Impending crisis in advert funded television calls for change in

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					Impending crisis in advert funded television calls for change in European media policy
Brussels, 28 June 2001 Lennart van der Meulen Chairman Dutch media regulator

In recent years there has been explosive growth in the number of television stations in the countries of the European Union. At the beginning of 2000 there were no fewer than 580 television channels operating in the member states. This is a rise of 170 per cent over the figure for 1996. Not without satisfaction the European Commission concluded this year that the European media legislation is achieving its goal: to further the free circulation of television services in Europe.

The growth in the number of stations is mainly the result of the explosive growth in advertisers spending on television advertising. And as an extension of broadcasting, the entire audiovisual sector has flourished.

This growth has led not only to more stations but also to an increase in European programmes broadcast. Certainly not only new programmes. Broadcasters spend a lot of their broadcasting time on reruns of old material.

The growth of advertising revenues was the main force behind the flourishing of the commercial television, but at the same time commercial broadcasters had to take into account the developments which have the potential to jeopardise the continued existence of advert funded commercial broadcasting. New Internet-services, interactive television, and commercial-free pay-TV. So the period of growth has also meant a period in which broadcasters have developed new corporate strategies to maintain their position in the digital society.

In broadcasting, too, progressive concentration and horizontal and vertical interpenetration of media activities have become part of there strategies. Broadcasters, cable and satellite, production, rights and distribution; telecommunications and Internet activities are now intimately intertwined within a few large international multimedia groups. Companies which to a large extent control the availability of programme formats and rights to sports matches and events. Independent commercial television stations are becoming increasingly thin on the ground. More and more often they are played out of the market.

Despite the attacking strategy of the past few years, commercial broadcasting seems to be unable to lay down a sound economic foundation for its media activities. 2001 will be a difficult year for both radio and television. In the maelstrom of the malaise in ICT and 1

telecoms, it is now the turn of broadcasting to have a tough time of it. The chief causes of the impending crisis are a massive drop in advertising revenue, the delay in the rollout of digital broadcasting, and the stagnation that has set in in the development of revenue-earning Internet services.

The first two quarters of 2001 show a disastrous decline in media spending by advertisers. In virtually every country in Europe, stations are bracing themselves for falls in advertising budgets of eight to fifteen per cent relative to 2000. The large media groups, moreover, are cautiously estimating that it will be another three to five years before advertising income climbs back to the level of last year.

This fall is due mainly to the decline in media spending by the and telecoms sector which has been largely responsible for rising advertising volumes in recent years. But conventional advertisers, too, are marking time. Falling revenues pose a direct threat to station viability, and are forcing management to take drastic steps – particularly now that virtually all stations are owned by international, exchange-listed media enterprises which have a fair chance, in the present stock market climate, of taking a severe beating from investors the moment they warn of falling profits. Nobody is keen to go through the same traumatic experience as UPC or Versatel, which saw the value of their shares decimated in a very short space of time.

At the moment, stations have few opportunities for compensating for the decline in advertising revenue with new revenue streams. Stations are too dependent of advertising revenues and new activities are still insufficiently developed.

For example, with the collapse of the Internet bubble it looks as if new information and ecommerce services are unlikely to be viable in the short term. In fact, for the next five years all the signals on the line to commercial Internet applications are effectively set at red. That means that for the time being, broadcasting organisations are going to have to earn their keep in the old way: by radio and television. At the same time, however, they will still have to invest enormous sums in the digital revolution, particularly, and in supporting services.

So stations are eagerly searching for new sources of income and more effective exploitation of existing ones. Take good old teletext. For many stations it is commercially extremely lucrative. Many stations are now using the wider opportunities offered by teleshopping programmes, and there is a new milk cow in the shape of call centres based on television programmes. More and more programmes are being partly financed from telephone units run up by viewers. New revenues come from marketing concepts such as Starmaker, where products and services directly derived from the programme – in this case CDs and live performances – bring in considerable sums. Incidentally it is increasingly the case that it is not the 2

broadcaster who determines what is to be broadcast: instead, the broadcaster is allowed to take his place in the queue to broadcast major events at which television is a derivative and the sponsors are the ones who say what goes.

The fact is, however, that it is impossible to compensate for disappointing advertising revenue without making cuts in programme budgets. The first victim here is the broadcaster’s own programmes production. News bulletins, which are labour-intensive and expensive to produce, have more than once been the subject of debate before now, and they are again in the danger zone. But there are certain to be cuts in self-produced shows and drama too. With that, the crisis has penetrated to producers and facilitators. There are reports that the first programme productions have now been unordered and postponed, and that is something that entertainment giant Endemol hasn’t seen for years. In other words, there is a real chance that over the next few months the malaise of the Internet and telecoms industry will spread like an ink blot through the broadcasting organisations to the audiovisual production market and the facilities providers.

Instead of broadcasting own productions, stations will show more old material and repeats of popular films and series. That means they will need more space. For stations to remain viable it looks as if it will be essential to extend the number of digital frequencies which make theme channels possible, especially rerun channels aimed at specific target groups. Stretching, they call it – extending the life-cycles of programmes. Over the next few years, then, the programming of commercial stations is going to come under considerable pressure. This is worrying, given that the vast majority of the population now allow themselves to be entertained mainly by channels run by media giants like SBS and CLT. This applies to the new democracies, which depend mainly on commercial broadcasting for their information provision, but it applies equally to countries which not only have commercial broadcasting but also a strong public service broadcasting tradition. There too, large sections of the population tune in to the commercial stations to the exclusion of almost everything else. Surveys in the Netherlands – a country with highly multiform programming and a strong public broadcaster structure – show that out of a population of around thirteen million, one million people obtain all their information from commercial stations. Add in the people who only watch the public service channels for sport and major games programmes, and you can defend the conclusion that two-and-a-half million people – almost twenty per cent of the population – only watch entertainment, and that most of that is commercial programming.

It is debatable whether the European Union and its member states are sufficiently aware that the audiovisual industry is not only of great economic but also of cultural and social importance. It is remarkable how strictly Europe consistently segregates objectives in the area of culture, education and social affairs from its media incentives policy. Lip-service is paid to the importance of cultural diversity, the independence of information provision, the 3

segregation of editorial matter and commerce, consumer protection or stimulation of the European market, but ultimately the approach is still mainly technology-driven and aimed at the creation of a European media market – with all the implications for the continued existence of independent media companies at the regional or national level.

How ought the European Union to act, then, now that the broadcasting industry is in danger of being dragged into an economic crisis, now that expectations of the digital utopia are having to be adjusted, and now that a large section of the population is in danger of having to cope with further impoverishment of what broadcasters have to offer? It would not be wise to accede to the constant claim by commercial operators to limit the role of public service broadcasting and the opportunities available to public service broadcasters for generating advertising revenue. Narrowing the remit of public service broadcasting, limiting the ways in which advertising can be solicited, and banning activities other than broadcasting all continue to be core points in ACT policy as well as being the subject of complaints to the Commission.

That looks like being a simple solution, but in the light of the tremendous growth of which commercial broadcasting has proved itself capable alongside and at the expense of public service broadcasting, it is not really relevant. In all countries, public service broadcasting has given the market a clear field when it comes to both viewer reach and advertising income. In some countries, public service broadcasting brings in some of the revenue from advertising, almost always under stricter conditions as the other market players, lower maximums for advertising during an hour and a ban on programme-interrupting commercials. Just like newspapers, outdoor advertising or direct mail. From the competition angle there is nothing wrong with that (after all, commercial broadcasters don’t press for a ban on newspaper advertising), and the advertiser has the benefit of reaching those viewers too.

Countries which allow the private sector exclusive access to the advertising market also link this to regulation. The UK has detailed programming regulations for ITV and Channel Four, and Belgium insists that VTM must broadcast daily news bulletins. In this way public service tasks are placed in the market.

The development of the commercial broadcasting industry also shows that increasing advertising volume also increases profitability in the short term but offers no solutions for structural problems which endanger the market.

That is why it is very important that the Commission, following the inclusion of public service broadcasting in the Treaty of Amsterdam and the Council’s resolutions on public service broadcasting, should swiftly clarify the conditions, on a case by case basis, under which public service broadcasting can operate. In the light of the instability and unpredictability of the commercial market, it is now time for the Commission too to elect for a public service 4

broadcasting system with a clearly defined yet broad remit. Broadcasting that will set the standard for quality in the market, whether it be the quality of news, information or entertainment. Broadcasting that will be accessible to large numbers of viewers and can be paid for, to some extent, out of advertising revenues or commercial activities derived from that remit. Just as long as the conditions are the same as for the commercial sector. No price dumping, then, or cross-pollination with public funds, but transparency and market prices and rates.

Commercial broadcasting, then, will have to operate in an industry in which the public sector competes with it in the battle for viewers and listeners under clearly defined conditions.

The question is then whether the Commission and many of the member states are using the right tools to develop commercial broadcasting, both from the economic angle and from the angle of the vital importance of the industry for the provision of vital information to society. The most important and least disputed principle underlying the development of Europe has been the drive towards diversity and pluralism in an open market. In the case of the media, the diversity in question is cultural diversity. At the same time one of the most important controls in the Television without Frontiers Directive is the obligation to devote fifty per cent of air time to independent European productions. The titanic struggle between Europe and the American entertainment industry is what determines policy, not the need for programmes and services that fulfil the cultural and social needs of regions, linguistic areas or countries. This preoccupation with the European product – which is non-existent – is fatal for the servicing of local markets by commercial stations, especially in combination with the indulgent way in which the Commission has allowed successive mergers and take-overs between European media moguls with the idea that a European media market must be created as a counterweight to the large American corporations. The result is that in Europe today the broad outline of programming on most commercial stations is determined by only a handful of media multinationals. Now that independent commercial stations can be counted on the fingers of one hand, and the rest are dependent on multimedia enterprises, viewers in every country are now being fed the same fodder. The backbone of programming is still major American series and movies. They are what generate the ratings. And these packages of films and series, together with the formats for soaps, reality TV, human interest programmes, games and shows, and increasingly sport, all find their way to the viewer thanks to the long arms of such media magnates as Pearson, Kirch, Murdoch and Bertelsmann. And that is bad for cultural diversity, bad for the independence of stations, bad for the individual responsibility of stations to be able to take their own decisions about their programming. And in the end it is a disaster for the European citizen, who still wants above all to be an Italian, Belgian, Swede or Pole.


Now that the Commission announced to review the Directive next year, one important principle that should be observed when the Directive comes to be reviewed is therefore: less fear of American domination, more attention to stimulating local productions in the countries and regions of the Union.

With however much enthusiasm it is presented, it looks as if support for programming for local markets in the form of subsidy schemes is preordained to fail. Experience with earlier European subsidy programmes has been mediocre or worse – does anybody remember that we used to give European subsidies for widescreen television? – the money flow is relatively small and commercial enterprises are not exactly straining at the leash to get hold of this kind of support.

In with a better chance, it seems to me, is the latitude which the Council created in a resolution of last February for supporting national productions by member states. There the Council says that member states are free to develop a policy to support the creation of film and audiovisual products. Meanwhile more and more countries are trying incentive schemes – on a hit and miss basis – for movie production. Most of these schemes are based on using fiscal instruments to make investment in films more attractive. There is much less encouragement of this kind for audiovisual production for the commercial market. The Commission ought to pursue a much more active policy to encourage member states to develop similar fiscal instruments for areas such as drama, series and documentaries for television. It might be possible, for example, to use a public/private partnership set-up in which the government would match certain investments in audiovisual productions, or tax incentives could be introduced for audiovisual producers. Investments by private individuals could be made tax-deductible to attract venture capital.

At the same time the duty to provide local markets with local productions should be tightened up, and the European production quota reduced.

Precisely because of the importance of cultural diversity, when mergers take place between media companies the Commission should pay more attention to the implications for the diversity of programming. Today there is too great a tendency to look only at the economic power of new media corporations, whereas the rights market seems to be so much a monopoly market that it has become virtually impossible for independent commercial broadcasters, not to mention public service broadcasting, to acquire programme rights.

And then there is the debate about the rules on advertising and sponsoring. Do commercial stations have enough room to generate income from advertising and sponsoring, or would


relaxing the limits on advertising and lifting the ban on surreptitious advertising be good for a healthy commercial market?

More and more programmes are being made with sponsoring, or as coproductions with a sponsor. It is also increasingly common for the sponsor to provide ready-to-run programmes – from music specials to fully funded consumer programmes. Often, too, the broadcasting organisation serves only to record the progress of major sponsored events: sports meetings, musical performances, games programmes or lottery shows. The influence of sponsors on programmes is thus both considerable and growing, though sponsoring often accounts for no more than fifteen per cent of the funding received by a broadcasting organisation. There is a danger that broadcasters will be forced to abdicate too much of their ultimate responsibility for programme content and programming to media agencies and sponsors and that a high proportion of programming will thus degenerate into being no more than the carrier of the commercial message. This is something that should be avoided by putting safeguards in place to ensure that, in a sector which the European Union regards above all as a cultural sector, producers, programme makers, scriptwriters, actors and creatives are given the leeway to develop independent series, programmes and formats. In the case of news and arts programmes the need for keeping final editorial or artistic responsibility in-house has long been recognised, but the same freedom is also necessary for programmes that are purely for entertainment. Don’t spoil the content with irritating in script sponsoring or surreptitious but transparent product placement with curiously conspicuous logos or artificially manoeuvred bottles of beer, snacks, mobile telephones, beer mats or car kits.

Make sure, too, that major events do not turn into advertising hoardings. Athleticism, fair play, beauty, emotion and excitement may reflect on sponsors or products but you cannot appropriate them. People empathise with sporting excellence, they want to hear music, they like watching fashion shows and movies – and they will be grateful to companies for making it possible for them to do so. That is why it will continue to be important to impose strict rules on the display and naming of products and services, and on showing logos or sponsors’ names. In the spirit of the ban on surreptitious advertising the Commission might make recommendations for tightening up, clarifying and harmonising the influence and exposure of sponsors in programmes and in the reporting of major events.

At the same time the rules for the limits on advertising appear to stand in the way of effective advertising. If you want to keep sponsors at a distance, you will have to give an opportunity to make a direct appeal by advertising before and after programmes and in clearly identifiable advertising blocks during programmes. The Commission should consider the possibility of allowing commercial broadcasters to broadcast advertising messages rather more often, and more of them. Germany recently relaxed the rules on advertising limits for


non-national broadcasting. Perhaps an evaluation of that relaxation could contribute to greater insight into the effects of a more liberal advertising regime.

There is today genuine support for goals such as cultural diversity, editorial independence, quality, production independence and the segregation of commercial and programming interests – they are not merely things to which lip-service is paid – but they nevertheless play too limited a role in that part of European policy which is designed to stimulate the European audiovisual market. Certainly now that the programmes being made by the commercial broadcasters are coming under pressure from disappointing revenues, and with audiovisual producers and the facilities provision industry set to suffer the consequences, it is time for the Commission and the member states to play a more active part in preventing the impoverishment of information provision. This can be achieved within the continuing economic development of the audiovisual industry and without prejudicing the activities of strong public service broadcasting systems. In heavier economic weather it is a challenge to find a balance which will ultimately be of benefit to all the citizens of Europe, as the viewers, listeners and consumers of a diverse and varied range of interesting, exciting and well-made television and radio programmes.


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