UK: Kirch Group And World Cup Broadcast Rights

Kirch Group is now selling UK broadcasting rights to the 2002 FIFA World Cup Finals which it purchased in 1996 from FIFA. Some of the UK press have already begun to paint Kirch, a German media company, as the enemy, threatening to deny every UK resident the right to watch World Cup football for free by selling the exclusive rights to Pay TV or worse still on a pay per view basis. A general election looms and it is not surprising that Culture Secretary Chris Smith has been trying to re-assure the public that current UK law ensures that World Cup matches must be shown by a free to air broadcaster. The relevant legislation has been approved by the European Commission as apparently complying with European law. It is interesting to note that the Kirch Group have simply stated that they may sell matches apart from those involving UK national teams, the final, semi-finals and opening match (the "Prime Matches"), to the highest bidding broadcaster, provided that there is no breach of the law. It seems to be accepted that the Prime Matches will always be on free to air television. Is it possible that some matches in the 2002 World Cup finals will not be shown, as has been the case in the past, exclusively by BBC and ITV?

A brief look at the rule book cuts through some of the emotive politics involved in this issue.

The UK Broadcasting Act 1996 ("the Act"), the Independent Television Commission ("ITC") Code on Sports and other Listed Events ("ITC Code") and The Television Without Frontiers Directive 97/36/EC (the "Television Directive") deal with the public's right to view events of major importance ("Listed Events"). Article 3(a) of the Television Directive provides that "Each Member State may take measures in accordance with Community law to ensure that broadcasters under its jurisdiction do not broadcast on an exclusive basis events which are regarded by that Member State as being of major importance for society in such a way as to deprive a substantial proportion of the public in that Member State of the possibility of following such events via live coverage or deferred coverage on free television." The UK alone in Europe lists every match of the World Cup Finals (i.e. 64 matches) as forming part of its own Listed Events.

The Act distinguishes between national free to air terrestial channels ("Qualifying Broadcasters" i.e. those broadcasters broadcasting to at least 95% of UK viewers on free TV, namely, ITV, Channel 4 and BBC) and everyone else ("Non Qualifying Broadcasters"). Oddly, Channel 5 is a Non Qualifying Broadcaster since it only reaches around 80% of the UK population. The legislation does not, as has been reported, prohibit Non-Qualifying Broadcasters from showing Listed Events. Such a prohibition would contravene basic European law principles in relation to competition and freedom of movement. To take an extreme example, what if the BBC and ITV were to agree that they would each offer £1 for the broadcast rights? Whilst public policy exemptions to basic European law principles are permitted, those exemptions must be reasonable.

The Act prescribes a number of rules concerning the exclusive live broadcast of Listed Events. For a broadcaster in one of the categories (Qualifying or Non-Qualifying) to show a listed event live, a broadcaster in the other category must also show that event, except where the ITC consents to an exclusive broadcast by a broadcaster. In giving consent the ITC is required to have regard to the ITC Code. The ITC Code sets out the criteria for determining when consent to a live exclusive broadcast may be given. Those criteria are based on determining whether all broadcasters have had a fair and reasonable opportunity to acquire the rights. On the face of it, if broadcasters in one category have a fair and reasonable opportunity to acquire the rights but do not do so, e.g. by not offering a fair price, then a broadcaster in the other category must be granted consent by the ITC to an exclusive live broadcast.

The granting of consent by the ITC is the subject of ongoing litigation involving TV Danmark's exclusive live broadcast of certain Danish World Cup qualifying matches. In the Court of Appeal the ITC unsuccessfully claimed that the Television Directive prevented them from allowing TV Danmark to exercise its rights to broadcast the Danish qualifying games exclusively because such consent would deprive a substantial proportion of the Danish population of the possibility of watching these games. The ITC argued that despite agreeing that TV Danmark's acquisition of the Danish games satisfied the ITC Code, the reality was that no consent could be given to any exclusive exercise of the broadcasting rights to these matches. They sought to imply an additional requirement that rights be re-offered to the previously unsuccessful Danish public service broadcasters. This argument was rejected. The Court of Appeal found that maximum coverage and the general public's right to view events of major importance must not be achieved at any cost but that other factors must be taken into account such as the need to sustain competition, the prevention of public broadcaster market dominance and the need to have regard to the binding nature of a contract. In the Court's view, the Danish public service broadcasters had had the opportunity of acquiring the relevant rights on fair and reasonable terms during the auction process and were not to be given a second bite of the cherry. Although the Court of Appeal decision supports a simple interpretation of the ITC Code, the ITC are continuing the fight. The ITC appeal to the House of Lords will be heard in the first week of July 2001 where they are likely to argue again that relevant European Law preventing television broadcasters from exercising their rights in a manner that denies a substantial proportion of the population the opportunity to view Listed Events will be breached if they grant consent to TvDanmark's exclusive live broadcast on the basis of the acquisition process. It is interesting that the ITC are arguing that their own ITC Code does not comply with European Law whilst TvDanmark are arguing that it does.

Therefore, in light of the above Court of Appeal decision and applying the law as it currently stands, if a Non-Qualifying Broadcaster such as Sky or On Digital acquires the rights to broadcast World Cup matches live, under a fair auction process, that broadcaster will need to seek consent from the ITC to broadcast exclusively. The successful broadcaster should be granted consent provided that broadcasters in the other category have had a fair and reasonable opportunity to acquire the rights on fair and reasonable terms and omitted to do so.

The position is slightly complicated in the case of domestic Listed Events by the fact that the Act makes void any contract to the extent that it purports to grant rights exclusively to any one broadcaster. (Interestingly, these sections of the Act were not notified to the European Commission for approval in accordance with the Television Directive).

The other legal issue which has been raised in the press and which applies specifically to the Kirch Group sale, is the timing of their acquisition of the broadcast rights. The UK listed events regime only applies to rights acquired after the Act came into force in October 1996. It is by no means clear that the Kirch Group's rights are subject to the Act at all. Chris Smith has reportedly said that the World Cup Finals have been listed since 1985. Although it is true that Section 182 of the Broadcasting Act 1990 (and previous legislation) dealt with the concept of Listed Events, it did so in a different way to the existing legislation. Under the previous regime a broadcaster was prohibited from showing Listed Events (including the World Cup) on a pay per view basis. Pay or subscription TV was not restricted under that regime. The relevance of previous Listed Events regime under the 1990 Act is immaterial. If the Act does not apply to Kirch Group's acquisition they may be free to sell the rights as they wish or may be free to show matches themselves.

Kirch Group fear that they will be unfairly prevented from selling their rights either by the actions of broadcasters, the ITC, the UK Government or the European Commission. Consequently, Kirch applied in February 2001 to the European Court seeking judgement that measures taken by the UK Government to implement Article 3(a) of the Television Directive (see above) are wrong and incompatible with EU law and that, consequently, the European Commission's decision approving the UK implementation measures is also wrong and should be annulled and that, in addition, the UK measures and the decision infringe fundamental principles of Community Law, the Television Directive and Kirch's right to property and/or freedom to carry on an economic activity.

Consequently, as the parties involved have started to examine the facts and the law more closely, it is becoming increasingly clear that the issue is not as simple as the football watching public might wish. In a recent debate of 26 April in the House of Commons Mr John Grogan (MP for Selby) made it clear that all of the World Cup matches should be made available free-to air in the UK. The Government dealt with the issue by stating in response that "Listing does not guarantee that any event will be broadcast live. Rights holders are not required to sell live rights and broadcasters are not obliged to purchase them or show the events. However, the legislation clearly stipulates that where live rights are made available for the World Cup, they must be made available to free-to-air broadcasters on a fair and reasonable basis." A vanilla statement of the current law compared to statements made earlier this year by Chris Smith Secretary of State for Culture Media and Sport in an open letter to Dieter Hahn (Managing Director of Kirch) which proclaimed that the Government would do all in its power to conserve "the Crown Jewels" of UK sport events and ensure that all 64 World Cup matches would be safeguarded for the entertainment and enjoyment of the British public. Now the Government is sitting on the fence and maintaining that this political hot potato should remain decidedly in the hands of the ITC as regulator.

It is interesting to note that the UK is the only country in Europe to have made the watching of football so important that every match in the World Cup is listed. Can it be true that a Match involving say, Australia and Morocco is an issue of shared national experience to all of us? On this analysis why are only the finals of Wimbledon listed? Surely the quarters should also be listed where at least someone British is likely to be playing? Why is the last day of the Premier League Season not listed?

Ultimately, at the heart of the matter lies the philosophical issue of whether the right of the armchair viewer to watch all 64 matches in the World Cup, (as opposed to just significant matches) exceeds those of the commercial rights holder and FIFA. It is well worth remembering that most of the revenue generated by the World Cup goes to FIFA (a non profit making organisation) which then re-invests it in the development of Football around the world. Shouldn't FIFA see fit to maximise its profits and sell to the highest bidder? Given that government spending on sport is minimal, it seems ironic that governing bodies should be prevented from raising revenue to develop their sports by the imposition of market distorting legislation.