C 137/16EN Official Journal of the European Union 4.6.2008 STATE AID — UNITED KINGDOM State aid C 13/08 (ex N 589/07) — Aid to Channel 4 linked to digital switchover Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance) (2008/C 137/10) By means of the letter dated 2 April 2008 reproduced in the authentic language on the pages following this summary, the Commission notified the United Kingdom of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty concerning the proposed financial support to Channel 4 to enable it to meet the costs of digital switchover. Interested parties may submit their comments on the measure in respect of which the Commission is initi- ating the procedure within one month of the date of publication of this summary and the following letter, to: European Commission Directorate-General for Competition State Aid Registry SPA 3 6/5 B-1049 Brussels Fax (32-2) 296 12 42 These comments will be communicated to the United Kingdom. Confidential treatment of the identity of the interested party submitting the comments may be requested in writing, stating the reasons for the request. TEXT OF SUMMARY The UK authorities accept that the notified measure constitutes an aid within the meaning of Article 87(1) of the Treaty. They argue however that the measure is compatible with the Treaty by virtue of Article 86(2), having regard to the Commission's 1 PROCEDURE Communication ( ) on the application of the State aid rules in relation to public service broadcasting (‘the Communication’) and the three particular criteria according to which the compati- The measures on which the Commission has opened the proce- bility of aid of this nature falls to be judged, namely, definition, dure laid down in Article 88(2) was brought to the Commis- entrustment and proportionality. sion's attention initially by a complainant and later on by means of a formal notification by the United Kingdom authorities. The complainant contest the need for financial support for Channel 4. It argues that Channel 4 has significant financial reserves and ample cash to pay for the costs of digital switch- DESCRIPTION OF THE MEASURE over. According to the complainant, although Channel 4 may in the future face a lower profitability, still its ability to deliver its public service remit will not be affected thereby, and therefore The notified measure deals with the notified aid by the UK the aid is not necessary. authorities to provide GBP 14 million to Channel 4 to help it meet the capital costs of digital switchover. Channel 4 is a broadcaster incorporated as a public corporation with no shareholders and entrusted with a public service remit. It is the core channel of Channel 4 Corporation (C4C) and is Assessment of the measure run on a commercial basis only (advertisement revenues being the main source of income). In 2006, the Commission received a complaint by a UK commercial broadcaster which objected to any kind of possible financial assistance towards Channel 4 on According to the broadcasting communication, in the case of the grounds that C4C has ample and sufficient cash reserves to State support for public broadcasters, in order to determine meet the costs of digital switchover without a need for public whether there is overcompensation the Commission would need support. first to determine the gross costs of the public service remit, deduct the benefit of the commercial exploitation of the public service (e.g. advertising) so as to obtain the net public service The decision of the UK authorities to grant aid to Channel 4 cost. Moreover, the Commission has to ascertain that the broad- follows an in-depth financial review of Channel 4 by Ofcom in caster in question does not engage in unnecessary distortions of 2007 and an expert report carried out for Ofcom by a consul- tancy (LEK). (1) OJ C 320, 15.11.2001, p. 5. 4.6.2008 EN Official Journal of the European Union C 137/17 competition with regard to the commercial activities which are — Channel 4, although financed by advertising, has an linked to the public service. If there is a net cost, then the said embedded specific public service remit to be distinctive broadcaster should be entitled to obtain State aid. and to experiment, innovate, educate and reach cultu- rally diverse audiences freed from some of the restric- The information provided so far by the UK does not enable the tions on other commercial broadcasters, notably share- Commission to assess whether or not given its digital switch- holder returns and some programming quotas, over obligations, C4 will have in the short term any net public — commercial PSB broadcasters — ITV, Five and Teletext service cost which would allow it to receive State aid. — also have specific programming obligations. The public service provision from the commercial players is delivered in return for privileged access to scarce TEXT OF LETTER analogue spectrum and the right to broadcast (3). ‘(1) The Commission wishes to inform the United Kingdom (7) In February 2005, Ofcom published the final report and that, having examined the information supplied by your conclusions of its statutory Review of Public Service authorities on the aid referred to above, it has decided to Broadcasting (PSB) (4). Previous phases of the Review initiate the procedure laid down in Article 88(2) of the underlined why the framework for delivering PSB would EC Treaty. need to change. In those phases, Ofcom highlighted amongst other that the existing terrestrial analogue model of commercially-funded PSB will not survive the transition I. PROCEDURE to digital and may erode rapidly prior to 2012. (2) On 2 August 2006, the Commission received a complaint (8) Phase 3 of the PSB Review committed Ofcom to conduct a (CP 186/06) by a UK-based television broadcaster against a more detailed review of Channel 4's financial position in possible funding support that the UK authorities were 2006/07. The PSB Review identified that changes in the about to grant to Channel 4 to help it meet the costs of market are threatening the established PSB system, in the the digital switchover. sense that the move from analogue to digital, and conse- quently multichannel, television may mean it is no longer (3) On 10 October 2007, the UK authorities notified to the realistic to expect commercial broadcasters to deliver Commission their decision to grant an aid of significant PSB obligations due to their fragmenting audi- GBP 14 million to Channel 4 to assist it to meet the ence base. In particular, a key issue of the review capital costs of digital switchover. In the notification the concerned the future viability of and operating model for UK authorities acknowledged that the notified measure Channel 4. constitutes an aid within the meaning of Article 87(1), and invited the Commission “to find that this aid is compatible with the EC Treaty by virtue of Article 86(2) EC, having Channel 4 regard (in particular) to the Commission's Communica- (9) C4 Television Corporation (C4C) is an operator providing tion (2) on the application of the State aid rules in relation public service broadcasting whose principal function is to to public service broadcasting (“the Communication”)”. provide the public service television channel called “Channel 4”. It is incorporated as a not for profit public (4) On 23 November 2007, the Commission asked the UK corporation but run on a commercial basis. C4C receives authorities to provide further information and to clarify a no direct financial support from the State and all of its number of aspects of the notification. On 22 January income is derived from its channels, such as by the sale of 2008, the UK authorities submitted their reply. advertising and the commercial sponsorship of programmes, and from other commercial activities connected with its channels, such as the sale of books and II. DESCRIPTION DVDs. Background: Digital Switchover and Public Service Broadcasting (10) Channels 4's public service programming remit is defined in the UK: A Brief Overview in Section 265(3) of the Communications Act 2003: (5) The system of Public Service Broadcasting (“PSB”) in UK “The public service remit for Channel 4 is the provision of television has evolved over the course of more than a broad range of high quality and diverse programming 70 years and competition was introduced gradually into which, in particular: the system: Independent television (ITV) was launched in (a) demonstrates innovation, experiment and creativity in 1955, BBC Two went on air in 1964, Channel 4 came the form and content of programmes; into being in 1982, and Channel 5 (later Five) was launched in 1997. (b) appeals to the tastes and interests of a culturally diverse society; (6) Three appear to be the major sources of PSB in the UK: (3) Ofcom makes reference to a fourth source of PSB, the broadcasting — the BBC has historically been at the heart of the PSB market at large which includes all other commercial broadcasters system, with wide-ranging public service obligations. which while not explicitly entrusted with a PSB remit and have received The corporation is exempt from commercial pressures, no funding or privileged access to spectrum, nonetheless produce content that meets the PSB purposes although the supply its not guar- due to its licence fee funding, and as such has been anteed, see “Digital PSB, Public Service Broadcasting post Digital able to maintain a broad portfolio of public service Switchover”, Ofcom Issue Paper, 27 July 2007, p. 6. activities across television, radio and, more recently, (4) Section 264 of the Communications Act 2003 required Ofcom to new media, report on the effectiveness of the existing television public service broadcasters — BBC, ITV, Channel 4, S4C, Five and Teletext — in the delivery of their PSB obligations; and to make recommendations for (2) OJ C 320, 15.11.2001, p.