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State Aid to Public Service Broadcasting in Croatia – Or the Way We Are
Tatjana Jakovljevic´*
In light of the Croatian accession to the EU, which is planned for 1 July 2013, and after some five years of harmonization of its legislative framework with the EU State aid rules, this article indicates the main State aid issues that had to be addressed in the public service broadcasting sector. The main concerns that have been raised relate to the process of adjustment of the Croatian Radio- Television Act, in other words, the operation of the national public service broadcaster (HRT) to the State aid rules applicable in other Member States. In this respect it was necessary to include in the Croatian legislation the mechanisms that ensure that State aid which is granted to the public service broadcaster in the form of licence fee satisfy the relevant criteria, in order to escape the general ban on State aid and ensure proper functioning of HRT. To that end, the article discusses how the criteria, such as the proper definition of public remit, entrustment and supervision, financial control, propor- tionality and overcompensation, introduction of new services, the share of sports, competition concerns and sanctions, public value and market economy investor principle in commercial activities, have been introduced in the new 2010 Croatian Radio-Television Act on the basis of the EU practice. The article deals with the difficulties encountered in this process and points particularly to the com- plex enforcement matters. Finally, it studies the outcomes and calls for assessment of the effects in future.
I. Introduction authority entrusted with the power to authorise and monitor State aid – the Croatian Competition Croatia formally closed the accession negations Agency (CCA) –, and a credible enforcement record with the European Union on 30 June 2011 after until Croatia becomes an EU Member State, when more than five years of harmonization of its com- these powers will be assumed by the European petition and State aid rules. In a transition country Commission. with a strong political legacy of State-run command Eight years after the introduction of the first economy, legal options for granting and monitoring Croatian 2003 State Aid Act,2 the Regulation on State aid have been particularly aimed at minimiz- State aid,3 the revised 2005 State Aid Act,4 the nec- ing the State intervention relating to the allocation essary bylaws and the revised Regulation on State of resources in the common market. The commit- aid,5 all relevant EU State aid rules have today ments undertaken by the Republic of Croatia under become automatically applicable and as such the Stabilization and Association Agreement ensure the full harmonization of the Croatian State (SAA),1 which entered into force in 2005, involved aid rules with the EU acquis. the establishment of a transparent and effective However, apart from the formal, legal change State aid regime, an operationally independent concerning the State aid rules, there has been a more much difficult one to perform: an almost sur-
* Croatian Competition Agency. The views expressed in this article gical cut into the roots of the traditional financing are the author’s own and do not necessarily reflect the official models reserved for certain undertakings and sec- position of the Croatian Competition Agency. Responsibility for tors, in this particular case, that of public service the information and views lies entirely with the author. broadcasting. Notably, the two benchmarks set by 1 Stabilization and Association Agreement between the Republic of Croatia and the European Communities and their Member States the European Commission, which had to be ful- (hereafter SAA) (OG, International treaties, 14/01). filled before the negotiations in this chapter could 2 OG 47/2003. be closed, were the restructuring of the Croatian 3 OG 121/2003. shipbuilding industry and the harmonisation of the 4 OG 140/2005. Croatian Radio-Television Act. The latter had to 5 OG 50/2006. define the operation and financing of the national EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 574
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public service broadcaster in line with the EU State vizija; HRT). Seven commercial broadcasters have aid rules. national concessions, twenty one are regional and In spite of the evident progress and a gradual local TV broadcasters, and there are more than 160 shift in the minds of the policy makers, the adjust- radio stations, three of them national and eight ment of the Croatian legal framework in the area of regional financed through State resources, the rest public service broadcasting was rather long and are commercial, mostly community radios. painstaking. It took almost two years of involvement The liberalization of the traditionally State- of all stakeholders (ministries, regulators, private owned Croatian broadcasting market started in the broadcasters) to put in place a legislative basis which early 2000 when the first private broadcaster would comply with the EU competition and State entered this market – Nova TV, which was followed aid rules. The authority sin qua non in this process by a second entry, that of RTL televizija in 2004. and the main driving force towards achieving the Today, these two, owned by big private corpora- standards comparable to those applicable in the EU tions, may be considered genuine rivals of the pub- has been the Croatian Competition Agency. Not only lic service broadcaster HRT – on the basis of their did it introduce the changes but it also facilitated the availability, general programme schemes, editorial growing awareness for the necessity of State aid con- independence and viewer ratings. HRT broadcasts trol, the obligation to notify aid schemes and, what at the moment two general programmes (HTV 1 is currently gaining importance, its enforcement and and HTV 2) and one satellite programme for the effective use, avoiding the negative consequences of Croats living abroad. In 2011, Nova TV introduced granting unlawful aid contrary to the rules and its new entertainment programme Doma TV, having to execute unwanted and painful recoveries. whereas RTL televizija started broadcasting RTL 2 This article addresses the key issues of the pub- entertainment and RTL plus. National concessions lic service broadcasting regulatory framework and have been also granted to CMC (Croatian Music traces down the process of adjustment of the Channel), Kapital Network (prevailing news and Croatian Radio-Television Act to the State aid rules economy channel), Sportska televizija (sports chan- applicable in the EU. It describes in detail how the nel) etc. EU law and practice was applied in the harmonisa- A couple of years later, the new competitors – tion process, underlines the main difficulties in this private broadcasting operators who invested a great revision, highlights the remaining concerns and deal of money in infrastructure and staff – are start- comments on the outcomes. ing to reap the benefits of their investments: they Each part of the analysis deals with the main produce programmes that raise their audience competition concerns in this area, i.e. the concepts measurement figures, they sell advertising space which had to be introduced in the Croatian legisla- (which had once been the prerogative of the nation- tion, such as the State aid character of the licence al public service broadcaster), buy sports rights fee, the definition of public service remit, entrust- (which only some years ago had also been reserved ment and supervision, financial control, principles for HRT) and, what is more, raise the awareness of of proportionality and overcompensation, introduc- the audiences concerning the dual financing and tion of new services, rules for sports, sanctions for public remit of HRT programmes. The market illegal use of State aid and involvement in commer- undoubtedly opened and the dominance of one cial activities. The article describes how the relevant State-owned public service broadcaster whose per- proposals were introduced in the former Croatian formance has been predominantly based on the Radio-Television Act, but also challenges the out- licence fee income and advertising income has been look and possible effects of the new regime in the seriously challenged. Moreover, the entrants offer Croatian public service broadcasting sector. certain programmes that raise their viewer ratings beyond expectation, even concerning the prime time programmes, such as the central TV’s evening II. Public service broadcasting news which, according to the ratings of Nielsen in Croatia Audience Measurement reported by the press and specialised web portals, lost the long held number There is one public service broadcaster in Croatia – one position on the viewers’ list. Regardless of the the Croatian Radio-Television (Hrvatska Radiotele- fact how these measurements are taken or how EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 575
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shares are calculated, it is undeniable that all the 2010 did Croatia fulfil the EU standards in this area, above mentioned aspects resulted in a raising inter- which, consequently, remained one of the most est of the public concerning the funding of HRT, its important benchmarks set by the European spending and the quality of its programmes. Commission for the opening and closing of the EU In the process of adjustment of the Croatian laws accession negotiations in Chapter 8: Competition to the relevant European rules, a scrutiny had to be policy. What is described here is a rather long har- carried out at the national level, as it has been the monisation process based exclusively and concen- case with the public service broadcasters through- trated solely on the non-compliance with the EU out the EU. In the Croatian case, the relatively new State aid rules applicable to State financing of the matter posed extreme challenges not only to the public service broadcaster – Croatian Radio- Croatian Competition Agency, but also, and first of Television. all, to law and policy-makers, economic operators, the judiciary and the whole community. The State aid rules applicable to the public ser- III. State funding of Croatian Radio vice broadcasting sector in the EU equally have to Television (HRT) be complied with by Croatia during the accession period. This is based on the provision contained in Unsurprisingly enough, and reflecting very much the SAA which quotes that, “all cases contrary to the same situation of the EU broadcasting market competition and other economic provisions thereof in the last decade, an increasing number of com- must be assessed on the basis of criteria arising plaints had been made as early as in 2008 by pri- from the application of the competition rules appli- vate operators (RTL, novaTV) as regards the public cable in the Community, in particular from financing of the Croatian public service broadcaster Articles… […]…86 and 87 of the Treaty establishing – Hrvatska-radio televizija (HRT). The complaints the European Community and interpretative instru- made by private operators were (and still are) ments adopted by the Community institutions”.6 directed at two main issues. These clear provisions of the signed agreement and First, there was a question of public financing of the adopted decisions in the broadcasting sector of the national public service broadcaster’s (HRT) pro- the Member States have been the last frontier for grammes which were assumed to fall under its pub- all those whose understanding of the possible solu- lic remit and its engagement in commercial activi- tions in this area might have been different. ties. Second, there had been plans announced by Indeed, the 2003 Croatian Radio-Television Act7 HRT in respect of the establishment of new, sepa- lacked a precise definition and a proper entrust- rate programmes, which would have been reserved ment of the public service mandate, in particular as for the broadcasting of sports and entertainment regards new media activities. Although based on a and financed from unspecified resources. Third, dual financing of the national public service broad- there was a very contentious licence fee and the caster – Hrvatska Radiotelevizija (HRT), which question of whether it constituted State aid giving includes the licence fee and the revenues from com- an economic advantage to HRT compared to other mercial activities, it did not provide adequate safe- operators in the market. Finally, the press operators guards against overcompensation. In addition, it also complained in particular about the competi- did not respect the market principles in commercial tion from the traditionally press-like services activities, and it lacked transparency in the finan- offered by HRT, for example advertisements, cial relations between the aid grantor and the which, allegedly, bid out the market by depressing undertaking which is entrusted with the discharge the price of TV advertising which had (and of the services of general economic interest in the undoubtedly still has) spill-over effects on the press broadcasting sector. In other words, not until the publishers advertising market. new Croatian Radio-Television Act was adopted in Furthermore, the State audit reports on the financial operation of HRT revealed, according to the media reports at the time, that the public ser- vice broadcaster cooked the books for 2008 while, 6 SAA, Art. 70 para. 2. allegedly, offering huge advertisement discounts 7 Croatian Radio-Television Act, OG 25/2003. (up to 90 %), leading to the foreclosure of the pri- EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 576
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vate broadcasters and the press from the market is imposed by law and fixed by a legislative act and cutting their revenues.8 (similar to taxes and other contributions) paid to All these issues triggered the changes which the public broadcaster (HRT), the non-payment of apparently had to be introduced in the Croatian which is subject to sanctions. This was in compli- public service broadcasting regime. It must be ance with the decision of the European Commis- noted here that, in addition, all existing EU rules sion in the Irish RTÉ and TG4 case, given that the covering public service broadcasting had been measure in question constitutes a compulsory levy accordingly transposed in the Croatian legislation.9 imposed by law and the revenues from the levy are Consequently, a new Croatian Radio-Television Act under the control of the State.17 had to be drafted and sent to the relevant authori- In addition, it was evident that revenues from ties for revision.10 The analysis regarding the com- licence fees have been used to cover the operating pliance with the relevant EU State aid rules was car- costs of HRT. Consequently, the CCA held the view ried out by the CCA experts11 who, in line with the that in this particular case, a selective economic SAA, also used the principles and criteria set in the advantage was given to HRT, given that commercial relevant Commission decisions on State aid to pub- lic service broadcasting, particularly in the case of the Austrian ORF public service broadcaster,12 con- 8 These data have never been published by HRT. However, the centrating on the competition issues which were author makes the reference here to one of the many national daily press articles, e.g. Izdavacˇi: Revizija dokaz kako je HRT not addressed or were only partly addressed by the sustavno unisˇtavao druge medije. In: Vecˇernji list [Zagreb, proposed draft of the new Croatian Radio- Croatia], 7 April 2010, p. 4. Television Act.13 9 Here are particularly meant the Communication from the Commission on the application of State aid rules to public service broadcasting OJ 2001 C 320/5-11; the revised Communication from the Commission on the application of State aid rules to pub- IV. Revision of the Croatian Radio- lic service broadcasting, OJ 2009 C 257/1-14 (hereafter: “Broadcasting Communication”); Commission Decision of 28 Television Act November 2005 on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of 1. State aid character of the licence fee services of general economic interest, OJ 2005 L 312 and the Community framework for State aid in the form of public service Most of the concerns raised in the case of HRT have compensation, OJ 2005 C 297, the Judgement of the Court C- been similar to those addressed by the Commission 280/00, Altmark Trans and Regierungspräsidium Magdeburg, [2003] ECR I-7747, para. 88-94, and the Transparency Directive in similar matters at the EU level. First, and this had 2004/109/EC of 15 December 2004 on the harmonisation of been fiercely contested both by the Member States, transparency requirements in relation to information about issuers especially Germany,14 and their Croatian counter- whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, OJ 2004 L 390. parts alike, it was undoubtedly clear from the EU 10 Proposed Draft Croatian Radio-Television Act (Nacrt prijedloga practice that licence fee revenues, as a principle, Zakona o Hrvatskoj radioteleviziji,) 29.03.2010. constitute State aid. As early as in December 2008, 11 The Croatian Competition Agency issues a “preliminary binding namely, long before the proposed draft of the opinion” on laws containing State aid, in other words, prior to Croatian Radio-Television Act was brought up for the adoption of these laws by the Croatian Parliament. discussion in the Spring of 2010, the CCA issued its 12 Commission Decision of 28 October 2010 concerning the Financing of ORF, E 2/2008. opinion on (i) the financing of public broadcasters 13 Antoniadis, The financing of public service broadcasting, in: and licence fee which possibly constitutes State aid, Rydelski (ed.), The EC State aid regime: Distortive effects of State and (ii) the plans announced by HRT regarding the aid on competition and trade, 2008, p. 591-594 provides a his- torical background, starting from the early 1900s, of complaints, opening of new thematic programmes. In its opin- Commission practice and Court rulings. ion, the CCA stated that although a licence fee is 14 Commission Decision of 24 April 2007 concerning the Financing paid by the owner of a radio or TV set directly to of public service broadcasters in Germany, E 3/2005. the public broadcaster and allegedly is not a direct 15 CCA expert opinion UP/I 430-01/2008-00/07 of 18 December expenditure of the State, it is attributable to the 2008, available on the website of the Croatian Competition Agency
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operators in the market do not receive it and base Croatian law, was generally recognized as constitut- their business operations exclusively on the rev- ing State aid. enues gained under the market conditions. Taking into account that it was not evident from the submitted data and legal acts of HRT to deter- 2. Definition of public service remit mine which television or radio programmes and contents were financed through the licence fee, the The key question here was whether public financ- CCA assumed that the public financing covered the ing of public service broadcasting (which consti- entire broadcasting of HRT, not only the particular tutes State aid) could be brought in line with Article programmes. “This automatically puts the compet- 86(2) of the EC Treaty [Article 106 (2) TFEU]20 and ing undertakings – commercial broadcasters – into escape prohibition. To that end, the public service a less favourable position within the meaning of remit must be clearly defined and entrusted to a competition and State aid rules” – stated the CCA in public service operator on the basis of a formal act its opinion.18 of entrustment.21 In the case of HRT, the public In compliance with the above mentioned deci- remit, especially for online services and for special sion in the Irish case,19 the CCA generally consid- interest channels, was too unspecific. It was not ered that State financing of public service broad- clear from the proposed draft of the new Croatian casters was liable to distort competition and affect Radio-Television Act which of the population’s trade between Member States given the interna- needs were supposed to be covered by HRT (in tional trade in programmes and programme rights, other words, it did not specify the tasks such as: to the cross-border effects of advertising and because guarantee the free and comprehensive formation of the ownership structure of private competitors may individual opinion, to represent the economic, cul- extend over several Member States. tural or ideological interests of the society, to report Consequently, the television licence fee money objectively and impartially, to preserve media plu- used to finance public service broadcasting consti- rality, to allow regional opinions and interests to be tutes State aid, involves an economic advantage to heard so as to provide information on and strength- the recipient – HRT, and therefore strengthens its en the identity of individual regions, to supply the position in the relevant market compared to other citizens with information, cultural and educational broadcasters which finance their activities based on content and entertainment through a comprehen- commercial revenues only. sive and balanced programme offer and to guaran- Finally, after more than a year of the public and tee high programme quality).22 political debate, the monthly licence fee (calculated However, the proposed draft provided for the as 1.5 % of the average net income of the employed conclusion of a subsequent Contract between HRT in the Republic of Croatia), which must be paid by and the Croatian government, which would specify any TV or radio owner in accordance with the the remit missing in the proposed draft, and would explicitly not include activities that reasonably can- not be considered to meet the “democratic, social and cultural needs of the society”23 (such as the sale 18 See fn. 15. of advertising space in order to obtain revenue, e- 19 See fn. 17. commerce, teleshopping, the use of premium rate 20 Treaty on the Functioning of the European Union – Treaty of numbers in prize games, sponsoring or merchan- Lisbon 1 Dec 2009, OJ 2010 C 83. With effect from 1 December 2009, Article 86 of the EC Treaty has become Article 106 of the dising). Treaty on the Functioning of the European Union (“TFEU”). The With regard to principle of proportionality, two Articles are, in substance, identical. where new services must be assessed in advance 21 Broadcasting Communication, paras. 44-49. before they are put on the market, and where such 22 Ridinger, The public service remit and the new media, Legal Observations of the European Audiovisual Observatory, Issue services must involve public consultations with all 2009-6, p. 5. stakeholders, the proposed draft alone, without any 23 Amsterdam Protocol on the system of public broadcasting in the further binding legal act, risked not to fulfil the member states annexed to the EC Treaty (1997), according to basic public value test (or the so called Drei-Stufen- which “the system of public broadcasting in the Member States is directly related to the democratic, social and cultural needs of Test). It means that, first, the offer must meet the each society and to the need to preserve media pluralism”. democratic, social and cultural needs of the society. EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 578
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Second, it must contribute to editorial quality, and licence fee and allowable reserves after the opinion third, the costs must be balanced against the bene- thereof had been issued by the Council for the fits. Third parties and experts must be included in Electronic Media. Moreover, it was not clear what the assessment of the market impact which also regulator would carry out an ex post control and must be considered. Finally, the assessment must how conflict of interest in this area should be avoid- be reviewed by the legal supervisory authority.24 ed. Altogether, it was doubtful if in this area suffi- The opinion of the CCA was that such a test, partic- cient independent supervision would take place. ularly concerning the introduction of new services What is more, the checks to cover the question of and programmes, had to be included in the pro- possible overcompensation had been entrusted to posed draft. the Supervisory Board of HRT. Needless to say, the principle of “independent, external, regular and effective”27 control was not established on the basis 3. Entrustment and supervision of the proposed draft of the Croatian Radio- Television Act. Here are meant both ex-ante and the Although the fulfilment of the public service remit ex-post control i.e. the control of the overall budget, had been entrusted to HRT, the supervision of the the mechanisms to monitor overcompensation and public service remit, particularly regarding the possible repayments.28 It was to be seen if and how “new significant services”25 was inadequate. First, the mentioned Contract between HRT and the the proposed draft did not specify the areas of con- Croatian government would solve these issues, and trol and the control mechanisms. Generally, such what is more important, how this new regime control had to be entrusted to a body which is inde- would be implemented in practice. pendent from the management of the undertaking However, the most sensitive control had to cover entrusted with public service broadcasting (such as the potential losses arising from commercial activi- the BBC Trust and Ofcom or KEF in the German ties which had been inadmissibly cross-subsidized case).26 Second, it was not clear how HRT’s failure by the licence fee. Although the proposed draft of to fulfil the public remit could be detected and what the Croatian Radio-Television Act provided for the would be the consequences. It was unclear to what permissible reserves of 10% of the annual budget- extent the “control of the legality of operation and ed expenses, it only vaguely defined that the “con- financial operation” of HRT would be performed by trol of financial affairs of HRT will be carried out the Supervisory Board of HRT and/or shared by the by an internal audit service and report thereof to Council for Electronic Media or even by the the Supervisory Board of HRT”.29 This was unac- Programme Council of HRT. Although the Council ceptable from the perspective of the relevant EU for Electronic Media was considered adequate practice. The control of principles of proportionali- given that it is external and independent from HRT, ty, transparency and overcompensation in any form the question remained whether this authority must be carried out by an independent public would be equipped with adequate resources and authority, the members of which must effectively staff and empowered to impose sanctions on HRT in case of infringements.
24 Holznagel, Public service broadcasters under pressure: German broadcasters face convergence, 2010, Open Democracy, avail- 4. Financial control able at:
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be independent from HRT (in the German case it ratings, not to forget the advertising revenues was the Court of Auditors, ORF had to appoint an involved. independent board of auditors – Prüfungskom- The scope and objects of any new services, pro- mission).30 In addition, this authority should verify grammes, or platforms, in order to be financed financial statements of HRT on a yearly basis for from the licence fee, must be ex ante defined by compliance with the rules on cost separation, build- law, following the same Amsterdam protocol prin- ing reserves and the pursuit of commercial acti- ciples, i.e. a public value test and sector based vities. impact, as described particularly in the Irish case.32 In the Austrian ORF case, the Commission states that ORF will be obliged to prepare a concept for 5. Proportionality and overcompen- each new service with a precise description of the sation planned offer and a justification of why it seems suitable for implementing the public service Although it established the principle of proportion- remit.33 An explanation was needed regarding the ality (net costs), provided for a separation of target audience, the financing of the offer, the antic- accounts as regards public service activities and ipated impact of the offer on competition in the rel- non-public activities, the proposed draft failed to evant market as well as the diversity offered by the demonstrate that the overcompensation would be programme concerned for viewers, listeners and used for the purpose of financing public service users. In other words, it must be ensured that “the activities only. In other words, it had not been public funding of significant new audiovisual serv- established how the surpluses would be used, either ices does not distort trade and competition”.34 the overcompensation of the public service remit or Although the text of the proposed draft of the new from the acquisition of premium sports rights. It Croatian Radio-Television Act provided for a simi- was not clear whether any of the surpluses should lar wording, it remained unclear which services be recovered at the end of a financing period (5 would be covered under what conditions by the years) or paid to the account of the Fund for the public service remit in the production of internet promotion of pluralism and diversity (which sites, teletext etc. It failed to define in more details receives 3% of the public remit), or transferred on that information about HRT’s current radio, televi- a blocked bank account, which was the principle sion and other public service programmes includ- used in the Austrian ORF case.31 ing information about HRT itself, daily news overviews in text and image including supplemen- tary audio and audiovisual elements etc., which 6. New services must not exceed daily news overviews which is similar in design and content to newspapers or The internet shapes our everyday life. It changes magazines distributed on the internet, may be the economy, the society, our habits and expecta- defined as public remit services and as such would tions. In the same way it redesigns the role of pub- not fall under the obligation of previous assessment lic service broadcasters on the world map of global and public consultation. What is more, it did not providers. Consequently, it modifies the remit of define the activities which remain purely commer- the public service broadcasters, although the press cial. It failed to explicitly specify “the black list of and private broadcasters may object given the online activities” which are not part of the public declining trends in their readership or viewer service remit and may therefore not be financed with licence fee – such as ring tones, real estate and job postings, classified directories, search engines, SMS services etc. Although questioned by some 30 Commission decision on Aid E 3/2005 (fn. 14) and Commission decision on Aid E 2/2008 (fn. 12). authors, the assessment of services that come 31 Commission decision on Aid E 2/2008 (fn. 12), para. 226. together with technological development involves a 32 Commission decision E 4/2005 (fn. 17), para. 142. kind of quantitative and qualitative control. This 33 Commission decision on Aid E 2/2008 (fn. 12), paras. 201 control does not mean intervention by the Com- and 203. mission, which would jeopardise the independence 34 See Soltész (fn. 16), p. 34 – 35. of the Member State in deciding on the public EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 580
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remit and scope of programmes that may be active sport, promote less-known sports, report on financed from public resources, but flexibility in regional sport events, raise awareness of health- any particular case where prior assessment is need- related sports aspects etc.), thus excluding commer- ed. By establishing “white” and “black” lists of pro- cial activities.41 grammes, legal certainty is given to all the parties, particularly the monitoring authorities.35 In any event, as stated by the Commission in the Austrian 8. Competition concerns and sanctions ORF case, adequate mechanisms had to be estab- lished to ensure that the public financing of online The provisions regarding the HRT’s behaviour services and other new significant audiovisual towards its commercial subsidiaries as well as activities does not create disproportionate distor- towards third parties were not clearly defined in tions of competition and affect cross-border trade.36 the proposed draft of the new Croatian Radio- Television Act. In its opinion, the CCA stressed that HRT would have to be prohibited to sell advertising 7. Sports time and space below the market value and that it could not be permitted to purchase premium sports Sports broadcasts can definitely be a part of the rights above the market price using its privileged public service mission providing a balanced and financial position. What is more, should the media varied programme.37 In line with the mentioned regulator find, in the course of its control activities, EU practice the inclusion of sports programmes that there are indications that HRT has engaged in into the public service remit is not assessed as man- anticompetitive behaviour in the sense of Article 82 ifestly excessive if the overall share of sports as part of the EC Treaty [102 TFEU], it would have to noti- of the public service broadcasters’ programme does fy the Croatian Competition Agency thereof. In not exceed on average 10% of broadcast time.38 accordance with the EU practice, the proceedings However, the acquisition of exclusive sports rights according to Article 82 of the EC Treaty [102 TFEU] with public money remains permissible for public regulating abuse of a dominant position take prece- service broadcasters if this is necessary for the ful- dent over the proceedings of the authority regard- filment of their public service obligation, otherwise ing other distortions of competition resulting from they must be offered to third parties for sub-licens- a disproportionate use of State aid.42 Competition ing. If this had remained unregulated, it would rules in this area are merciless: any improper use of have put HRT in the position to regularly outbid its public funds must be sanctioned by recovery of competitors and therefore to “buy up” the market in these funds and other sanctions (such as adminis- premium sports rights if this was not justified as trative penalty). part of a balanced overall programme.39 The pro- posed draft initially did not contain such provisions in spite of the fact that sports broadcasting busi- ness raises most competition concerns, which may lead to most serious infringements.40 Consequent- ly, the proposed draft also failed to provide for a
supervisory body in this area and, naturally, there 35 Grespan, A busy year for State aid control in the field of public had been no sanctions foreseen for such infringe- service broadcasting, EStAL, 2010, p.86-87. ments. As regards the alleged plans of HRT to estab- 36 Commission decision on Aid E 2/2008 (fn. 12), paras. 181-191. lish a new, predominantly sports programme at the 37 Commission decision on Aid E 2/2008 (fn. 12), paras. 87, 91, 95 time of these adjustments, it had been advised that and 147. the relevant State aid rules in this area would pro- 38 Commission decision on Aid E 3/2005 (fn. 14), para. 355. vide for a clear distinction between the premium 39 Commission decision on Aid E 2/2008 (fn. 12), paras. 87, 97 and 175. sports and minority sports. In accordance with the 40 Dias/Antoniadis, Increased transparency and efficiency in public Commission’s decision on the ORF case, where a service broadcasting. Recent cases in Spain and Germany, special sports programme has been established, Competition Policy Newsletter, 2007, p. 69. such a new programme must include so called 41 Commission decision on Aid E 2/2008 (fn. 12), paras. 194 – 196. minority sports, inform, encourage interest in 42 Commission decision on Aid E 2/2008 (fn. 12), para. 225. EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 581
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9. Commercial activities – trans- could do so but under the market principles. In the parency, proportionality and MEIP best scenario, the commercial activities would be carried out by a commercial subsidiary of the pub- Commercial activities in the provision of broad- lic service broadcaster, whereby this relationship casting activities deserve special attention, particu- must be at arm’s length. All investments of a public larly in the context in which all broadcasting oper- service broadcaster into other activities must ators, public and private, try to increase viewer rat- respect the MEIP, i.e. by checking whether a private ings with an objective to attract undertakings to operator would carry out the same transactions advertise their products and services in particular under the same terms in similar circumstances. programmes. This usually leads to spill-over effects Any possible overcompensation exceeding the 10% of licence fee revenues to the neighbouring mar- threshold may only be used to compensate for kets. In practice, it also means that a public service financing deficits which are exclusively related to broadcaster, taking into account that its licence fee the public service mission. No cross-subsidisation revenues can cut down the price of its advertising of commercial activities is allowed. Any possible services, offer a lower price of advertising space surpluses arising from commercial activities may and time to undertakings than private operators only be used for the financing of public services who must cover all their costs exclusively by adver- activities. Needless to say, a public service broad- tising revenues. caster is obligated to report annually on the use of On the basis of the latest available profit and loss its public funding. account and the data on State aid, the total revenues In practice, the Commission has had no objec- of HRT in the last year, although indicating a slight- tions to dual financing. While Member States are ly falling trend, amounted to some €215 million. free to choose the means of financing of the public About €162 million thereof have been derived from service broadcasting, the Commission has to verify licence fee attributions and the rest would be that the State funding does not affect competition assumed to constitute commercial revenues. Given in the common market in a disproportionate man- that no other detailed statements or accounts of ner. Thus, HRT could cover start-up expenses for HRT have been officially available, it cannot be launching commercial activities which are associat- clearly specified for the purpose of this article what ed with the public service mandate with commer- services of the public service broadcaster are being cial income from the activities related to the public financed through licence fees alone and what serv- service mandate, but these investments would have ices may in this sense be considered purely com- to obey the principle of market economy investor. A mercial activities. surplus from such commercial activities would Public service broadcasters who have decided on have to be used to finance the public service man- a so called dual financing are allowed to engage in date.44 commercial activities as long as these activities are The proposed draft of the new Croatian Radio- performed according to the market economy Television Act did not regulate this issue, nor did it investor principle (MEIP) and the arms length prin- provide for any prior assessment or sanctions in the ciple from the public service remit.43 In general, a EU accession period. public service broadcaster ought to be financed What is more, whether the existing nine-minute- through annual contributions limited to the net advertising-per-hour-of-programme clause would be public service costs (plus a reasonable profit mar- kept or whether it should it be regularly digressive gin) as determined based on separate accounts. (to six minutes per hour after the first year of the This means transparency – a clear separation of application of the new Croatian Radio-Television accounts for public service and other usually com- Act) and eventually amount to four minutes per mercial activities, subject to ex post control. In hour, had been one of the most extensively dis- other words, if a public service broadcaster would cussed and fiercely challenged issues of that time. wish to engage in purely commercial activities, it No wonder, given the competition concerns involved, and particularly taking into account the latest State audit report in accordance to which 43 See Dias/Antoniadis (fn. 40), p. 68. HRT undercut the price of advertising whereby the 44 See Tosics/Van De Ven/Riedl (fn. 28), p. 83-84. discount on total revenue from advertising amount- EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 582
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ed to €12 million or 24.4% of the total commercial tent of the programmes, their objectives and dura- revenue.45 tion. In the light of the latest EU developments in this Under the Interim Contract, HRT is committed area, there are apparently no straightforward to broadcast four national TV programmes – two answers and optimal solutions. Strengthening of general programmes and two specialized pro- the role of public service broadcasters on one hand, grammes, none of which is a specialized sports pro- and eliminating the risks of anticompetitive effects gramme. Additionally, HRT will broadcast one on the other, by abolishing advertising and other international TV programme. It will design a num- commercial activities and replacing this source of ber of new on-line services (such as its own HRT their revenue with new fiscal measures, may not site, HRT news, HRT sports, HRT music, HRT yield favourable results.46 youth, on-line radios etc.) which will be established However, upholding both quality programmes in line with the relevant provisions of the Croatian and viewer ratings is possible, as shown by the Radio-Television Act. The public value test has been examples of Finland and the UK (in accordance to included in the text of the Interim Contract togeth- the data available on the Finnish public service er with the “black list” of programmes which cannot broadcaster website, YLE’s share of daily television be considered to fall under the public remit of HRT, viewing was 43.7% in 2009). These two examples which is in its entirety in compliance with the underline the very mission of a public service established EU practice in the public service broad- broadcaster: to deliver public value to the benefit of casting sector. However, the Interim Contract nei- the nation as a whole, and to the individuals who ther specifies the costs of any of these new services, pay for the licence fee ensuring value for money nor does it assess the sector based impact or effects and high quality, innovative programmes. on competition. It is not at all clear from the Interim Contract how new media offers will con- tribute to “editorial competition” or how assess- V. New Croatian Radio-Television Act ments on the market impact will be carried out.49 – outcome and outlook The part of the Interim Contract relating to the financing of HRT’s public remit defines the “public The new, revised Croatian Radio-Television Act service revenue”, which includes the licence fee rev- entered into force on 8 December 2010.47 The enue, commercial revenue which, under the provi- Croatian Competition Agency and the European sions of the Croatian Radio-Television Act may be Commission approved it under the aid measures considered public service revenue, financing from proposed under the interim procedure for existing the EU funds and the State budget. Net revenues aid. In other words, the new legislative framework from commercial activities shall be considered pub- satisfies the relevant criteria, particularly regarding lic service revenue. (i) the proper entrustment with the public service However, the Interim Contract seems to provide mandate, (ii) clear criteria for determining the com- more details on the content of the programmes pensation and overcompensation – separation of than on the entrustment and supervision instru- the accounts for public service and commercial activities, (iii) establishment of independent nation- 45 “Vanja Sutliç lazˇirao dobit HRT-a.” Vecˇernji list, [Zagreb, Croatia], al supervisory mechanisms, (iv) limitation of public 06 April 2010. funds to the net costs of public service discharge, 46 Here is particularly meant the Commission’s view that the and (v) the respect of market economy investor charges in France and Spain, which were introduced in order to principle (MEIP) in the public broadcaster’s com- compensate for the loss of revenue from paid advertising on pub- lic TV channels, are incompatible with EU telecoms rules. See mercial activities. the Commission press release IP/10/1211 of 30 September 2010. On 6 March 2011, HRT and the Government of 47 Croatian Radio-Television Act, OG 137/2010. the Republic of Croatia concluded an Interim 48 Interim Contract between the Croatian Radio-Television and the Contract which further regulates the commitments Government of the Republic of Croatia of 6.3.2011 available at: of HRT under the new Croatian Radio-Television
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ments, particularly on how the control of the legal- sports events which are included in the public ity of HRT operations, its financial operations, and remit. These provisions may still be arguable from most of all the control of spill-over effects of the the point of view of the existing EU practice and licence fee and commercial activities will be carried may raise concerns as to the supervision of such out. Although, under the new Croatian Radio- decisions. Television Act, the Council for Electronic Media Last but not least, advertising, which is, in accor- supervises the implementation of the public remit, dance with the new Croatian Radio-Television Act, the introduction of new services, the establishment permitted on all HRT general programmes, existing of new programmes and the use of the licence fee and planned, is regulated as follows: the advertise- and other public service revenues on the basis of ments in all HRT general programmes may not financial statements which are to be submitted by exceed 9 minutes, whereas in the prime time from HRT every six months, on the request of the 18 to 22 hours they may not exceed 4 minutes in an Council for Electronic Media, it is yet to be seen hour of broadcast. In the transition period, until 8 how the established supervision mechanisms will December 2011, HRT is allowed to broadcast 6 be implemented in practice, particularly relating to advertising minutes from 18 to 22 hours in an hour ex ante control of significant new services, but, of broadcast. This does not apply to specialized pro- most of all, relating to effective control of overcom- grammes. Broadcast of feature films may not be pensation and supervision of the public service interrupted by commercials. Potential infringe- mission at the national level. ments are under supervision of the Council for The new legislative framework provides for an Electronic Media, which is, like in the similar cases internal audit of finances regarding to separate of infringements mentioned above, entrusted with accounts and makes the Supervisory Board respon- administrative mechanisms, to control such prac- sible for the proper implementation, subject to the tices. Since the new legislative framework entered review of the Council for Electronic Media. Any into force no reports have been submitted by HRT possible recovery would mean the transfer of the and no infringements have been reported. funds concerned to a separate bank account of the Agency for Electronic Media. The level of the licence fee is controlled by the Supervisory Board, VI. Conclusion subject to prior approval of the Council for Electronic Media. The Council for Electronic Media Croatia faced a number of challenges on its way to is also responsible for supervision of competition rethinking its State aid policy. It learned that a concerns, such as the price of commercial services sound and credible State aid system consists of offered by HRT and purchase of premium sports three fundamental components: first, you must rights. In case of infringements in this area the have an appropriate legislative framework, second, Council for Electronic Media reports to the nation- you must enforce these rules and provide for possi- al competition authority – the Croatian Compe- ble sanctions and third, there must be a well- tition Authority. The Supervisory Board is respon- equipped institution in charge, whose skills ensure sible to the Croatian Parliament for the legality of delivery. These components are interrelated and the operation and financial operation of HRT in the cannot be separated. form of annual reports. In spite of the legislative framework and institu- The Interim Contract repeats the provision of tions in place, the example of the adjustment of the the new Croatian Radio-Television Act in accor- Croatian public service broadcasting to the rules dance to which “HRT is permitted to broadcast pre- applicable in the EU indicate another necessary mium sports events which are of public interest, ingredient of a well-functioning State aid regime: where the broadcasts of these events may not the one that would teach the policy makers and aid exceed 10 % of the total broadcast time in which providers to establish a well-defined aid scheme on sports is part of a varied and balanced pro- the basis of which legal State aid may be granted. gramme”.50 HRT decides on its own merit on the On the other hand, aid beneficiaries, in this partic- ular case the national public service broadcaster, must learn how to get hold of most State money in 50 Croatian Radio-Television Act, OG 137/2010, Art. 9, para. 3. the way they are entitled by law. Other stakeholders EStAL 3-2012#12 16.08.2012 22:00 Uhr Seite 584
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– regulators, public administration, judiciary and would be able to redirect the taxpayers’ money other interested parties – must be involved in the towards effective projects which promote Croatian creation of programmes of public interest and pub- cultural values, strengthen its overall competitive- lic value. ness, respect its diversity in the European context This article which particularly addresses the and encourage the creation of public value and edi- State financing of the Croatian public service broad- torial independence under the strict State aid rules caster (HRT) reflected the overall problem where in the public service broadcasting sector. State aid was underregulated and underreported. Only then it would be possible to monitor the The comparable practice of the EU Member States allocation and use of State aid and measure its which had to undergo similar processes has been of effects. It would be interesting to check if the “pub- invaluable help on the Croatia’s way to the EU. lic service revenues” have been used adequately – Once the timely and complete notification pro- financing only the specifically predefined objec- cedure becomes a matter of common behaviour, we tives, and if they achieved the desired outcomes and can speak of a responsible State aid policy that created public value.