Commission Decision
of 22 June 2006
on the ad hoc financing of Dutch public service broadcasters C 2/2004 (ex NN 170/2003)
(notified under document number C (2006)2084)
(Only the Dutch text is authentic)
(Text with EEA relevance)
(2008/136/EC)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,
Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,
Having regard to their comments,
Whereas:
Following the preliminary assessment of the alleged aid measures, the Commission informed the Netherlands, by letter dated 3 February 2004, that it had decided to initiate the procedure laid down in Article 88(2) of the EC Treaty with respect to certain measures which could be qualified as new aid.
The Commission asked additional questions to the Dutch authorities by letters of 4 January 2005 and 25 May 2005, to which the Dutch authorities responded by letters of 27 January 2005 and 25 July 2005. Further information was received from one of the complainants (De Telegraaf) on 25 July 2005 and from the Dutch authorities on 2 September. The Commission asked the Dutch authorities for further clarification by e-mails on 22 November 2005, to which the authorities responded on 25 November 2005. The Commission decided after a meeting with the authorities that further clarification was necessary. To this end a request for information was sent to the Dutch authorities on 22 December 2005, to which the Dutch authorities, having been granted a delay, responded on 3 February 2006. Regarding this reply further e-mails were exchanged between the Dutch authorities and the Commission in February 2006 and April 2006.
A meeting between the Dutch authorities and the Commission took place on 24 September 2004. A meeting with De Telegraaf took place on 27 October 2004. A meeting with Broadcast Partners took place on 5 January 2005. A meeting between RTL and the Commission took place on 27 July 2005 and between VESTRA and the Commission on 23 September 2005. The Commission had another meeting with the Dutch authorities on 1 February and 14 February 2006.
This Decision will also be limited to assessing the financing of the public service broadcasters' core activities (the so-called main tasks). Side activities, like the new media services, the provision of SMS and i-mode, are not, therefore, examined. Similarly, this Decision will not deal with the investment by NOS in the network operator Nozema, which according to complaints might not have been done on market terms. These issues will be dealt with separately.
Finally, the decision to open the formal investigation procedure covered the procedure as from 1992. Nevertheless, it appears that the first ad hoc payments were made only in 1994. Furthermore, figures up to 2005 are now available and should be taken into account. The period covered by the decision would therefore range from 1994 — when the first ad hoc payment was made — to 2005, the last year for which final figures are available. It should be noted that the Dutch authorities invited the Commission also to take into account 2006. However, the figures for 2006 are only provisional and cannot, therefore, be taken into account.
Section 2.1 of this Chapter presents the actors in the (public) broadcasting sector. This is followed in section 2.2 by a description of the different elements of the financing system for the Dutch broadcasting sector in general. In connection with this, the legal provisions entrusting the broadcasters with a public service mission are described, the different financing mechanisms (annual payments and ad hoc payments) are spelled out and, finally, the reserves the public broadcasters have built up and use for the fulfilment of their public service mission are explained. The commercial activities of the Dutch public broadcasters are then discussed in section 2.5. Section 2.6 explains the acquisition of football rights by the NOS and section 2.7 deals with the relation between broadcasters and cable operators. Finally, section 2.8 sets out which measures are the subject of this procedure.
Besides the broadcasters mentioned in paragraph 12, the public service broadcasting system includes another actor — the NOS — which performs a dual role. The first role is that of a public service broadcaster, responsible for TV and radio programmes (under the name of ‘NOS RTV’). The second role is that of coordinator of the entire public service broadcasting system and is carried out by the management board of the NOS (the so-called ‘Publieke Omroep’ hereinafter ‘PO’). The PO, whose functions and tasks are enshrined in the Media Act, stimulates cooperation between public broadcasters, coordinates the three public TV channels and reports twice a year on the public broadcasters' activities to the Media Authority.
The NOS receives funding from the media budget for both the tasks performed as PO and those performed as NOS RTV.
A separate foundation (Stichting Ether Reclame, hereinafter ‘STER’) is exclusively responsible for the sale of advertising space and the broadcasting of advertising on the public channels. The STER is responsible for the broadcasting time which it has been allocated. The revenues generated by the STER are transferred directly to the State.
In addition to the national public service broadcasters, there are several commercial broadcasters operating on a national level. Examples of these commercial broadcasters are RTL (RTL 4, 5 and 7, all from the CLT-UFA group), SBS6, NET5 and Veronica (from the SBS Broadcasting group) and Talpa (Talpa Media Holding). They generate their revenues mainly through TV advertising.
The broadcasting sector is currently regulated by the Media Act of 21 April 1987 (Stb. 1987, 249) and the Media Decree. Public broadcasters are allowed by law to perform four categories of activities, which are defined in the current Media Act as ‘main task’, ‘side tasks’, ‘side activities’ and ‘association activities’. The public broadcasters are eligible for state funding for the ‘main task’ and ‘side tasks’.
- a)
to ensure a pluralistic and high quality offering of programmes for general broadcast in the areas of information, culture, education and entertainment on national, regional and local level and transmitting those or having them transmitted on open channels;
- b)
to perform all activities relating to the offering of programmes and the transmission necessary in that respect;
- c)
to broadcast programmes destined for countries and areas outside the Netherlands and for Dutch citizens staying abroad.”
- a.
the programmes have to be accessible to the whole population in the relevant areas;
- b.
they contribute to pluralism and cultural diversity within the Netherlands (…)’.
Broadcasting associations are entitled to broadcasting time for the provision of national TV-programmes and have the right, under Article 31(4) of the Media Act, to receive state funding for providing the programme.
In accordance with Article 13c(3) of the Media Act, which was introduced in 2000, the public broadcasting system ‘can also fulfil its task, as mentioned in the first paragraph, by providing means of supply and distribution of programme materials, other than those included within paragraph (1)(a)’. In other words, the public service broadcasters can broadcast the public service content, mentioned in paragraph 20 as a main task, on other media platforms, such as the Internet.
These so-called ‘side tasks’ must comply with a number of conditions. According to Article 55 of the Media Act, for example, they must not serve to make profits for third parties. Maintaining a website or a theme channel are examples of these side tasks.
Other activities are the ‘association activities’, which are activities performed by the broadcasting associations for their members. They include publishing magazines, and organising and selling travel arrangements.
An independent Media Authority (Commissariaat voor de Media) is responsible for ensuring compliance with the programming and financial requirements of the Media Act and the implementing legislation (Article 9 of the Media Act).
The Media Authority has a legal duty, laid down in Article 134 of the Media Act, to ensure that the public broadcasters fulfil their obligations, including the quota laid down for different types of programmes. The Media Authority can impose fines if the obligations are not respected. It also checks whether the broadcasters are complying with the legal restrictions on sponsoring and advertising.
On the basis of the accountants' reports submitted, the Authority checks every year whether the annual accounts of the public broadcasters comply with the requirements of the Media Act, the Media Decree and the Financial Reporting Manual. If they do, the Authority approves the budgeted amounts for regular programme provision (Articles 100 and 101 of the Media Act).
The public service broadcasters' main sources of funding are the annual payments received by the State. In order to absorb budgetary fluctuations, public service broadcasters are allowed to keep certain reserves. In addition, the public service broadcasters have, since 1994, received ad hoc payments.
Since the assessment of the compatibility of the ad hoc funding cannot be carried out without taking into account the other sources of public funding, the following description covers both the annual payments and the ad hoc payments, even though the annual payments and the payments from the Stifo are not subject to this Decision (see paragraph 8).
In addition to the annual payments, the public broadcasters have received payments from Stifo (Stimulation Fund for Cultural Productions). The funds granted from Stifo qualify as a state aid measure, but the measure was approved by the Commission (NN 32/91). The Stifo aid measure is thus to be considered as existing state aid. The Stifo payments to the individual public service broadcasters (the PO did not receive any payments from Stifo) amounted to €155 million in the period under review.
In addition to the transfers mentioned in paragraphs 34 and 35 — which are considered to be the public service broadcasters' regular sources of funding, the public broadcasters were granted several payments on an ad hoc basis. These were either made directly to the broadcasters or channelled through special funds and reserves.
In 1998 the Minister of Education, Culture and Science was given the possibility, under Article 106a of the Media Act, of transferring money on an ad hoc basis from the AOR, which is managed by the Media Authority, to a fund intended to finance specific initiatives of the PO and the public service broadcasters. The fund, referred to as the FOR, was established in 1999 and is controlled by the PO.
offset reduced STER advertising income;
strengthen the variety and quality of programming where this involves extra initial costs; and
fund investments which support Dutch public service broadcasting as a whole.
By 2005 the public broadcasting system had received €191,2 million from the FOR, of which €157,4 million was transferred to the individual public service broadcasters and €33,8 million to the PO.
The Co-Production Fund (Coproductiefonds Binnenlandse Omroep: hereinafter ‘CoBo Fund’) was created to finance co-productions between Dutch public broadcasters and other programme producers. Its income comes from revenues generated by the copyright payments paid by Belgian and German cable operators for the distribution of the three Dutch channels in Belgium and Germany. The Fund was established by the public broadcasters and is managed through a foundation. The board of the Fund consists of managers from the public broadcasters.
In 1994 the Dutch authorities decided to make payments to two sub-funds managed by the CoBo Fund, the ‘Film Fund’, which finances co-productions of films and documentaries, and the ‘Telefilm’ project, which aims to stimulate the production of high-quality television films.
The individual public service broadcasters received €31,7 million of public money from the CoBo Fund in the period 1994-2005. The PO did not receive any payments from the CoBo Fund.
Each public service broadcaster maintains certain reserves, which are, typically, a programme reserve and either an association or a foundation reserve, depending on whether the public service broadcaster is a foundation or an association.
Individual public service broadcasters are allowed to increase their reserves when total revenues exceed total costs. These programme reserves can be used to cover programme costs in future years.
In 2005 the PO also decided that part of the programme reserves should be transferred to the PO itself, but the broadcasters were allowed to maintain reserves of up to 5-10 % of their annual budget. The public broadcasters transferred to the PO an amount of €42,457 million.
As explained in paragraph 17, the STER is responsible for selling advertising time on public service channels.
Table 1: | |||||||||
Audience share 13+ and 20-49 years old (18.00h - 24.00h), 1997 - 2005 | |||||||||
1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|---|
13+ | 38,8 | 39,9 | 37,8 | 39,8 | 38,8 | 37,9 | 36,8 | 38,9 | 35,4 |
20-49 | 34,6 | 35,8 | 31,6 | 33,3 | 33,0 | 32,5 | 30,1 | 31,8 | 27,2 |
| |||||||||
Table 2: | ||||||||||||
Gross revenues from TV advertising 1994 - 2005 (amounts x €1 million) | ||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
STER | 327 | 298 | 225 | 234 | 257 | 290 | 348 | 343 | 383 | 489 | 581 | 471 |
Commercial broadcasters | 360 | 438 | 532 | 629 | 715 | 887 | 1 028 | 1 084 | 1 310 | 1 623 | 2 034 | 2 327 |
Total | 687 | 736 | 757 | 863 | 972 | 1 177 | 1 376 | 1 426 | 1 693 | 2 112 | 2 615 | 2 798 |
| ||||||||||||
Table 3: | ||||||||||||
Net revenues from TV advertising, 1994 - 2005 (amounts x €1 million) | ||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
STER | 223 | 202 | 153 | 150 | 176 | 187 | 218 | 197 | 197 | 197 | 197 | 169 |
Commercial broadcasters | 239 | 281 | 324 | 378 | 405 | 448 | 508 | 484 | 520 | 537 | 549 | 599 |
Total | 462 | 483 | 477 | 528 | 581 | 635 | 726 | 683 | 717 | 733 | 746 | 768 |
| ||||||||||||
It should be noted that cable operators are legally obliged to transmit all the public broadcasters' radio and TV programmes (‘must carry’ obligation) and cannot charge broadcasters for the transmission costs.
- (1)
The payments to the broadcasters, referred to in Article 106a and 170c of the Media Act, which are categorized by the Commission as ad hoc payments. These are:
- (a)
payments to the public service broadcasters made either from the matching funds or from the AOR, via the FOR. In the period 1994-2005 these payments totalled €[...] million. This amount can be divided into payments made from the matching funds (€[...] million) and payments made from the AOR to the FOR and subsequently from the FOR to the public broadcasters (€191,2 million).
- (b)
payments from the Co-production Fund (CoBo). The CoBo Fund consists of two specific sub-funds, the Film Fund and the Telefilm project. In the period 1994-2005 the State granted €31,7 million to the public broadcasters via the CoBo Fund.
- (a)
- (2)
Ensured access to the cable, known as the ‘must carry’ obligation, laid down in Article 82i of the Media Act.
- (3)
Provision of technical facilities by NOB free of charge, provided for in Articles 89 and 90 of the Media Act.
After its initial investigation, the Commission concluded that certain measures, with the possible exception of the ‘must carry’ obligation, constituted state aid within the meaning of Article 87(1) of the EC Treaty. The Commission also expressed doubts about the compatibility of such state aid under Article 86(2) of the EC Treaty.
Regarding the proportionality of the funding, the Commission doubted whether costs and revenues were allocated according to clearly established cost accounting principles. The Commission doubted whether non-public service revenues were fully taken into account when calculating the need for state funding, leading to a risk of funding going beyond the net costs of the public service.
Furthermore, the Commission considered that the level of funds in the FOR and the programme reserves was an indication of structural over-compensation. The Commission noted that, of the total ad hoc payments, an amount of €110 million (based on figures of 2001) had not been used.
Moreover, the Commission expressed its intention to investigate whether competition in commercial markets had been unlawfully distorted. The Commission stressed that such distortion of competition could occur in the markets for advertising, intellectual property rights for cable transmission and football transmission rights.
Finally, the NOB is not allowed to charge the public broadcasters for the services it provides, but receives payments for this task directly from the State. The Commission noted that the provision of technical facilities free of charge could constitute aid to the public broadcasters.
The following comments relevant for this Decision were provided.
CLT-UFA noted that it was not until 2002 that the accounts of the public service broadcasting system could be verified and approved by an independent accountant.
The public broadcasters commented that there is no over-compensation of €110 million as stated by the Commission. First of all, the public broadcasters and the government work with different accounting systems. The government works on a cash receipts basis of accounting and the public broadcasters work on the basis of costs and revenues which are entered in the accounts at the moment of the transaction. This causes discrepancies. In addition, the revenues of the FOR are, according to the public broadcasters, earmarked for specific future goals. Moreover, they commented that the excess financing cannot lead to distortions in other markets, as this financing can only be used for the public service activities.
ACT stated that STER behaves in an anti-competitive manner by undercutting prices in the advertising market. It argues that since the total annual advertising time of public broadcasters is more limited than that of commercial broadcasters, the STER should charge higher prices than commercial operators.
SBS Broadcasting confirmed that prices in the Dutch television advertising market are set for GRP (Gross Rating Point) category 20-49. However, as the public broadcasters attract more viewers than commercial broadcasters outside this viewer group, advertisers would be willing to pay a premium on the GRP 20-49. Therefore, a comparison of the GRP 20-49 would not convey the economic reality of the product. Moreover, SBS remarked that for GRP 13+ public broadcasters set lower prices than commercial broadcasters. To support its comments SBS submitted overviews of the average gross GRP 13+ prices for the different channels during prime time in 1995-2004 and per month in 2003 and 2004, which show that those of public broadcasters are lower than those of most commercial operators.
The association of cable operators, VECAI, raises two issues. First of all, it considers that the cable operators who are subject to the ‘must carry’ obligation should be able to ask for a payment from the relevant broadcasters. Due to the ‘must carry’ obligation, the public broadcasters have not paid a fee for the transmission of the signal over the cable networks.
Secondly, VECAI argued that the cable operators actually do pay a fee to the organisations which manage rights on behalf of the NOS RTV, but the NOS RTV and the Dutch Government regard this as a management fee. According to the VECAI it is a fee for intellectual property rights in disguise.
The Dutch authorities state that the Commission's assumption that the relevant measures are not part of the regular, annual financing of the public broadcasters as part of the state funding is erroneous. The financing which is the subject of the investigation stems from the regular financing mechanism and was an integral part of the budget planning which led to the payments to the public broadcasters. According to the authorities, the FOR, the matching funds, the CoBo Fund and the payments to the NOB are part of the regular, annual financing mechanism.
The Dutch authorities finally remind the Commission that the assessment should take into account the specific context in which the public service broadcasters operate. The authorities request the Commission to take into account the Amsterdam Protocol. If necessary, the subject of the present procedure should be qualified as compatible aid within the meaning of Article 86(2) of the EC Treaty, within the context of the principles laid down in the Amsterdam Protocol.
The amount provisionally indicated by the Commission as possible over-compensation is erroneous. This was inferred from the resources of funds which were wrongly qualified as reserves. Since the use of these funds is pre-determined and is subject to control there cannot be over-compensation. Moreover, the authorities argue that if the measures concerned are deemed to be state aid, the aid should be considered to be existing state aid within the meaning of Article 88(1) of the EC Treaty.
The Dutch authorities point out that the accounts of the individual public broadcasting associations have always been subject to approval by an independent accountant.
The Dutch authorities consider that broadcasts of popular and less popular sports fall within the definition of the main task of the public broadcasters. The Dutch authorities consider that, when determining their bid for transmission rights, public broadcasters did not pay more than was necessary to secure the acquisition of important rights in relation to their public service mission and overall programming.
The authorities reiterate that the public service mission of the NOB is part of the public broadcasting system. The fact that NOB does not charge the public broadcasters for the service it provides does not imply that aid is granted to the public service broadcasters.
The Dutch authorities state that, given that the commercial operators do not demand copyright payments from cable operators either, the NOS RTV could be said to be acting as a normal market operator in the circumstances of this particular market.
Article 87(1) of the Treaty lays down the following conditions for the presence of state aid. First, there must be an intervention by the State or through state resources. Second, it must confer an advantage on the recipient. Third, it must distort or threaten to distort competition. Fourth, the intervention must be liable to affect trade between Member States.
The payments referred to in Articles 106a and 170c of the Media Act, which are categorized by the Commission as ad hoc payments, can be divided into matching fund payments, FOR payments and CoBo Fund payments.
In the case of the matching funds, money is first set aside within the AOR — which is a fund whose resources are owned by the State and managed by the Media Authority — for the purpose of matching certain types of higher than foreseen expenditure of public service broadcasters. In a second step, the state resources represented by the matching funds of the AOR are transferred to the NOS RTV.
The payments made by the FOR fund are considered state resources. Although the FOR is a fund administered and managed by the PO, the money comes from the AOR, which is part of the media budget.
In the period under investigation the public broadcasters received an amount of €191,2 million from the FOR and an amount of €[...] million from the matching funds.
The payments by the CoBo Fund are considered state resources. As described in paragraph 43, the money in the CoBo Fund comes from direct contributions from the media budget and the revenues generated by the copyright payments paid by Belgian and German cable operators for the distribution of the three Dutch channels in Belgium and Germany. The Commission takes the view that not only the direct contributions from the media budget, but also the copyright payments can be considered state resources. Indeed, the copyright payments should have been used to finance the public service costs of the broadcasters. Setting them aside in the CoBo Fund had the effect of increasing the need for public funding proportionally. The copyright payments are therefore equivalent to resources forgone by the State.
Moreover, although the CoBo Fund is owned and managed by a foundation (the board of which is governed by the public service broadcasters), the transfers from the CoBo Fund are only made available to the public service broadcasters under conditions which are determined by the State.
The public service broadcasters received an amount of €31,7 million from the CoBo Fund in the period under investigation. This is a transfer of state resources to the individual broadcasters.
The ad hoc financing (payments to FOR and via the matching funds), the transfers to the CoBo Fund and the provision of free technical facilities provide an economic advantage to the Dutch public service broadcasters, in the sense that these measures relieve them from operating costs that they would otherwise have to bear.
first, the recipient undertaking must actually have public service obligations to discharge and the obligations must be clearly defined;
second, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner;
third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations;
fourth, where the undertaking which is to discharge public service obligations, in a specific case, is not chosen in a public procurement procedure, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of production so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations.
The Commission considers that in the present case the last three conditions set out in paragraph 95 are not fulfilled. First, the transfer of funds from the FOR, the matching funds and the financial contribution from the CoBo Fund to the public service broadcasters is not based on objective and transparent parameters established in advance.
Moreover, neither the ad hoc financing measures nor the payments from the CoBo Fund take into account all the relevant receipts of the public service broadcasters. Nor do they include the necessary safeguards to exclude over-compensation. Indeed, as will be assessed in more detail below, the ad hoc funding actually resulted in considerable over-compensation.
Finally, the Dutch public broadcasters were not chosen as providers of a SGEI on the basis of a tender, nor was any analysis carried out to ensure that the level of compensation was determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with the means of production so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations. The same is true of the financing of the technical facilities made available to the public service broadcasters by the NOB.
Consequently, the Commission considers that not all conditions set out in the Altmark judgment are fulfilled in this case.
‘Thus, state financing of public service broadcasters can generally be considered to affect trade between Member States. This is clearly the position as regards the acquisition and sale of programme rights, which often take place at an international level. Advertising, too, in the case of public broadcasters who are allowed to sell advertising space, has a cross-border effect, especially for homogeneous linguistic areas across national boundaries. Moreover, the ownership structure of commercial broadcasters may extend to more than one Member State42.’
In the present case, the Dutch public broadcasters are themselves active on the international market. Through their membership of the European Broadcasting Union they can exchange television programmes and participate in the Eurovision system. Moreover, their programmes are broadcast in Belgium and Germany. Furthermore, the Dutch public broadcasters are in direct competition with commercial broadcasters that are active on the international broadcasting market and that have an international ownership structure.
The Commission concludes on these grounds that the ad hoc financing, the funds provided to the CoBo Fund and the provision of free technical facilities are such as to affect trade between Member States within the meaning of Article 87(1) of the EC Treaty.
Since all conditions laid down in Article 87(1) of the EC Treaty are fulfilled and the conditions set out by the Court of Justice in the Altmark judgment have not been met in their entirety, the Commission concludes that the ad hoc financing (financing from FOR and the matching funds), the funds granted through the CoBo Fund and the provision of free technical services and facilities to the Dutch public broadcasters must be deemed to be state aid within the meaning of Article 87(1) of the EC Treaty. On the other hand, the advantage deriving from free access to the cable network does not involve a transfer of state resources and does not constitute state aid.
‘(i)…, all aid which existed prior to the entry into force of the Treaty in the respective Member States, that is to say, aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the Treaty’.
As stated before, a distinction may be made between the annual payments, which are not the subject of this Decision, and the ad hoc payments.
The legal base for the payments was established after the entry into force of the Treaty. It was only in 1996 that the State introduced the possibility, through the matching funds, of matching expenditures made by the public broadcasters in the event of an excessive price increase for programme rights. Before 1996, the possibility of matching the payments made by the public broadcasters did not exist. Similarly, the amendment to the Media Act that makes it possible to make ad hoc payments from the FOR to the individual broadcasters was introduced in 1998. As for the state contribution to the CoBo, it was only in 1994 that the State decided to contribute to this Fund.
The actual payments were only made as of 1994. More specifically, payments from the CoBo Fund were made as of 1994, from the matching fund as of 1996, and from the FOR as of 1999.
- Contrary to the regular annual funding, the ad hoc payments cannot be deemed to be payments to which the public service broadcasters are entitled. The payment of the ad hoc funding is thus not an automatic process45. These payments take place upon request from the individual public service broadcasters and are granted after a specific and individual decision made by the Minister of Culture based on Article 106a of the Media Act. In the case of FOR, for example, the Minister decides, while taking into account the level of the FOR, whether funds should be transferred from the AOR to the FOR. It is then the PO which distributes the money further on the basis of rules laid down in Protocols.
The conditions under which the transfers can take place are laid down in ‘Transfer Protocols’ established in 1999 and 2002. As in the case of the CoBo Fund, the State lays down certain conditions for payments to and from the Fund which only date back to 1994.
Finally, the funding is granted for specific purposes, as indicated in section 2.3.3. These include giving an impetus to broadcasters to produce better programmes, absorbing fluctuations in advertising revenues, matching increased prices of sports rights and stimulating co-productions with Belgian and German broadcasters.
The public service broadcasters have received free technical facilities from the NOB since the entry into force of the Media Act 1987. In that year the NOB started providing facilities to the public service broadcasters, whereas originally these facilities had been provided by the NOS. The NOB has been entrusted with a service of general economic interest. It provides the facilities to the individual public service broadcasters free of charge and receives payments from the State directly. This measure can thus also be considered to be a new aid measure.
The ad hoc financing (payments from the FOR to the individual public broadcasters and from the matching funds), the transfers from the CoBo Fund and the provision of free technical facilities should all be deemed to be new aid rather than existing aid.
On the basis of the characteristics of the measures the only possible grounds for compatibility is Article 86(2) of the EC Treaty which states that: ‘undertakings entrusted with the operation of services of general economic interest (…) shall be subject to the rules contained in this Treaty, in particular to the rules on competition, insofar as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community’.
the service in question must be a service of general economic interest and clearly defined as such by the Member State;
the undertaking in question must be explicitly entrusted by the Member State with the provision of that service;
the application of competition rules of the Treaty must obstruct the performance of the particular tasks assigned to the undertaking and the exemption from such rules must not affect the development of trade to an extent that would be contrary to the interests of the Community.
the broadcasting activities of Dutch public broadcasters are clearly and precisely defined by the Dutch authorities as a service of general economic interest (definition);
the Dutch public broadcasters are officially entrusted by the Dutch authorities with the provision of that service (entrustment);
the state funding does not exceed the net cost of that public service, taking also into account other direct or indirect revenues derived from the public service (proportionality).
In this context, it should be mentioned that the ad hoc financing and the free provision of technical facilities were designed to support activities which are part of the general public service remit. An assessment of the overall level of funding of the public service broadcasters is thus necessary, but, with the exception of the specific measures referred to above, this Decision does not intend to assess the mechanism and conditions under which state funding is provided. Nor does this Decision concern the organisation of the public service broadcasting system as a whole.
As stated in paragraph 33 of the Broadcasting Communication, it is for the Member States to define the public service remit of a public broadcaster. Given the specific nature of the broadcasting sector, however, the Commission considers ‘a “wide” definition entrusting a given broadcaster with the task of providing balanced and varied programming in accordance with its remit, to be legitimate under Article 86(2) EC, in view of the interpretative provisions of the Protocol. Such a definition would be consistent with the objective of fulfilling the democratic, social and cultural needs of a particular society and guaranteeing pluralism, including cultural and linguistic diversity’.
Although the definition may be broad, it should be sufficiently clear and precise to leave no doubt as to whether a given activity performed by the entrusted operator is intended by the Member State to be included in the public service remit or not. As stated in paragraph 36 of the Broadcasting Communication, the role of the Commission is limited to checking whether the public service definition in the broadcasting sector contains any manifest error.
The main task of the Dutch public broadcasters is to provide high quality and varied programmes for general broadcast on the public channels, in the general interest, as laid down in Article 13c of the Media Act. Specific programming requirements relating to the categories of content to be covered and the amount of broadcasting time to be devoted to each category are also contained in the legislation.
CLT-UFA stated that the Dutch public broadcasters broadcast too much sport in general and too much football in particular. The complainants claimed that the NOS RTV broadcasts the majority of all sports events in the Netherlands. As stated above, the ad hoc financing was intended to finance activities which are part of the general public service remit and were thus also meant for the acquisition of sports rights.
The Commission is of the opinion, however, that broadcasting sports programmes, within a limit of around 10 % of total broadcasting time, does not constitute a manifest error. Sports can be part of the broadcasters' public service mission, and devoting 10 % of broadcasting time to sports is not inconsistent with the remit of offering a balanced and varied public service programming mix.
The Commission is of the opinion that the main task, as defined in Article 13c(1) of the Media Act, is rather broadly defined, but can be considered to meet — in accordance with the wording of the Amsterdam protocol — the ‘democratic, social and cultural needs’ of Dutch society. Thus, the definition in the legislation is sufficiently clear and precise in relation to the main task, and does not contain any manifest errors.
Paragraph 40 of the Broadcasting Communication states that in order to benefit from the exemption under Article 86(2) of the EC Treaty, the public service remit should be entrusted to the Dutch public broadcasters by means of an official act. The Commission notes that the Media Act formally entrusts the NOS with the task of performing the public service task defined in Article 13c and the supporting legislation. The public broadcasters are given the right to broadcast programmes on the public channels by Article 31 of the Media Act, and the Commission considers that the main task of broadcasting programmes is clearly entrusted to the public broadcasters.
On the one hand, the Commission has to calculate the net cost of the public service task entrusted to the Dutch public broadcasters and verify whether or not this cost has been over-compensated. When compensating an undertaking, the state aid must not exceed the net costs of the public service mission. To arrive at the net cost, account should also be taken of other direct or indirect revenues derived from the public service mission. Therefore, the net benefit of the exploitation of the public service activities will be taken into account in assessing the proportionality of the aid.
On the other hand, the Commission has to investigate any information at its disposal suggesting that public broadcasters have distorted competition in commercial markets more than is necessary for the fulfilment of the public service mission. For example, a public service broadcaster, in so far as lower revenues would be covered by the state aid, might be tempted to depress prices of advertising or of other non-public service activities on the market, so as to reduce the revenue of competitors. Such a practice would require additional state funding to compensate for the revenues forgone from commercial activities and would therefore indicate the presence of over-compensation of public service obligations.
Under the Transparency Directive, Member States are required to ensure not only that separate accounts are kept for public service and non-public service activities, but also that all costs and revenues are correctly allocated on the basis of consistently applied and objectively justifiable cost accounting principles and that the cost-allocation principles according to which the separate accounts are maintained are clearly established.
However, the Commission notes that the Decree does not determine how the public broadcasters have to allocate costs that are shared by the public service and the non-public service activities. Information from the Dutch authorities confirms, moreover, that the public broadcasters use different methods to allocate costs. The authorities argue that on an individual level the allocation is correct, but that due to the choices individual broadcasters make regarding the allocation, the allocation may differ from one broadcaster to the other. The Commission finds, however, that the fact that there is no consistency between the different broadcasters is an indication that the Decree does not sufficiently prescribe how the cost allocation should take place.
According to paragraph 57 of the Broadcasting Communication, state aid must not exceed the net costs of the public service incurred by the broadcaster. Thus, after having determined the net costs of the public service it has to be established whether the total amount of state funding does not exceed this figure.
- first, the net costs of the public service are determined by deducting from the total costs of providing the public services, the net revenues derived from the exploitation of the public service (main and side tasks)59;
second, all other net commercial revenues are taken into account (side and association activities);
third, all the forms of public funding are added up. First, the annual state financing and the Stifo payments which are considered to be ‘existing aid’ measures. Then the ad hoc financing (payments from the FOR and the matching funds) and payments from the CoBo Fund, which are considered as ‘new aid’ measures.
The sum of all the above items determines whether or not the total state funding exceeds the total net public service costs or, in other words, whether or not there has been over-compensation of the public service tasks.
In the decision to initiate the procedure, the Commission quantified over-compensation, on a preliminary basis, as €110 million. The calculation was based on incomplete figures on the actual amount of transfers to the reserves and of the level of reserves held by the public service broadcasting system as a whole during the years 1992-2002. The authorities had not at the time provided complete data on individual broadcasters.
After initiating the procedure the Commission received the cost and revenue figures of the individual broadcasters, which are more detailed than the overall figures provided at the time of the opening of the procedure. Moreover, the new information provides actual data up to 2005 and also includes an estimate for 2006.
This Decision concerns the ad hoc payments which were paid as of 1994 and covers the period up to 2005. As regards the end date, the Dutch authorities invited the Commission to take into account the figures from 2006 too. However, the Commission does not consider this to be appropriate, since figures from 2006 are only estimates for the ongoing budget year.
It appears that 14 out of the 19 public service broadcasters were over-compensated in the period 1994-2005. The over-compensation generated €32 million profits, which were generally transferred to their programme reserves.
On the other hand, any possible loss from commercial activities had to be financed through the association reserves and could not be reflected in the programme reserves. According to the Dutch authorities, the association reserves were built up with private funds.
The Commission considers that the negative amounts recorded in the programme reserves and the positive variations of association reserves after 1994 only occurred as a result of previous ‘under-compensation’ of public service costs. The consequent balancing of these sums is therefore considered to constitute eligible costs of the public service task. The corresponding amounts therefore do not have to be taken into account for the establishment of the over-compensation.
In the Danish state aid case the Commission stated that these reserves must be established for a specific purpose and that they must be regularised on a fixed date, i.e. being deducted from the next year's compensation if over-compensation has been found. Thus, if the over-compensation does not exceed 10 % of the amount of the annual compensation, such over-compensation is compatible with the EC Treaty and may be carried forward to the next annual period and deducted from the amount of compensation payable in respect of that period.
Since the over-compensation does not exceed the 10 % margin of the annual budget, it can therefore be considered justified for the fulfilment of the public service mission and the aid is thus considered compatible with Article 86(2) of the EC Treaty.
The PO has also received compensation for its role in managing and coordinating the broadcasting system. The PO performs this role as a separate organisation, which, internally, keeps separate accounts. The Dutch authorities have stated that although the NOS RTV and the PO are parts of a single legal entity and also present consolidated accounts, under no circumstances could they have access to each other's funds.
Table 4: | |||||||||||||
Overview of annual funding of PO (1994-2005) amounts x €1 million68 | |||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Public activity costs | 53,1 | 60,5 | 61,8 | 64,6 | 69,3 | 77,3 | 89,0 | 94,7 | 100,4 | 91,2 | 91,9 | 95,2 | 948,9 |
Public activity revenues | 0 | 0 | 0 | 0,7 | 3,3 | 3,5 | 2,5 | 2,6 | 3,4 | 0,2 | 0 | 0 | 16,2 |
Net public activity costs | 53,1 | 60,5 | 61,8 | 63,9 | 66,0 | 73,8 | 86,4 | 92,0 | 97,0 | 90,9 | 91,9 | 95,2 | 932,7 |
Net result of commercial activities | 5,7 | 5,9 | 6,5 | 7,3 | 10,7 | 16,0 | 13,7 | 12,0 | 10,8 | 13,1 | 22,3 | 9,7 | 133,7 |
Need for public funding | 47,5 | 54,6 | 55,3 | 56,5 | 55,4 | 57,8 | 72,7 | 80,0 | 86,2 | 77,8 | 69,6 | 85,5 | 799,0 |
Annual payments | 49,4 | 55,6 | 58,3 | 58,9 | 62,3 | 70,7 | 68,7 | 74,6 | 78,6 | 85,4 | 78,0 | 79,3 | 819,6 |
Annual payments from Stifo | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Total annual compensation | 49,4 | 55,6 | 58,3 | 58,9 | 62,3 | 70,7 | 68,7 | 74,6 | 78,6 | 85,4 | 78,0 | 79,3 | 819,6 |
Result before ad hoc payments | 1,9 | 1,0 | 3,0 | 2,3 | 6,9 | 12,8 | -4,0 | -5,4 | -7,6 | 7,6 | 8,4 | -6,2 | 20,7 |
Payments from FOR | 0 | 0 | 0 | 0 | 0 | 0 | 7,1 | 6,1 | 5,2 | 7,0 | 5,6 | 2,8 | 33,9 |
Payments from matching funds | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Payments from CoBo Fund | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Transfer of excess reserves | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 42,5 | 42,5 |
Total ad hoc payments | 0 | 0 | 0 | 0 | 0 | 0 | 7,1 | 6,1 | 5,2 | 7,0 | 5,6 | 45,3 | 76,3 |
Extraordinary items | 0 | 0 | 0 | 0 | 0 | 0,9 | 0 | 0,2 | 0,2 | 0 | 0 | 0 | 1,4 |
Total over/under-compensation | 1,9 | 1,0 | 3,0 | 2,3 | 6,9 | 13,7 | 3,1 | 0,9 | -2,1 | 14,5 | 14,0 | 39,1 | 98,4 |
In the Commission's view, the over-compensation of €98,365 million is not necessary for the functioning of the public service and it cannot, therefore, benefit from the Article 86(2) derogation from the prohibition on state aid. The over-compensation is consequently not considered compatible aid and should in principle be recovered from the PO.
Nevertheless, it appears that the over-compensation exceeds the total ad hoc payments accrued to the PO. The PO has received €33,87 million as ad hoc payments from the State's media budget, plus the ad hoc transfer of €42,457 million from the other broadcasters. This gives a total of €76,327 million of payments received from ad hoc measures. In addition, the ad hoc payments have also generated interest, which should be taken into account in determining the amount of funds which were not received in the context of the ‘existing aid measures’. The recovery would, therefore, have to be capped at €76,327 million plus interest, because the ‘remaining’ over-compensation was granted through existing aid and cannot be recovered.
As explained in the Broadcasting Communication, the Commission is of the opinion that anti-competitive conduct by public service broadcasters cannot be considered necessary for the fulfilment of the public service mission. In the decision to initiate the formal investigation procedure the Commission mentioned the following possible market distortions:
The model contract concluded between broadcasters and cable operators in 1985 stipulates, at the request of the Dutch government, that cable operators do not pay any intellectual property rights for transmission of Dutch public television programmes. It is legitimate to question whether, by forgoing intellectual property rights payments from cable operators, the PO acted as a normal market operator, since it waived commercial income.
Indeed, the commercial agreements between the broadcasters and the cable operators can take various forms, particularly in view of the fact that the transaction involves an exchange of transmission services for availability of content, which is valuable to both parties. The Commission finds accordingly that there are no clear indications that the PO acted contrary to market behaviour and that by renouncing commercial revenues it increased the need for state funding.
At the opening of the formal investigation procedure, the Commission did not have sufficient evidence that the STER had actually undercut prices. Nevertheless, the information which was submitted after the opening of the investigation by the complainants and the Dutch authorities has to be assessed.
Paragraph 58 of the Broadcasting Communication indicates that public service broadcasters might be tempted to depress the prices of advertising so as to reduce the revenue of competitors. However, one should keep in mind that the public broadcasters in the Netherlands do not directly carry out advertising activities, but the advertising activities are carried out by a separate organisation, the STER. According to its mission statement, the STER must exploit the time available for advertising in such a way as to deliver an optimal contribution to the central financing of the public service broadcasters. It functions as an intermediary, with the job of maximising profits from the sale of the advertising space of the public broadcasters. As already mentioned in paragraph 17, the STER transfers the advertising revenues directly to the media budget.
Any undercutting behaviour by the STER might be inferred from some or all of the following circumstances: STER's prices being lower than its competitors', an increase in market share and loss of revenues for the STER.
First, as the Commission also indicated in the decision to open the formal investigation procedure, a comparison between the prices of the public and private advertising sales companies could be regarded as a meaningful measure of the criteria set out in paragraph 58 of the Broadcasting Communication.
Table 5: | |||||||||
Percentage of target GRP's (gross rating points) acquired by the STER in 2004 | |||||||||
Target | 13+ | 20-34 | 35-49 | 50-64 | 20-49 | Shoppers 20-49 | Shoppers 20-49 + child | Men 20-34 | Women 20-34 |
|---|---|---|---|---|---|---|---|---|---|
Acquired | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] |
| |||||||||
Table 6: | |||||||||||
Gross prices per GRP for the target group of 20-49 year-olds (18.00h - 24.00h), 1995 - 2005 in € | |||||||||||
1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
STER | 1 470 | 1 496 | 1 499 | 1 315 | 1 485 | 1 541 | 1 562 | 1 624 | 1 816 | 1 932 | 1 890 |
Commercial broadcasters | 1 337 | 1 314 | 1 366 | 1 399 | 1 438 | 1 637 | 1 667 | 1 675 | 1 753 | 2 055 | 2 087 |
| |||||||||||
Table 7: | ||||||||||||
Actual discounts granted in 1994-2005 in % | ||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
STER | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] |
Commercial broadcasters | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] |
| ||||||||||||
Table 8: | |||||||||||
Net prices per GRP for the target group of 20-49 year-olds (18.00h - 24.00h), 1995 - 2005 in € | |||||||||||
1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
STER | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] |
Commercial broadcasters | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] | [...] |
Table 9: | ||||||
Audience and advertising market shares | ||||||
1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |
|---|---|---|---|---|---|---|
Commercial broadcasters' audience | [...] | [...] | [...] | [...] | [...] | [...] |
Commercial broadcasters' advertising | [...] | [...] | [...] | [...] | [...] | [...] |
Public service broadcasters' audience | [...] | [...] | [...] | [...] | [...] | [...] |
Public service broadcasters' advertising | [...] | [...] | [...] | [...] | [...] | [...] |
| ||||||
From Table 7 and Figure 1 it can be concluded that the STER has offered considerable discounts. Nevertheless, from Figure 1 it can also be concluded that, despite these discounts, the net revenues from the sale of advertising space remained relatively constant. The use of discounts has not led to a major change in revenues.
Consequently, none of the circumstances which typically accompany price undercutting behaviour — that is: lower prices, increase in market share and temporary loss of revenues — seems to have taken place in the Dutch advertising market. Again it should be emphasised that the STER is a company independent of the public service broadcasters and its revenues go directly into the media budget. Accordingly, the Commission must conclude that there are no indications that the STER has undercut prices to an extent which has led to an undue loss of revenues which increased the need for additional state funding of the public service broadcasting system.
SBS Broadcasting BV argued that ‘just the price comparison between the prices of GRP 20-49 paid to the STER or to the IP and/or SBS cannot be an exclusive criterion for establishing whether or not the STER undercuts the price’.
Regarding the first issue, it should be made clear from the outset that marketing companies intend to reach a target group when advertising their products. Audiences outside the target group are irrelevant. One of the criteria for acquiring advertising time is selectivity of the target audience. If the advertising slot is not selective, i.e. there is a lot of so-called ‘waste’ (advertising reaching people outside the target group), then the advertising slot becomes less interesting. Due to the fact that the advertising space sold by STER has a low selectivity — it attracts a broad range of viewers — it is, according to the Dutch authorities, actually difficult for the STER to maintain its advertising tariffs. Secondly, the GRP 13+ is of less importance than GRP 20-49. The information in Table 5 shows the relatively low importance of GRP 13+ and clearly indicates that the GRP 13+ is not decisive when establishing a comparison of prices. As the Dutch authorities stated, the GRP 20-49 is much more relevant. The fact that the price of GRP 13+ is lower at the STER does not in itself prove that there is a general undercutting of prices by public service broadcasters.
Consequently, despite the fact that the STER has offered considerable discounts, the total revenue stemming from advertising space has not decreased but has remained stable. Having assessed the other arguments and the answers of the Dutch authorities, the Commission concludes that there is currently no evidence that the STER did not attempt to maximise its advertising revenues and that its behaviour would have led to an increased need for state funding.
When it initiated the procedure, the Commission stated that there were no clear indications to conclude that broadcasters paid a price for football transmission rights which was structurally above the market value. One of the reasons was that public service broadcasters offered higher amounts during the negotiations than the commercial broadcasters were willing to offer. CLT-UFA complained that the Dutch public broadcasters paid high prices for football rights. The Commission indicated that it would assess this situation further.
The subsequent investigation did not provide evidence that the public broadcasters have outbid the commercial broadcasters, nor that public service broadcasters have acquired rights to a football event to an extent liable to close the market off to the competitors. Indeed, examples were found of important football rights held by commercial broadcasters during the period under investigation (see paragraph 55).
However, as no specific anti-competitive practices could be identified in the present procedure, the issue of whether the system as such offers sufficient safeguards against the possibility of anticompetitive behaviour will be examined in procedure E-5/2005 on existing aid.
For the reasons set out above, the Commission concludes that there has been over-compensation of the NOS for the functions it performs as PO amounting to €98,365 million and that this sum was granted through state aid measures that cannot be considered compatible with the common market on the basis of Article 86(2) of the EC Treaty and should therefore be recovered from the NOS.
Nevertheless, because the over-compensation exceeds the total ad hoc payments to the NOS for the functions it performs as PO, which amounted to a total of €76,327 million, the recovery would have to be capped at €76,327 million plus interest, because the ‘remaining’ over-compensation was granted through existing aid and cannot be recovered,
HAS ADOPTED THIS DECISION: