Select Committee on BBC Charter Review Minutes of Evidence

Examination of Witnesses (Questions 1646 - 1659)


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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