Television Drama Over Advertising Deals
29 February 2012
This article featured in our Competition Newsletter February 2012, which you can view in full here.
In March 2009, TV3, a private television broadcaster in Ireland, complained to the Irish Competition Authority (the “Authority”) that RTÉ, the State-owned television and radio broadcaster in Ireland, was engaging in anticompetitive behaviour. The complaint related to RTÉ’s “share deal” agreement, a scheme under which discounts granted to individual advertisers depended upon, among other factors, the percentage of each advertiser’s total television advertising budget committed to RTÉ. Ultimately, the Authority did not reach a conclusion on the competition law implications, as RTÉ offered undertakings which sufficiently addressed the Authority’s concerns.
The majority of television advertising in Ireland is sold through advertising agencies. RTÉ negotiates specific terms for each individual advertiser, both with advertising agencies, and also directly with advertisers. The Authority’s investigation found that the higher the share of total television advertising budget that an advertiser committed to RTÉ, the larger the discount RTÉ would apply to that advertiser. Typically, RTÉ required an advertiser to commit approximately 65 per cent of the advertiser’s total advertising revenue to it in order to obtain a discount.
Section 5 of the Irish Competition Act 2002 and Article 102 of the Treaty on the Functioning of the European Union prohibit the abuse by one or more undertakings of a dominant position. Following TV3’s complaint, the Authority initiated an investigation focusing, amongst other things, on whether RTÉ’s share deal could amount to a conditional rebate likely to have loyalty-inducing effects in breach of the competition rules.
In relation to dominance, the Authority stated that RTÉ was capable, to an appreciable extent, of acting independently of its competitors and that it had a substantial share of the relevant market. RTÉ enjoys an “unavoidable trading partner” status in the Authority’s view and this, together with a lack of countervailing buyer power and additional funding from licence fee revenues, could create barriers to entry and expansion.
The Share Deal
The Authority considered that RTÉ’s share deal was likely to create loyalty-inducing effects, as the discounts available were conditional on committing a certain share of an advertiser’s total advertising budget with RTÉ. Such rebates, in the Authority’s view, could be capable of foreclosing the market.
RTÉ submitted that the share deal was required to sell advertising in an efficient manner, that volume discounts were not appropriate, and that the annual reference period of one year ensured efficient negotiations for all parties. However, in the Authority’s view, RTÉ failed to provide sufficient evidence that the share deal was objectively necessary or produced substantial efficiencies.
RTÉ also suggested that there had been significant new entry and expansion in the past ten years, including new domestic and foreign channels. In addition, RTÉ’s competitors are entitled to sell twice as much advertising minutage as RTÉ. RTÉ also argued that it is significantly constrained by its public service remit which impacts on the types of programmes it produces and which may be commercially less attractive.
In August 2011, RTÉ submitted a proposal to abolish the current share deal from 1 July 2012 onwards. On 17 January 2012, the Authority published its decision together with RTÉ’s agreed undertakings which it considers to address the preliminary competition concerns identified by the Authority during its investigation.
Under RTÉ’s new trading scheme, discounts to advertisers will no longer depend on the share of the advertiser’s total television budget committed to RTÉ. In addition, the Authority undertook to close its investigation and indicated that it will not institute any proceedings against RTÉ in relation to the share deal scheme, so long as RTÉ remains in compliance with its undertakings.
The Authority is empowered to investigate breaches of competition law and to initiate civil proceedings. Only the Irish courts can decide upon findings of fact and impose sanctions. Where legal proceedings are not initiated, it is normally because the Authority has reached a view that there is no breach of competition law, or because the parties involved take action and/or give undertakings to address the Authority’s concerns.
Notwithstanding the much-publicised resource constraints within the Authority, the case demonstrates that the Authority is willing to investigate potential abuses of dominance.
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The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York. © Copyright Mason Hayes & Curran 2012. All rights reserved.