Public Matters

The woes of public broadcasting in Europe have been an ongoing saga dating back to the growth of commercial competition in free-to-air television, and as the media world becomes digital, things may get tougher. Twenty years ago, competition was straightforward—public TV channels against private ones. Now that the media market has exploded with new platforms and products, the public sector finds itself against a growing range of competitors, including newspapers and Internet companies. In a way, the old narrow concept of the public broadcaster no longer applies. But the underpinning is still television, and the pressures of competing in the traditional core business have not let up.

The steady descent of ratings has been the most obvious indicator of that central reality. Ten years ago, the market share of public broadcasters was higher across all of Europe’s biggest markets.

In France, the duo of France 2 and France 3 stood at a combined audience share of 40 percent. A decade later, in 2008, it was 30.8 percent.

In the U.K., BBC One and BBC Two scored a combined 39.2 percent in 1999. In 2008, that was down to 29.6 percent.

In Spain, where TVE 1 and La 2 had a share of 34 percent in 1999, the figure dropped to 21.4 percent in 2008.

In Italy, public broadcaster RAI still held 47 percent of the audience in 1999, but that was only 41.6 percent in 2008.

In Europe’s biggest market, the results have held up better over the past decade for Germany’s ARD and ZDF, which scored a combined share of 27.4 percent in 1999. In 2008, that was down to 26.5 percent with ARD in first place, ZDF in second and ARD’s regional stations in third place. In fact, the big fall-off in Germany took place in the ’90s, with their share dropping from more than 50 percent to under 30 percent in the first five years.

“If you turn back the clock ten years or more, we had far rougher times competing with commercial channels,” says Camille Zubayr, the director of research for the ARD network. “At the moment, our self-esteem is good. That was not the case in the first decade of commercial competition, into the ’90s. We saw the commercial channels having success with certain levels of taste, with programming that we never would have considered showing, and it was hard. But we learned our lesson. We know how to compete—how to compete for certain audiences and how to counter-program against them. I would also say that when the TV market deregulated in Germany, people were curious to see what the private channels would offer. After the novelty wore off, the market share of private channels came back to earth. Independently of the specific programming that we offer or they offer, the generalized curiosity effect has diminished, and that has made a difference.”

HOME-GROWN SUCCESS

Local programming has been the key to success. “We offer far more home-grown TV movies than we used to, compared with imported U.S. product, and that has probably been the biggest factor,” Zubayr says. “You rarely see American movies on our network anymore, except late at night.”

The return of rights for the Bundesliga, Germany’s national football league, has also had a big impact. Fifteen years ago, this property was lost to RTL and then Sat.1, but since 2003, domestic football has returned to public TV, which has also secured the rights for the next five years. “This is one of the puzzle parts you need to be number one in the TV market,” Zubayr says.

An even brighter spot in the public sector has been Poland’s Telewizja Polska (TVP), the biggest public broad-caster in Central Europe, and the largest in Europe with a market share still exceeding 40 percent for two main channels, even though the Polish market has become increasingly fragmented over the past few years due to the growing penetration of cable and satellite networks.

“This success results mainly from the production of Polish programming,” says Tomasz Rudomino, a VP at TVP. “We were also the first to start producing our own series, which [were well received] by the viewers—for instance M jak milosc? (L for Love) topping the ratings for years now (it had a 55-percent share in 2008), Ranczo (Ranch) and Na dobre i na zle (For Better or Worse). And our news is still the most largely accepted and frequently watched news in Poland.”

One important positive development with the arrival of digital has been the additional channels public broadcasters have been able to launch in an effort to increase their market shares.

SLICE OF THE PIE

In France, for example, digital terrestrial channel France 4 achieved a share of 0.9 percent in 2008 (more than double the previous year), while France 5 scored a 3-percent share.

In the U.K., the BBC also operates two generalist digital channels (BBC Three and BBC Four), as well as a 24-hour news channel, a parliamentary channel and two children’s channels. The market share of the preschool service CBeebies has climbed to over 1 percent in an already crowded digital universe.

In Germany, ARD has launched three digital channels: EinsFestival (fiction and entertainment with a slight youth skew), EinsExtra (news) and EinsPlus (cooking and lifestyle advice). In Italy, RAI has launched RAI 4 on digital terrestrial, plus niche channels offering sports and history programming. It also has multiple satellite channels, including a movie channel, and offers RAI Bambini and RAI Tweens for the young audience among eight web TV channels. Spain’s TVE has six additional digital niche channels.

The growth rate of advertising has generally been higher than license-fee income, on which most public-service broadcasters depend. For pubcasters with mixed funding, advertising revenue represents, on average, 14 percent of their total budget, and they have about 20 percent of the advertising market, according to the European Broadcasting Union (EBU). This low average figure is explained in part by legal provisions that restrict their activities on that market.

“The level of financing from public funds has increased only slightly, whereas revenue from advertising for private television channels, as well as subscriptions for pay TV, has increased significantly,” the EBU stated in a submission to the European Commission in 2008. “The relative income gap between public and commercial broadcasters is increasing.”

This gap could grow more severe in the current downturn because many commercial broadcasters have protected themselves from downside risk through diversification, while public broadcasters have been unable to afford to do that, or have been constrained by regulation.

At a time when competition is intensifying, not to mention pressures from the economic situation, governments are not making it any easier for their public broadcasters, at least in the traditional TV market.

The plan to introduce a new law stopping advertising on all the channels operated by the French public broadcaster France Télévisions—France 2, France 3, France 4 and France 5—from 8 p.m. to 6 a.m. was unveiled in January 2008. “To say that this decision came as a surprise would be English understatement,” says Alain Belais, the director of international relations of France Télévisions. By 2011, France plans to phase out all commercials from public TV.

The immediate consequence of not having any advertising after 8 p.m. will be a cost to the broadcaster of about ¤450 million annually in lost revenues. The government has promised to cover the shortfall for at least three years from the national budget. What will happen after that is still up in the air. To put that lost revenue into perspective, France TV invests ¤370 million in production every year.

So far, public TV’s advertising loss has not been commercial TV’s gain. “We have not seen a transfer of advertising from public TV to the private channels,” Belais states. “But that may have to do with the economic crisis and companies not wanting to spend the money.”

France TV might be able to learn from German public TV, which has always been barred from showing commercials after 8 p.m. ARD and ZDF can, however, carry some sponsorships in evening time slots. “Fortunately, 80 percent to 90 percent of our income comes from the license fee,” says ARD’s Zubayr. “It’s not like Austria, where the share of license income and advertising are equal. But before 8 p.m. we have to compete more vigorously for viewers and we focus on the 18-to-40 demo more than we do in prime time. Between 5 p.m. and 8 p.m., we go for the younger audience. Otherwise, we wouldn’t make any money in the ad market.”

AD PRESSURES

French public TV is not alone in facing a stricter regime. The Spanish government has cut the advertising inventory on TVE from 12 minutes per hour to 11 minutes. In 2008, that had an immediate effect of reducing ad revenues by €60 million. The public broadcaster ended the year with a deficit of €100 million, after finishing in the black by about €18 million the previous year. TVE gets about ¤500 million in direct state subsidy.

Of course, in today’s climate, a broadcaster does not need to have inventory cut to feel the pinch in advertising. RAI will report a deficit of about €35 million for 2008, and Claudio Cappon, the director general, blamed that on a drop in advertising revenue of about €50 million. He predicted that the drop in revenue is likely to increase to ¤100 million this year, and RAI plans to cut 2009 spending by between €100 million and €150 million.

In the U.K., where the BBC remains advertising-free, commercial free-to-air broadcasters are subject to heavier public-service standards than elsewhere. With Channel 4 under pressure as advertising revenues fall, the regulator Ofcom has even mooted the extraordinary idea of shifting the business of BBC’s successful commercial arm BBC Worldwide to Channel 4.

Mark Thompson, the director general of the BBC and a former head of C4, suggested in January that consolidation of C4 and the commercial channel Five would be a wiser move. “Let us avoid the temptation to create yet more new entities and new structures,” he said. “What U.K. broadcasting needs is the same as the rest of the economy: simplification, consolidation and the right kind of public-private collaboration.”

INTERNET SHIFT

Meanwhile, the most important market trend is the shift toward Internet advertising. While advertising on television accounts for about 30 percent in a typical market versus 15 percent for online, tele-vision is only growing at 2 percent or 3 percent while online is growing at 30 percent or 40 percent. Public broadcasters want to be able to grab their share of the new market, but commercial players are usually better positioned to prosper, partly because they have the resources to snap up successful Internet properties.

According to the EBU, as European countries approach analogue switch-off in 2015, “the proliferation of new-entrant channels and the fragmentation of audiences will accelerate, especially in those markets with a high level of reliance on free-to-air television. Online consumption of professional audiovisual output will expand dramatically, driven by aggregators like Google and iTunes, and to an increasing degree, traditional media companies.”

One of the major challenges for public-service broadcasters, the EBU acknowledged, is to keep and win more young viewers. And this requires diversifying their programs and improving their presence with regard to the new forms of distribution.

TVP’s Rudomino says, “I don’t think our viewers are getting older, but similar to what is happening in the case of the other public broadcasters, [more] older people are watching our programs than the commercial broadcasters. It is quite natural, as public TV offers more information, journalism and culture than pure entertainment, which is sought by the younger generations. We do care about young viewers, though. We have created special series for them such as Londyn´czycy (Londoners), a series about young Poles who have emigrated to the U.K. The Internet is important. We are developing a special portal to communicate with young people, and we’re offering TV content such as [a selection] of series, ‘making-of’ features, football match reports and an archive of movies and programs.”

During the Olympic Games in Beijing, users of the TVP website were able to watch competitions in all the venues and all the arenas, online.

“For 50 years, the television business was built on Hertzian frequencies,” France TV’s Belais explains. “In the ’90s, cable arrived, and since 2005 we’ve had digital terrestrial (DTT) with 18 new free channels suddenly on the market. Meanwhile, the Internet has arrived in a big way. All of this has meant changing our business model to adjust to a newreality. When our analogue transmission is turned off, we will be truly digital, and this is an opportunity for us to build a more efficient, cohesive structure. Currently, we have about 40 different companies in the France TV group. Ideally, we want to have just one company. That is a challenge.”

But France TV does not want merely to stay where it is. “We want to increase our share, and to do this we need more money in order to compete across the new platforms,” Belais says. “We need about €200 million to invest in mobile TV and high-definition and so on.”

THE RULE BOOK

This is where the European regulatory picture becomes crucial.

“In broadcasting, we are used to the idea that 30 percent to 40 percent of the market is taken up by the public sector,” says Ross Biggam, the director general of the Association of Commercial Television in Europe (ACT), explains. “Now, these public broadcasters are coming into collision with newspapers, for example, where there is no such tradition. So how do we move rules that were designed for a broadcast era, when it was only channels competing with each other, into the digital age, when they are also competing with newspapers, ISPs and so on?”

In conventional broadcasting, the ground rules are well defined. So long as the broadcaster has a clear public mission and the funding is proportionate, the EU will not interfere. But how will this be extended into the digital world?

The subject has really come to the fore after a case involving state aid to ARD and ZDF in Germany generated numerous lawsuits launched by the private sector. Rather than having these run their course through the courts, there was an agreement that the European Commission would make a decision and close the file. Similar procedures are in progress for an Irish case and others.

In November 2008, the European Commission’s Directorate General for Competition published a draft revision of the 2001 Broadcasting Communication dealing with the application of European State aid rules on public-service broadcasting.

The commission is basically proposing that all states should adopt the U.K.’s BBC Public Value Test as the template for assessing whether aid is allowable.

The Public Value Test assesses both public value and market impact. The public-value part of the test, conducted by the BBC Trust, examines a proposed change in terms of the value of license-fee payers and to society as a whole and the value for money and cost. The market-impact assessment is conducted by Ofcom, which seeks feedback from the market. The process is supposed to be completed within six months.

So, applying the test, approval was given to the BBC’s launch of on-demand services in 2007 and to the launch of HDTV in the same year. A Gaelic digital service was greenlighted last year, with that decision to be reviewed in 2010.

Germany has also introduced a public-value test, set out in the new interstate broadcasting treaty that takes effect in June 2009. Its criteria are that a change should serve the democratic, social and cultural needs of society and contribute qualitatively to editorial competition, and the public broadcasters need to specify the financial impact.

“The commission is saying that if you put in place a regime like this in your country, then we will not entertain complaints about state aid,” says Biggam.

Now, that might not sound extreme, but it seems to scare the public-broadcasting sector.

EBU’s director general, Jean Réveillon, has said, “If this extremely detailed version of the Broadcasting Communication were adopted, it could seriously reduce the scope for member states to grant public-service broadcasters a significant role in the information society.”

The EBU’s enunciated position is that “it would be dangerous to create general rules” on commitments from states because “the sector is evolving rapidly, which makes it necessary also to highlight the need for the public-service remit to have an evolving nature.”

Belais of France TV shares that view. “It appears that the revision of the 2001 regime will be more restrictive, and we might not be allowed to access state support for what we need to do in new media. So we have a problem with Brussels, which impacts our situation in France. We’re talking to the French government in the hope of getting more support. If we are not allowed to receive this, I’m afraid that we would not be able to be competitive in the future.”

“Facing the challenges posed by technological innovations and the new competitors means a lot of investment and higher costs—much higher than ever before,” says TVP’s Rudomino.

One of the cards that the EBU has been playing is the importance of public broadcasters to European production. In addressing the European Parliament in January, EBU’s president, Jean-Paul Philippot, pointed out that public-service channels in the 27 member states invest ¤10 billion annually in production.

“The state of play is extremely fluid,” says Biggam. “There have been two thorough consultations, with a wide range of responses, from about 200 broadcasters, producers and other interested parties. The EC’s draft proposal is completed, but there is a lot of pressure behind the scenes from national culture ministries, which want to have as much leeway as possible when it comes to state-aid projects for public broadcasters and would like to see the commission back off. The European Parliament has also taken an interest with some support for their view. The question is how much of the original draft will survive the political process. Once it is adopted by the commission, it takes effect.”

DIGITAL INNOVATION

Meanwhile, public broadcasters continue to plow ahead in the digital landscape. As an early investor in new-media technology, the BBC has led the way in innovation. Its iPlayer, launched in the second part of 2007, enables consumers to download entire programs, and they downloaded 271 million of them in the first year. In September 2008, the BBC released the first iPlayer version for mobile phones.

ARD offers seven catch-up options on its websites for ARD, ZDF and the ARD regional stations, enabling people to see the programs they have missed. There is regulatory discussion currently going on about how long the various programs should be available for.

In Poland, TVP is very active in pursuing its digital activities. It financed and conducted the first digital terrestrial (DVB-T) tests in Poland, and it has lately finished construction of a new multiplex system servicing terrestrial and satellite distribution. Since 2008, TVP has been broadcasting a new HD thematic channel featuring content entirely produced by TVP. In the near future, TVP plans to offer additional services made feasible by digital technology, such as personal video recorders.

Regardless of how new platforms develop, the battle for the audience will continue, and public broadcasters need to be looking ahead to the next generation of viewers.

“My feeling is that the move to a digital market with time-shifted viewing on the Internet and so on will actually impact the commercial channels more because their audience is younger,” ARD’s Zubayr says. “The big life-cycle question—will viewers watch more of the public channels as they get older?—is still up in the air. One thing we know for sure is that as viewers get older and have families and pay taxes and so forth, they will come to ARD and ZDF for information. But if they have been watching RTL, Sat.1 and ProSieben most of the time when they’re young, then most of their time will still be spent with those channels when they’re older. We can improve our performance with them, but that is not enough. So we can’t wait for them to grow up. We have to get them now. Once they leave adolescence the game is over.”