Virgin Media’s Ofcom complaint – payback time for the long suffering fans?

Stephen Hornsby’s article originally appeared in World Sports Law Report Volume 12, Issue 12, December 2014. To access the original, please visit: http://e-comlaw.com/world-sports-law-report/article_template.asp?ID=1729

Virgin Media’s Complaint to Ofcom

As noticed briefly in last months issue, Virgin Media has complained to Ofcom that the English Premier League (“EPL”) practice of restricting the number of games available for live broadcast under its deal has the object or effect of restricting competition under Chapter I of the Competition Act 1998 and/or Article 101(1) of the Treaty on the Functioning of the European Union. It does not appear from the Press Release that Virgin Media is attacking EPL’s collective selling of broadcasting rights as such. This will be a relief to the clubs.

On the contrary, it appears that Virgin Media accepts collective selling but is arguing that the current arrangements specifically and uniquely approved by the European Commission on 2006 (after an exhaustive investigation carried out with Ofcom support) inflate rights fees beyond levels prevailing in other European countries as a direct result of collectively restricting the supply of live rights. This would be consistent with the approach adopted by the regulators themselves who have used the restriction on the individual clubs’ right to broadcast matches as a point of departure for imposing conditions on collective TV deals that result from the arrangement.

The issue for Ofcom will be whether a classic restriction on output in a system of collective selling might be justified as being in the consumers’ interest. Ofcom acknowledges in its Press Release that the practice of restricting the numbers of live matches broadcast is important to supporters and makes clear that their views will be taken into account in any final decision. In this connection it will be interesting to look at what happened last time.

The European Commission’s 2006 Decision: An English “Opt Out”

Between 2001-2006, EPL’s arrangements were investigated by the European Commission with considerable input from Ofcom. As a result of the investigation, the number of matches televised live was increased but matches could not be broadcast live at certain times on Saturday (the “UEFA window”). The window (which is a key justification for restricting live broadcasts for EPL) had been widened by the Commission’s clearance of the UEFA Broadcast Regulations in a decision in 2001 with the effect that it falls between 2.45 and 5.15 on a Saturday afternoon (see OJL 171/12 2001).

The key paragraph of the Commission’s EPL decision is paragraph 37 where it describes its regulatory objective as one of “ensuring that the arrangements do not restrict output or result in competitors being foreclosed to the detriment of consumers”. Clearly, fewer live rights mean that competitors such as Virgin now are “foreclosed” or have less opportunities to acquire rights. But against that, the needs of consumers have to be taken into account with a view to seeing whether restrictions are justified.

When this exercise was carried out by Ofcom some interesting conclusions were reached. (see Premier League Football: Research into viewing trends, attendance, fans preferences and behaviour and the commercial market – analysis advising the Commission of the EC October 2005). The first interesting conclusion was that 84% of the fans said that they would not attend fewer matches if all were televised. This finding that would be broadly supported in any straw pole taken in workplaces throughout the land completely blows out of the water the traditional EPL justification for the restriction on live broadcasts – namely that it is to protect live audiences. No major league in Europe avails itself of the freedom provided by UEFA to restrict transmission of live matches. Indeed, the Bundesliga has never had such a restriction on the number of live matches and has an even higher stadium utilisation than the EPL. Clearly the EPL’s apprehension of a detriment to ticket revenues is not widely shared and will be difficult to justify.

So from this perspective, the Commission’s decision to authorise the restriction looked wrong in 2006. It looks even more wrong now since the European Court of Justice in the famous Karen Murphy case rejected the need to protect live audiences as a justification for export bans on decoders which would enable more matches to be watched live in the UK which were broadcast originally in other jurisdictions. (see Premier League – v – QC leisure & Karen Murphy C-403/08 & C-429/08 [2012] C.M.L.R 29) If the “UEFA window” is no longer a credible justification for a restriction on the number of live matches broadcast what is?

The need to protect live audiences numbers actually did not form the basis of the EC Commission’s approval. What did form the basis of a decision that uniquely authorised a system of joint selling involving a restriction of output that in other industries would certainly have attracted huge financial penalties (as well as the break up of the joint selling arrangement) was that a majority of 2:1 of those surveyed felt that the amount of matches televised live was about right. Only 27% expressed a negative view on the restriction of the broadcast of live matches currently about 41% of the total. In effect, in 2006 with Ofcom’s support, the European Commission said to the EPL “You can foreclose competitors restrict output (and perhaps raise the average price of each televised match) because your customers are happy”. For a regulator often criticised for dogmatism this is quite a remarkably pragmatic conclusion. Bearing in mind the absence of such a restriction elsewhere, it looks almost like an English EU “op out”.

In the event of course consumer satisfaction wasn’t the dominant feature of the Commission’s EPL decision because the major part of it was to divide the rights into packages so no single buyer could monopolise them. This required fans to pay another subscription to the extra winners. It is very significant that the Ofcom survey showed that consumers did not want this outcome at all. However, fans were compelled to accept it; had they been asked to chose between more live matches and the need to buy extra subscriptions they might well have accepted more live matches.

Will the 2006 opt out come to an end?

So what is likely to happen now bearing in mind that the next EPL auction is almost upon us? Before looking at this question some preliminary point are worth making. Firstly all the regulatory investigations on this vexed issue have taken a very long time. Almost everyone other than the parties will have lost track of Ofcom’s attempt to force Sky to license rights to British Telecom – an issue that is currently wending its way through the Courts.

Secondly, Ofcom is free to take a decision on the matter. It has jurisdiction to do so as the European Commission’s decision no longer has any legal effect having run out in 2013. Thirdly, EU law does not look very relevant bearing in mind the lack of EU wide impact of the practice of restricting output of live matches. This means that the Competition Act 1998 will apply. In applying this legislation, Ofcom cannot ignore the Commission’s 2006 decision entirely and focus for example on US decisions such as the US College football case where restrictions on live matches were prohibited by the Supreme Court in 1984 (see National Collegiate Athletic Association v Board of Regions of University of Oklahoma.  Supreme Court of Unites States 468 U.S, 85, 104S.Ct 2948, 82LEd.2d 70).

It follows that if EPL clubs want to continue with a version of the status quo for whatever reason they will need the support of hard pressed fans. Clubs can rely on some of the justifications used in the US College football case which were accepted by the dissenting minority (these were based upon the need to build a “brand” and the “sporting exception”). However the justifications cut no ice with the majority in the Supreme Court.

Whether the support of fans will be forthcoming this time round is far from clear. Supporters, particularly those of “challenger clubs” gouged by ticket price hikes in response to Financial Fair Play regulations may be attracted by any measure which will give them an alternative to a season ticket or a ticket purchase for a match. Fans of lesser clubs whose matches sometimes tend to be televised live less often might take the same view. Interestingly this was a factor relied on by opponents of US College football restrictions on live matches.

All fans might consider that an all live option next time round might lead to more matches moving back to Saturday afternoons and away from less convenient times to which they have increasingly migrated to enable more matches to be televised live pursuant to the deal done with the EC Commission in 2006. For all these disgruntled individuals and groups the forthcoming Ofcom consultation could be pay back time. Alternatively, in supporting the status quo fans could set their face against the need to obtain yet another subscription (this time to cable) should Virgin get some of the extra live rights next time round.

Of course not all fans will speak with one voice and fans are TV viewers as well. If the past is any guide the stage could therefore be set for a lengthy investigation with the next auction going ahead on a current basis.

It is interesting to note that when more live matches were broadcast in US college football rights fees declined for a while only to pick up vigorously a bit later. It will therefore be fascinating to discover what view EPL takes on the likely direction of future rights fees if the more liberal Bundesliga model is to be adopted. Any pessimism on the part of the clubs on this point will mean strong legal resistance and much lobbying.