television rights for
Premier League matches by one single supplier/broadcaster would
in the longer run foreclose competition in that market, reducing
the incentive for others to invest in possible entry into that
market. That was aggravated by the fact that in the UK situation
as opposed to other situations there is only one dominant operator
on the retail subscription market. The purchase on an exclusive
basis of all the premium content of live football upstream would
not only successively foreclose competition possibly for competitors
upstream but also downstream it would reinforce the dominance
of the broadcaster who had the retail subscription rights. At
least that reduced choice for consumers because there are consumers
who want to buy all live TV matches; but there are consumers who
perhaps would like to buy a few. Our concern was that there was
not sufficient potential choice in the way in which the Premier
League were offering matches in order to leave it open for the
market to offer to consumers the maximum benefits. We started
off from that point. We entered into negotiations with the Premier
League in early 2003 on that basis. They had already agreed at
that point to increase the number of live games which could be
offered. They also agreed to increase the number of packages of
rights. The more packages you have, the more chance there is that
people will bid for different types of combinations. Some free
to air broadcasters do not want more than 23 matches per season;
others want to use the matches on a pay TV basis. At that stage,
and on a preliminary basis we were working towards four packages
with a total of, 138 matches. Indeed, the Premier League operated
on that basis for the tendering of the 2004-07 rights even before
they reached an overall settlement with us in December 2003 to
do that. The result of that bidding however was that one broadcaster
got the entire rights. So we concentrated the 2003 settlement
on the issue as to how bidding should take place for the next
round which is 2007-10. Our concern about the downstream effect,
strengthening the position of retail subscribers on the pay TV
market as well as reducing choice for consumers generally as to
how much football they want to watch and at what price, led us
to the conclusion that it was advisable not to have a situation
where again, for various reasons but for the third and fourth
time, only one broadcaster got the entire live TV rights. As a
competition authority, I can say that this type of solution is
not a solution which we would ideally go for. A competition authority
is interested in creating structures, and processes which make
the market work, not in determining outcomes. We thought very
long and hard before we proposed a no single buyer rule in the
context of the commitments in December 2003. The subsequent reaction
of a market test to those provisional commitments was mixed. The
vast majority of other broadcasters thought we had not gone far
enough. In some cases, some of the regulatory authorities here
thought we should have imposed a split of rights effectively,
50/50, between the existing dominant broadcaster and others. We
felt that the way to go was to have the maximum number of packages
of live rights open for the market to bid for, which is why we
subsequently agreed on six packages. We have also placed emphasis
on the need for stand alone bidding. That is to say, broadcasters
cannot simply bid on the basis that, "If you give me one,
I will give you X. If you give me two, I will give you 2X plus
a premium. If you give me the whole lot, I will give you a massive
premium" because that would encourage again this serial exclusivity
which would cut out competition and choice for consumers. We placed
emphasis in our settlement with the Premier League on six packages
offering the possibility for broadcasters to choose to combine.
They can even bid jointly if necessary. The packages are based
upon a module of 23 matches which is what the free to air broadcasters
believe is what they can tolerate in their programming. It equally
allows other larger or joint bidders to bid for half the rights,
for example. We want to determine the process, not the precise
outcome. However, if we were to leave all six packages open to
exclusivity by one bidder for another period of three years, our
concern was that that situation would in the end lead to further
foreclosure in the wholesale market for the premium content and
further dominance of the retail subscription market. That is the
logic of what we are doing.
Q1648 Chairman:
You said the whole process began by complaints. Who were these
complaints from and were there many of them?
Mr Lowe: The number of operators or broadcasters
on the UK markets is limited. I do not think it would be correct
for me to indicate to the Committee the names of our complainants.
Q1649 Chairman:
It was operators who complained?
Mr Lowe: Broadcasters and also downstream operators.
Of course there were countervailing views from other bodies. The
Consumer Association was also in favour of the major complainants
at the time.
Q1650 Chairman:
You have done what you have done and proposed what you are proposing
as far as Premier League football is concerned but does it therefore
mean that if, for example, we look at cricket you are going to
do exactly the same in that area?
Mr Lowe: As I said at the beginning, I personally
believe that the issue of the market for live rights to for games
such as cricket is a national one and not a European one. The
way in which we have modernised our competition law framework
in the European Union allows these problems to be dealt with at
the level at which it is most appropriate, where there is the
most proximity to the facts and where the national regulatory
authorities can deal with it. In the situation of cricket, we
have not received any direct, formal approaches from any of the
parties. We have received a number of letters but we have not
received any formal complaints. We know that Ofcom has also intervened
in relation to the award of highlights of cricket matches to,
for example, Channel 5.
Q1651 Chairman:
In précis, it is not as far as I know widely played in
France and Germany and there is regrettably no sign that it is
going to pick up interest there. As far as that is concerned,
that you would leave at the national level, basically?
Mr Lowe: Certainly. The only argument for looking
at football at a European level is the degree to which there is
similarity in the cases and also the degree to which the rights
are not just sold nationally but also across Europe, which is
the case.
Q1652 Chairman:
What are other potential sport areas which could be brought into
this? Would athletics be brought in? Would rugby be brought in?
Mr Lowe: Sport is a specific area for application
of competition law because a sports competition in principle adds
something to the individual performance and events presented by
one or two clubs. Therefore, I think there are particularities
which will always be taken into account by the competition authorities,
whether it is the European Commission, the OFT or the US FTC.
We all struggle with the same sort of problem in this area. We
have dealt on occasions with specific cases. In particular, for
example, we have an ongoing case as far as the European Broadcasting
Union is concerned, because many of the private broadcasters in
Europe believe that the combined purchase on an exclusive basis
by the public broadcasters throughout Europe of the Olympics and
other activities precludes competition for them, particularly
when some of the rights which they purchase are never used. For
example, some of the public broadcasters in the European Union
are buying rights to pay TV which never get used, but they get
bought up. Our overall approach to these cases is to apply some
general principles. I have told you what they are: value added
for consumers, reducing exclusivity in scope and in duration to
the minimum necessary to ensure competition, open tendering procedures
to ensure that competition takes place. But we do not have a proactive
approach in this area.
Q1653 Baroness Gibson of Market Rasen:
I would like to ask you about where we are with the draft decision
at the moment. Has it been prepared by the Commission and sent
to Member States for consultation? If it has, have there been
any responses so far? What is its status? Finally, when will a
final decision be made, because I understand it is due to be made
in the first quarter of this year.
Mr Lowe: Under the law which we are applying,
this is a decision which enables the Commission to obtain from
the Premier League legally binding commitments to behave in a
certain way and change things in a certain way. This decision
is already prepared inside the Commission. We have not formally
adopted it yet and it will be preceded by a consultation of the
advisory committee of experts of the Member States who are experts
from each of the national competition authorities. We expect that
to happen in the next few weeks and at the very latest we should
have taken a decision by March of this year.
Q1654 Lord Maxton:
I am a trifle confused by this. You said that you would not consider
cricket because it is a national issue but the Premier League
is a national thing, or are you telling us that some of the complainants
about the Sky contract came from outside of the United Kingdom?
Mr Lowe: I am sorry I was not clear. Historically,
this has become a European issue. There is arguably a precedent
value across the EU because several markets have similar problems
but I believe that if the case arose today under the new framework
for European competition law it would have been dealt with by
the OFT and other bodies in the UK.
Q1655 Lord Maxton:
You would not therefore have come to this decision. You would
never have had to deal with it.
Mr Lowe: We would never have had to deal with
it unless,—as many commentators have suggested—it
was felt that the European Commission should take a clear line
on this we must as 25 national authorities and the Commission
have a similar approach, applying the same competition law. In
certain sectors such as energy policy or airline alliances, you
would expect the Commission to take the lead in showing how the
law should be applied. In this case, due to the history of the
cases, we have developed an approach which has been broadly followed
by the Dutch authority, by the German Cartel Office and by the
OFT.
Q1656 Lord Maxton:
I am even confused a bit on that, because the Premier League is
not a monopoly for football in England, let alone the rest of
the United Kingdom. Last weekend, there was major football being
shown on the BBC, because it was cup and not league. If you like,
there was a competition for television watching and football even
within that one area which you are considering is a monopoly.
Is that not right?
Mr Lowe: This is a question of degree and proportionality.
Seventy-three per cent of the live rights available for premium
football shown in the UK come from the Premier League.
Q1657 Lord Maxton:
Those of us in Scotland might find that helpful.
Mr Lowe: I am talking about the Champions' League,
national matches, cup matches, et cetera.
The Committee suspended from 15.52 pm
to 16.00 pm for a division in the House
Q1658 Chairman:
Having gone through this process slightly reluctantly—may
I paraphrase?—can you not now repatriate it back to the
United Kingdom authorities?
Mr Lowe: Once we have taken our decision which
we intend to do by the end of March, it will be up to the UK authorities
in our view to take any further action which they may believe
necessary in the interests of consumers either at the retail level
or at the wholesale level. What we have tried to indicate here
are some principles, which I believe the UK authorities share,
on the way in which you deal with exclusivity and the way in which
you have an open tendering procedure. The Premier League have
been very open to ensuring that the tendering procedure is fair
and non-discriminatory. The more packages of rights which are
open for offer, the more opportunity there is for competition
to take place. I do not think the result in terms of the application
of law will be any different particularly between the Commission
and the OFT. The proximity of both the OFT and, for example, Ofcom
to the realities will help in reaching a more rapid decision.
Q1659 Chairman:
As we go forward after that, will it become a matter for the OFT
and for Ofcom initially, first?
Mr Lowe: FAPL's commitments, if the Commission
takes the decision in the next few months to accept these commitments,
which I believe it will, will be valid for as long as necessary.
If FAPL believe they are no longer relevant, they can come back
to us and argue that they should not be bound by them. The commitments
essentially relate to the way in which audiovisual rights for
football are sold. The crucial moment will be later this year
when the process of tendering for the period 2007-10 begins. We
will see as a result of that what the outcomes are for competition.
No doubt between 2007 and 2010 the various competition authorities,
particularly the national ones, can judge whether any further
intervention is necessary.
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