Select Committee on BBC Charter Review Minutes of Evidence

Examination of Witnesses (Questions 1660 - 1674)


Mr Philip Lowe

  Q1660  Baroness Howe of Idlicote: You talk the whole time about doing whatever you are doing and coming to whatever decisions you come to in the interests of the consumer. Is there a difference in your mind between the interests of the consumer and the interests of the citizen? Might there be a difference literally between nations as well?

  Mr Lowe: The interests of the citizen are in principle reflected by the decisions of government and Parliament. For example, in relation to the definition of public service broadcasting and the provision of a varied and wide scope of broadcasting. The interests of the consumer relate primarily to the markets which exist to provide him or her goods and services. In the area of purchase of audiovisual rights of football, we are largely operating in the realm of commercial activity, notwithstanding the fact that the national governments can take decisions to foresee listed events which must be shown for the citizen in general. That is the distinction I would make. We are talking here about the way in which markets are working for consumers as opposed to what the citizen must be provided by a decision of government and Parliament.

  Q1661  Baroness Howe of Idlicote: Is this an additional argument for a subsidiarity approach so that more decisions are taken at the local country level?

  Mr Lowe: The whole purpose of moving to a parallel application of our European competition law across the European Union was precisely to allow national authorities to deal with problems which were primarily national and yet the major problems—for example, the energy market is one of them where the problems in energy are beginning to go beyond national boundaries—need to be dealt with arguably by European action. To take another example which has occupied me personally for the last three or four years, it would be extremely questionable whether it would be useful for the 25 national competition authorities in the EU to pursue complaints against Microsoft on a parallel basis. Arguably, there is a case for having an investigation done on a comprehensive basis where the negotiation can take place, which is most highly informed by the situation across all the EU markets, because the remedies will be applicable everywhere. In the case of FAPL, there are specific national elements where, normally speaking, national characteristics will dominate over the continent-wide aspects.

  Q1662  Lord Kalms: When you first decided to investigate the UK situation, were there no authorities that were capable of doing this themselves or did you decide that you would rather take it over from them and you could do a universal, European view and pass back to the local authorities the implementation of those views? The first question is what was there before you interfered or took powers. You then made another statement that the remedies are universal. They are not universal. The whole raison d'etre of subsidiarity is that the remedies should be suitable to the appropriate country. I am not sure I understand why you took the powers or why you took them away when there were already the OFT and the Monopolies Commission and there were sufficient safeguards in this country to deal with the complaints, which would have been directed through the OFT et cetera instead of coming to you. Nevertheless, you grabbed them, then set a universal standard and said to the local boys, "You deal with it from now on." Would that be misleading?

  Mr Lowe: I think it would be a misrepresentation of the facts on legal grounds because there was no issue of competence. If a complaint comes to the European Commission under European competition law, we have to address it. If we take no action, there will be legal consequences in the courts. I have indicated that since the time when these first complaints were made, we have had a much more rational arrangement, in our view, so that national authorities and national courts can deal directly under European competition law with cases which are primarily national. That certainly avoids the impression which you have that we are grabbing competence. On the contrary, given the mass of cases that the Commission has to deal with, we would prefer not to deal with cases which are primarily of a national nature because there are many pressing cases of European if not global dimension which are much more important at European level. What we did in this case was to respond to the complaints and express a statement of objections after which the Premier League and ourselves entered into settlement negotiations which we have now finished. Examining particular effects in a national jurisdiction is one thing. Establishing principles which are broadly applicable everywhere is another. If you are applying the same law in the EU as a whole, the principles should be correct. The principles of the analysis should be consistent and similar as indeed the Premier League has argued in the comparison with us and the French or Bundesliga case. The effects have to be looked at nationally or indeed even locally in some cases and the remedies have to be adapted to the effects, which is why we think the next stage will probably be national in this case.

  Q1663  Lord Peston: I am a bit lost on the economics of all this. The Premier League by definition is not a complete monopolist of football. Searching my knowledge of monopolies, I can think of no other economic activity in our country corresponding quite to that degree of monopoly. It seems to me it then sells its product to a monopoly distributor, namely BSkyB. It has been doing that for some time. I would have thought any economist would argue that, whatever else that is, it cannot be in the interests of consumers. It might be in the interests of the Premier League and BSkyB but the one thing it does not do, to use old fashioned terminology, is maximise utility or welfare. I am totally puzzled by what I might call the fairly relaxed view that for the moment you, as the European Commission, take of this phenomenon. I am equally puzzled by how relaxed our own competition authorities seem to be about it. It seems to me prima facie therefore that the role of the authority trying to stop abuse of monopoly would be surely to limit what they could sell and how they sell it. What puzzles me is you come up with a solution of six packages. The notion that any distributor could buy as many as five hardly seems to take us forward at all. I am trying very hard to discover the economic analysis that leads to the outcome you have given. I am not saying you are wrong; I am simply saying I have great difficulty understanding it at all. It certainly does not correspond to what I would expect wearing my economics hat.

  Mr Lowe: I apologise for responding to your question with a certain degree of delay. I omitted to mention that our complaints were preceded by a considerably activity by the UK Restrictive Practices Court and national authorities, particularly in the downstream market for subscription for football rights. It was a failure of the competition authorities in the complainants view to impose an effective solution that led them to come to Brussels. This is often why people do come to Brussels, because they do not feel they have found an adequate solution at home. Whether they are right or not depends upon the results of our decision. As to the question which Lord Maxton raised—what is a monopoly?—if in terms of our analysis, the absolute standard for a monopoly was to be 100 per cent owner of all the rights in a particular market, I would argue, and I think most competition authority heads would argue, that is too high a standard. The Premier League accounts for over 70 per cent of the live rights for TV. It is a "must" have if you are going to deal with football on television. You have to have part of your programme devoted to Premier League activity because it is so much related to the others. The reason why you have Champions' League on your television is precisely because the European Commission imposed on the authorities the need for greater distribution of the live rights for Champions' League matches. You might argue that that is too much from the citizen's point of view. Some of the correspondents to our newspapers say that there is now too much football on television. The second point on the question is that a monopolist, whether it is 100 per cent or 73 per cent, is someone who can to a large extent determine what happens in the market, in terms of price and output. It is the capacity for a monopoly seller to drive the whole market process, and especially if there is only one exclusive purchaser. This analysis has been supported by UK authorities. Will our solution be adequate? Some are puzzled that we have not gone far enough. Some are puzzled that we have even intervened at all. I believe—and my Commissioner, having settled this agreement with the Premier League, is of the view—that in a situation where all these rights were historically bought successively by one purchaser, there will be no difficulty in selling these rights again at a quite high price to one purchaser for five of the packages and the sixth, if that is needed, will go to a second broadcaster at a comparable price. My view is that the market must be made to work. If the value of these rights is so high, it is very good that there should be competition for them. If there are other broadcasters who would like the rights, they have the capacity with six packages to bid for them and get them. We regard the `no single buyer' rule which we have imposed on the one package as a failsafe mechanism in the event effectively that the market does not work for the benefit of the consumer. A substantial part of the revenue from exploitation of Premier League rights does not come from individual retail subscriptions to pay TV but from pubs and clubs subscriptions. One would expect that. This a very growing market for live TV. One would expect that there would be competing bids in this next round as compared to previous rounds. The market has in that respect changed significantly since 2004.

  Q1664  Lord Peston: I am really not satisfied. It is difficult to find another example. Coca Cola has considerable market power although nothing like the power of the Premier League. Supposing a large supermarket chain were to do a deal with Coca Cola and they said, "We will pay you much more than you are currently getting on one condition. We are the only retailers for Coca Cola." Surely the competition authorities in any country would stop that and simply say that that must be against the interests of the consumer. Why are you so relaxed about it? Was it La Liga where we were told that the clubs have the individual rights and they sell them jointly? They all end up with a single monopoly model, as far as I can see. I would have thought a tough competition authority in Brussels would start off with the simple proposition: no way. If I were a competition person I would want to see real competition. I do not see it.

  Mr Lowe: You have omitted our emphasis and stipulation in the presentation of the six packages that they have to be the subject of "stand—alone" bidding. There is no conditional bidding allowed. Last time, the primary broadcasters who got the rights bid conditionally. On this occasion, they will have to bid for each of the packages of rights individually. It is the highest bidder for each of those individual packages who gets the rights. There is no question of giving an exclusivity premium. This was extremely important in the decision which we are preparing and extremely important in the way in which for example the French competition authorities attacked a similar decision on the French league. We regard that as a very clear indication of our determination to ensure that competition takes place correctly. What the result is remains to be seen. A lot of people confuse money to football as benefit to consumers.

  Q1665  Baroness O'Neill of Bengarve: I am still lagging a little bit in understanding this. First of all, why the magic number six? At one point you said that you were looking at a maximum number of packages. Why is six the number for which you went?

  Mr Lowe: When we were first discussing the whole question of how rights should be sold with the Premier League, there were over 300 matches played in the period and they were marketing something like 104 matches. They agreed with us in early 2003 that they should increase that number because maintaining this artificial output restriction could be seen as designed to increase the value of each individual game. That could have some compensating factors but we then agreed with them that 138 matches was a reasonable proportion of matches to be marketed jointly. The question arose as to how many and what kind of packages the 138 matches could be divided up into. The more packages you have the more chance there is that people compete for them in various forms because they fit in with their programming schedules. We then reached the situation where they marketed four packages rather than two as before. Because of the conditional bidding by the major bidder, that major bidder got all the packages last time. The creation of six packages, is a response to the market research which indicates that particularly the free to air broadcasters believe that in their programming schedules 23 live matches, which is broadly speaking one a week, is what they want.

  Q1666  Baroness O'Neill of Bengarve: That explains the six.

  Mr Lowe: Yes. There are other players in the market who say also that hearing six packages it allows them to bid for three packages individually and get a very substantial proportion of the rights.

  Q1667  Baroness O'Neill of Bengarve: There is one well organised bidder who might well bid for five out of six and might get them. Do you regard that as a satisfactory outcome?

  Mr Lowe: We have thought very long about the issue as to whether we should be looking at a much higher proportion of the rights which in some senses should be "off-limits" for the major bidder. Our view—and it is the considered view of my Commissioner—is that it is better to have a situation where there are more packages available to be bought under open competition, on a stand alone bidding basis rather than to predetermine the result by, for example, reserving two out of the six packages for a second bidder. The one disadvantage of that kind of solution—also there has been a proposal of a 50/50 split—is that, supposing the dominant bidder bid for 50 and there was no bid for the remaining 50? If there was not a bidder you would have to have all sorts of other arrangements for reserve prices to cover the residual amount which had not been bid for already. All the packages of comparable quality will at least allow a second broadcaster to re-enter the market for live TV Premier League which they had not been in for the last 10 years.

  Q1668  Baroness O'Neill of Bengarve: I can see that it is an advance but some might say it is a rather small advance. We can see why putting an end to conditional bids is an advance but it is difficult to see why stand alone bidding is going to do much to impede the bidder who would gladly pay again for all six and has the facility in and beyond Europe to use those six very profitably but also has the facility to use five profitably. Why is stand alone going to make it a different outcome or is it just that you felt you could not go very far and at least allowing one of six packages to go to other hands was a gesture in the direction of competition?

  Mr Lowe: We are looking for a proportionate solution. The Commission's view at this stage—hopefully it will be the formal Commission view of all of the college of Commissioners—is that in a situation where we are covering 73 per cent of live TV rights and not 100 per cent, in a situation where we have "stand-alone" bidding, in a situation too, where the market has developed such that other broadcasters are now very interested in taking a larger proportion of the rights, we should let the market work out what the outcome is and not predetermine the outcome by a very high percentage for a second bidder, by effectively reserving more than one package for a second bidder. Yes, it is less than what one might think of as a desirable outcome, but the purpose of our intervention is not to determine outcome but to determine process. The process, in our view as a competition authority, should be driven by the market, by people bidding for the rights at a value which is correct. If our research is correct, these rights are valuable and the Premier League is one of the most successful leagues in the European Union. It would be normal that broadcasters alternative to the one you imply also bid at the same rate.

  Q1669  Chairman: Did you have the benefit of government ministers giving you advice on the outcome that you wanted prior to your decision?

  Mr Lowe: It is fair to say that not just any government minister but virtually every representative of the United Kingdom in any other form has always mentioned the Premier League to any Commission official who is remotely concerned with the case, although they were never clear as to precisely what solution should be found.

  Q1670  Chairman: As far as government ministers are concerned, is the answer to that yes?

  Mr Lowe: Government ministers have said that the case is important for the UK.

  Q1671  Chairman: In what respect?

  Mr Lowe: They have not elaborated on it in detail because they were not aware of the details of the case.

  Q1672  Chairman: The only thing they said was, "This is important for the UK", but they could not define how it was important?

  Mr Lowe: Correct. I am not talking only about ministers of the Crown but about many representatives of political opinion in the UK.

  Q1673  Lord Maxton: I am still a bit concerned about the monopoly thing because the assumption is that it is a monopoly maybe within football but football is one of many sports. My concern is much more with the almost monopoly that Sky have in bidding for a lot of other sports which in some ways is more dangerous than bidding for football. At the end of the day, is not technology going to overtake all this anyway? Manchester United may very well come to a decision that they would rather show all their own games on their own channel or on their websites and wherever and Arsenal and others will do the same and not bother selling the rights at all.

  Mr Lowe: To answer that last question, clearly if technology is going to solve the problem we do not need to intervene, but where there is a collective agreement between all the Premier League clubs to sell their rights jointly—which there is from now until the year 2010—we have to do something about it. As to the issue of intervention, the question of what is a monopoly and what is important downstream and upstream of the retail subscription market is a very, very important one. I also said the revenue from pubs and clubs subscriptions was very important for the revenue of football. I do not think, coming back My Lord Chairman to your initial remark, that the intervention here is susceptible of causing any major problem to the revenue stream of football.

  Chairman: We are coming into the last few minutes. Lady Howe.

  Q1674  Baroness Howe of Idlicote: You have mentioned some of these areas so perhaps we could go quickly, confirming one way or the other. Looking at related Commission decisions in the past, certainly you have brought a number of cases against broadcasters on the grounds of their acquisition of exclusive rights to categories of content, and that is what you have mentioned. Equally, you have said that in the process you have been trying to define the principles against which these decisions are taken. In three particular cases the Commission found against European public service broadcasters for their collective acquisition of sports rights that was judged to restrict competition. However, the Premier League is able to collectively sell the rights without a similar adverse effect upon competition—or was in the past anyhow. What are the common principles there which underline the decision?

  Mr Lowe: As I mentioned before, the collective selling, if it is not to be anti-competitive, must be delivering some value-added for consumers in some form of an additional service or product for consumers who watch the games or indeed are in receipt of information. In that sense the joint selling of the rights of games within a competition can arguably be said to be offering that value-added. The principle which we have adopted in looking at other cases is to say that where rights of this kind are available, they should be tendered in an open way, in a non-discriminatory way, that if there is exclusivity it should be limited in duration and scope. In respect of the precise solutions in individual cases, in fact the decision which was taken by the Commission against the European Broadcasting Union was a decision taken settling our case for the EBU, but indeed was challenged twice in the courts by private broadcasters because they believed that the sub-licensing conditions which the EBU placed upon potential users were so restrictive as to be unacceptable, and the European Court of First Instance maintained their objections. For the moment, therefore, we have absolutely no decision of the Commission on EBU. That leads me on to the question what is the right formula for dealing with these situations of joint selling and exclusive purchasing? It could be that in some circumstances we will insist, as we have done with Premier League, on stand-alone bidding plus a "no-single-buyer" rule. But it is conceivable too that one can envisage alternative remedies which comprise an element of compulsory sub-licensing. That is not something which we investigated very extensively with the Premier League, given in fact the lack of interest in that solution from the market itself.

  Chairman: Unless anyone has got any urgent questions, there might be one or two points that we would like to follow-up, if we may, by letter, and it would be very kind if you could respond to that. Thank you very, very much, Mr Lowe, for coming today. You have been very patient with our questions and we are very, very grateful to you. Thank you very much indeed.

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