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BBC News 24 (State aid)

The channel was rebranded BBC News in April 2008.

Decision of the European Commission, Case NN 88/98
Financing of a 24-hour advertising-free news channel out of the licence fee by the BBC
Decision of 14 December 1999 (18 pages, PDF)

Article 87(1): State aid; Article 86(2): undertaking entrusted with a public service
Article numbers refer to the 1997 consolidated version of the EC Treaty.

Background

On 26 September 1997, BSkyB filed a complaint with the European Commission concerning the launch of a BBC continuous news channel aimed at UK viewers, BBC News 24.

BSkyB alleged infringements of all the EC competition rules. This decision is concerned only with the State aid allegations.

BSkyB had argued that:

This summary focuses on the reasoning in the Commission's published decision in respect of the first and third points.

The funding of BBC News 24 was found to constitute State aid

The Commission found that the the approval for BBC News 24 constituted State aid as defined by Article 87(1). It reasoned as follows.

(a) Is funding provided by the State?

Yes. The funding comes from the licence fee which is an obligation imposed by public authorities on owners of receiving equipment regardless of whether that equipment is used to receive BBC programmes. And the decision to authorise the use of the licence fee for BBC News 24 was taken by the Secretary of State (by letter of 13 October 1997).

(b) Does the funding favour certain undertakings?

Yes. The licence fee constitutes a cash revenue "for which the BBC does not need to compete on the market" (paragraph 24), providing it with a financial advantage compared to other competitors.

The UK authorities had argued that the funding "compensated legitimate public service obligations fulfilled by the BBC" (paragraph 25) and that this meant that the BBC obtained no economic advantage from the aid. The Commission did not consider this argument relevant to the assessment of whether the funding was State aid within the meaning of Article 87(1). Instead, the Commission notes that the Treaty provides exemptions from the ban on State aid, namely through Article 87(2) or (3) and Article 86(2).

(c) Is trade between Member States affected?

Yes. The presence of competitors that provide a similar service is ascertained and there is a distortion amongst these competitors across Member States. The Commission emphasises that the question is one of potential and not actual effect:

It is not necessary, in order to evaluate the impact on trade between Member States, to demonstrate whether the reduction of penetration suffered by Sky News after the launching of BBC News 24 is a direct consequence of the presence of a free-of-charge channel or not. It is sufficient to argue that the possibility for an undertaking to offer a service on conditions which cannot be matched by any other commercial operator (commercial broadcasters need necessarily either to charge a subscription fee or to carry advertising on their channels, or both) may put other undertakings in an unfavourable position... [A] direct impact on actual trade between Member States is not necessary. It is sufficient that the measures put the recipient in a more favourable position compared with other undertakings which are competing in intra-Community trade” (paragraphs 30-31).

The Commission finds that the approval for BBC News 24 constitutes State aid within the meaning of Article 87(1).

The State aid was found to be justified under Article 86(2)

The Commission notes that the UK Authorities had not claimed a cultural justification for the aid, under Article 87(3)(d). Instead the aid was found to be compatible with the Treaty on the basis of Article 86(2). The Commission addresses the following questions to reach this decision.

(a) Is the service of general economic interest?

Yes. The Amsterdam Protocol has confirmed the competence of the Member State to define the remit of the public service in the sphere of public service broadcasting. The Commission finds that the channel has been included in the public service mission of the BBC by the Secretary of State (paragraph 48). The Commission states in particular that:

The Commission only has to assess whether the public service mission defined by a Member State does not exceed what can be regarded as "services of general economic interest" under the rules of the Treaty. In the case under examination, the Commission is of the opinion that the provision of news can be considered a public service mission in broadcasting. In particular, a 24-hour news service would help to meet the democratic and social needs of a society, as referred to in the Amsterdam Protocol, by allowing the coverage of a wider range of events and a more in-depth analysis of the events. Although the BBC already provides a broad coverage of news and information according to a pre-defined timetable on its public service channels BBC1 and BBC2, BBC News 24 may be considered an additional service, able to provide a more detailed analysis of events.” (paragraph 49)

The Commission drew attention to the fact that the BBC service would not show commercial advertising, and concluded that it could not "detect any abuse of the Member State's competence to define such public service remit, taking into account also that the specific features of the service cannot be found in services provided by private operators" (paragraph 53).

(b) Is the undertaking officially entrusted to provide that service by the Member State?

Yes. On the basis of the approval of the Secretary of State, seen in light of the legislative background. The Commission adds that whilst the entrustment was not in doubt, "the arrangements between the BBC and the UK Government could be made clearer and a more straightforward definition of the remit would have facilitated the Commission's task of monitoring compliance with the conditions of Article 86(2)" (paragraph 71).

(c) Is the funding of BBC News 24 proportionate?

Yes. The Commission first observes that the lack of other revenue channels for the BBC means that the delivery of BBC News 24 would not be possible without the funding. It then turns to whether this funding might have been excessive. The Commission seems to start from the view that the funding arrangements for the BBC are such that funding for the delivery of public service obligations is automatically proportionate:

"The financing system defined by the UK for the BBC (only a licence fee with no market revenues) ensures that the amount of the funds received by the undertaking for fulfilling its public service obligations is limited to the net costs deriving from the provision of such services.

Applying the same reasoning, it can be concluded that the amount of licence fee used to finance BBC News 24 is strictly proportional to the actual costs incurred for the provision of the service” (paragraphs 82-83).

The Commission then turns to an argument raised by BSkyB that the funding was not proportionate since the reported costs of BBC News 24 were higher than comparable commercial services. The Commission seems to agree with the UK Authorities' explanation for this, that the BBC had a larger network of news gathering than Sky News. In any event, the Commission concludes that the funding arrangements for the BBC mean that any funding granted to the BBC does not exceed the necessary cost.

(d) Is the application of Article 86(2) in this case contrary to the interest of the Community?

Yes. This is reasoned as follows:

The production of BBC News 24 has de facto increased the number of channels available in the UK market, thereby intensifying competition and deteriorating the position of other broadcasters” (paragraph 88).

However, a decline in the competitor's market share does not mean that the functioning of the market is hampered:

It is sufficient to demonstrate that although a certain impact on competition and trade can be detected, this is not effective to the extent that it precludes the development of competition and trade in the sector concerned” (paragraph 98).

The Commission finds that the criteria of Article 86(2) are met and that financing of BBC News 24 by the BBC licence fee is compatible with the EC Treaty.

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Last changed by Franck at 3:08 PM on Saturday 2 August 2008.

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Reckon Open "BBC News 24" 2008-08-02T15:08:27
Link within Reckon Open: [[BBC News 24]]