Examination of Witnesses (Questions 1660
TUESDAY 10 JANUARY 2006
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
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 problemsfor
example, the energy market is one of them where the problems in
energy are beginning to go beyond national boundariesneed
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
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 raisedwhat
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 believeand my Commissioner, having settled this
agreement with the Premier League, is of the viewthat 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
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 "standalone" 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
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 viewand it is the considered
view of my Commissioneris 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 solutionalso
there has been a proposal of a 50/50 splitis 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 stagehopefully
it will be the formal Commission view of all of the college of
Commissionersis 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.
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.
As far as government ministers are concerned, is the answer to
Mr Lowe: Government ministers have said that
the case is important for the UK.
In what respect?
Mr Lowe: They have not elaborated on it in detail
because they were not aware of the details of the case.
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 jointlywhich
there is from now until the year 2010we 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 competitionor 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.