House of Lords - European Union

Select Committee on European Union Third Report

Television Without Frontiers?

CHAPTER 1: Background to the Proposal

1. This report examines the European Commission's proposal to amend the "Television Without Frontiers" Directive (TVWF). In this chapter we set out the history of the Directive, in the context of the changing landscape of services available which the revisions of the Directive seek to reflect. In the following chapters we will present the evidence we have received in the course of our inquiry on what we have identified as the key issues.

The original Directive

2. The original TVWF Directive was adopted in 1989. Its fundamental objective was straightforward: the creation of a single market in television broadcasting.

3. In the late 1980s, this was a very important objective. At the time there was a relatively limited choice for viewers and state-owned and other terrestrial 'free to air' broadcasters held a dominant position in the market.

4. The TVWF Directive established the principle that Member States should ensure freedom of reception and should not restrict retransmission on their territory of television programmes from other Member States. They would only be permitted to suspend retransmission of television programmes that infringe the provisions of the Directive on the protection of minors.

5. In order to meet the objective of a freedom of movement for service providers in a single market, certain means were deemed necessary to create a common framework across the European Economic Community as was. These means were the creation of common rules governing both the quantity and content of the advertising the TV companies transmitted.

6. The provisions in the TVWF Directive on advertising are as follows:

There is a 15 per cent maximum proportion of daily transmission time allowed for advertising and a 20 per cent maximum within a given one-hour period;

There are set procedures for interrupting programmes;

The advertisements must conform to certain ethical considerations, in particular the protection of minors; and

The advertisements must comply with certain criteria concerning advertisements for alcoholic beverages.

7. Advertising of tobacco and prescription medicines is prohibited under the Directive.

8. Sponsorship of television programmes is permitted, provided it complies with certain rules. The sponsorship must not affect the broadcaster's editorial independence. In addition, sponsored television programmes must not encourage the purchase of the sponsor's products or services. Finally, news and current affairs programmes may not be sponsored.

9. The use of the means chosen to create a single market had the consequence of expanding the impact of the TVWF Directive beyond its core objective. Not only was it concerned with facilitating the freedom of movement of broadcasters across the EU, but at the same time through these common standards sought to preserve certain public interest objectives: cultural diversity; the right of reply; consumer protection; and the protection of minors.

10. There were also provisions in the Directive to promote the distribution and production of European audiovisual programmes, for example by ensuring that they are given a majority position in television channels' programme schedules.

Why revise TVWF?

TECHNOLOGICAL DEVELOPMENTS

11. By 1997, the Commission had taken the view that the impact of new technology meant that there was a need to update, and sometimes create, new rules on content based on matters of public interest, such as the protection of children or harmful content such as incitement to race hatred. The Directive was updated in 1997 in order to respond to technological developments since 1989 by, for example, allowing dedicated shopping channels.

12. Since 1997, the landscape for broadcasting has changed significantly and is continuing to change at a rapid pace, driven by dynamic advances in technology.

13. Technology has fundamentally altered the way people watch audiovisual media. On-demand services mean that users can determine the time of the transmission they want to view. There is also now technology available to record programming and miss out commercial breaks.

14. Convergence has greatly increased the number of available platforms on which to view these transmissions: through personal computers as well as through mobile phones. The Commission were keen to regulate such transmissions no matter what platform is used and thus would have to revise and extend the scope of the TVWF Directive.

COMPETITION

15. There has been an enormous proliferation in TV channels broadcasting in the EU. Ofcom's figures are that the number has grown 500 in 1989 to more than 1,500 today.

16. There is clearly now a considerable level of competition in television broadcasting. The far greater level of choice for viewers which has resulted from this increase in competition has fundamentally altered the balance of the relationship between consumer and producer.

17. As a result of these changes there was a perceived need for a less heavily regulated environment for advertising in television broadcasting as consumers could now exercise real choice about what they watched. At the outset, we accept the need for liberalisation, and believe that it is still crucial for single market considerations to be taken into account.

The Commission's proposal

18. In 2005, the Commission felt that the Directive be readdressed in the light of developments since 1997 and in December 2005 published a proposal to amend the TVWF Directive once more (15983/05 COM(05) 646SEC (05) 1625).

19. The existing TVWF Directive applies to "the initial transmission by wire or over the air, including that by satellite, in unencoded or encoded form, of television programmes intended for reception by the public …" (89/552/EEC as amended by 97/36/EC, Article 1a).

20. The 2005 proposal seeks to redefine the services covered, rather than purely applying to television: TVWF would become an "Audiovisual Media Services Directive".

21. The proposed Directive would now apply to any commercial "service as defined by Articles 49 and 50 of the Treaty, the principal purpose of which is the provision of moving images with or without sound, in order to inform, entertain or educate, to the general public by electronic communications networks within the meaning of Article 2a of Directive 2002/21/EC of the European Parliament and the Council" (Article 1a of the 2005 proposal).

22. These services are what are referred to in the text of the proposed Directive as "Audiovisual Media Services".

23. Following the above definition, the 2005 proposal would cover all audiovisual media services whose principal purpose was the provision of moving images to the general public, and which provide these images over any electronic network, including the internet, mobile and telecommunications networks and terrestrial, cable or satellite broadcasting networks.

24. These audiovisual media services would be divided into two distinct categories; linear and non-linear. In the 2005 proposal, non-linear services were defined as those in which "the user decides on the moment in time when a specific programme is transmitted on the basis of a choice of content selected by the media service provider". (Article 1e of the 2005 proposal) Linear services by contrast are scheduled and the timing of their availability for viewing is not determined by the viewer.

25. The 2005 proposal sought to cover all audiovisual media services, both linear and non-linear, under a basic tier of rules, set out in Articles 3c to 3h.

26. In addition to the basic tier of rules covering all audiovisual media services, linear services would be subject to requirements on the coverage of major events; quotas of European and independently-produced content; rules on advertising; and rules on the right of reply which are similar to those which the TVWF Directive already applied to exclusively television broadcasting services (Articles 3 and 3a, 4 and 5, 10 to 20, and 23 respectively).

27. In the proposed revised Article 11, content such as films, children's programmes and news programmes may be interrupted by advertising only once every 35 minutes. This compares with a limit of once every 45 minutes for films, and once every 20 minutes for news and children's programmes, in Articles 11.3 and 11.5 of the current TVWF Directive, which is part of an attempt in the Proposal to simplify existing rules.

28. The TVWF Directive embodies a 'Country of Origin' principle which is designed to assist the creation of a Single Market in television broadcasting services.

29. This is the principle that if an enterprise complies with the rules applicable in its country of origin, then it qualifies to provide services without having to be established in another Member State, or to comply with local rules regarding the services provided, notwithstanding that there may be differences between the two regimes. The alternative is a country of destination principle, under which an enterprise is not allowed to provide a service unless the legal and regulatory requirements of the destination or host country are complied with. In the European Union, this would mean identifying and then complying with the requirements of as many as 26 other Member States.

30. The 2005 proposal would have left the Country of Origin principle intact, while extending its scope to cover audio-visual media services (Article 1(a) in the 2005 proposal).

Why is the proposal particularly significant to the United Kingdom?

ONLINE ADVERTISING

31. According to the latest figures, the United Kingdom has the fastest growing online advertising market in the world, growing at around 40 per cent per annum, according to recent estimates by media buying agencies.[1] The United Kingdom currently has the highest forecast share of 13.5 per cent of global online advertising, according to figures published by Zenith Optimedia.

32. Starting from a relatively low base, broadband access in the United Kingdom has rocketed. In 2002, only 5.1 per cent of homes had broadband, but by the middle of 2006, this figure was 47.4 per cent. As broadband technology facilitates the greater use of video advertising on the internet, the advertising opportunities seem vast in the new media. Indeed, media advertising does not yet seem to be close to capitalising on this opportunity. According to Zenith Optimedia and GroupM, consumers in the three biggest markets (the UK, the USA and Japan) spend an average of 21.9 per cent of their "media time" online, but on average only 6.8 per cent of advertisers' budgets are allocated to online advertising.

33. To illustrate the increasing importance of online revenue, Google UK is expected to generate over £900 million in 2006, passing Channel 4's advertising revenue this year. By 2008, Google UK is expected to exceed ITV's revenue.[2]

34. Any attempt to alter the way in which online advertising is regulated thus has critical economic importance for the United Kingdom, with the largest and fastest growing market in the EU. Much online content is funded solely by advertising and is free to access by users. Therefore any proposals must clearly be sensitive to the business models of online media service providers. These business models are fundamentally distinct from those of the established television broadcasters currently covered by the TVWF Directive.

35. As Shaun Woodward, the Tourism and Creative Industries Minister told us, creative industries now account for around eight per cent of the United Kingdom's Gross Domestic Product, thus it is vitally important that we have a decent understanding of which businesses the revised Directive will affect and how it will affect them.

SATELLITE BROADCASTING

36. Most of the Member States in the EU are net receivers of broadcasting. By contrast the United Kingdom is, partly as a result of its "lighter touch" approach to regulation, an "international host country" for national versions of channels. These channels include MTV, the Discovery Channel, National Geographic, Bloomberg, Hallmark, Jetix (Fox) and Turner. According to Ofcom there were 116 British based channels targeting foreign markets in 2004.

37. Ofcom currently licenses 762 satellite and cable channels in the United Kingdom. This amounts to around 57 per cent of the total number of licensed channels across the EU. Of those 762 channels, approximately 200 operate cross-border services.

38. The Country of Origin principle is enshrined in the TVWF Directive. This allows operators to provide services on the basis of the regulations in the Member State in which they are established. Any alteration of this principle would have serious consequences for those channels established in the United Kingdom and broadcasting to other Member States. This principle will be discussed in more detail in Chapter Three.

Where does the Directive stand now?

THE COUNCIL OF MINISTERS TEXT

39. At the meeting of the Education, Youth and Culture Council on 13 November, a general approach on the Directive was agreed to, along the lines of a revised text which was prepared by the Finnish Presidency.

40. The text of the general approach was supported by all delegations except Sweden, Ireland, Latvia, Belgium, Lithuania, Luxemburg and Austria. The Commission, Austria, Germany and Italy indicated their intention to add statements to the Council minutes.

41. The Council's revised text makes a number of very significant changes to the Commission's original proposal, reflecting the wide ranging and often polarised debates both within and between the Member States. These changes will be discussed in the following chapters.

42. Where reference to a "Council text" is made in our report, we are referring to the Council's 13 November general approach. The following chapters will comment on the merits of the 2005 proposal, the Council text, and, where different, the European Parliament text according to our witnesses, together with our own assessment. Our recommendations will be based on the Council text as it stands.

THE EUROPEAN PARLIAMENT TEXT

43. On the same day as the Council Meeting, Ruth Hieronymi MEP, Rapporteur of the European Parliament's Culture Committee, presented her report on the Directive, and some important amendments were made. These amendments were adopted in the Parliament's plenary first reading in December 2006.