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Ofcom and the Pub Landlord: Have Sky and (FAPL) Won?

View profile for Stephen Hornsby
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Only this month, Ofcom suffered what looks to have been a total wipe-out in front of the Competition Appeal Tribunal in its attempt to regulate the wholesale prices that Sky charges to the likes of BT and Virgin.  The judgment in Sky’s favour has yet to be published as the many parties are arguing about alleged breaches of confidentiality.  However, it appears clear enough that Ofcom lost on the facts.  This will make it very difficult for the regulator to mount a successful appal.  Sky therefore looks to have seen off this particular threat to its business model.  Where that puts Ofcom’s five years of effort is another matter altogether.

In another important development, FAPL have decided to implement a radical plan to limit the number of matches shown live by European broadcasters that are played on Saturdays to just one per weekend.  It will be recalled that earlier this year, Karen Murphy appeared to have defeated FAPL’s attempt to restrict the sale of decoders which enables reception and broadcast of matches that are played and broadcast in some EU countries outside the UK.  There was something of a wrinkle in this defeat for FAPL in that where copyright material was actually used (such as the anthem) pubs such as Karen Murphy’s would not be able to broadcast matches to their customers containing such material without permission.  Nevertheless the outcome was generally perceived as a potential threat to FAPL’s critical UK broadcast revenues from Sky.

However there was always a radical difficulty with this victory for the “little man”.  The difficulty arises from the fact that the way EU Law operates effectively encourages the reduction in sales outside the national territory provided it is the unilateral decision of the seller.

This outcome is counter-intuitive; one would suppose that the EU would wish to do anything to encourage sales.  Unfortunately, EU law is something of an ass; in fields other than sport and broadcasting this has been fairly well known for a very long time indeed.  The EU has always taken a hostile view to banning of exports, re-exports, imports or re-imports within the EU.  The contractual ban on decoders therefore fell easily within the general prohibition of such bans.

Sellers have tried to have their cake (high home country prices) and eat it by penalising foreign distributors who sell outside their territories and undercut high margins in the home market.  Such attempts have been made particularly in the pharmaceutical industry.  In a number of cases, the EU has successfully prohibited contractual limitations of sales of pharmaceuticals designed to prevent them being re-exported into higher price countries; but this has been where distribution agreements actually contained export penalties or disincentives as opposed to unilateral limitations of sales.  As far as matches outside the UK are concerned, FAPL’s plan to reduce broadcasts is clearly a unilateral act; as such, can’t be stopped by law.

The net outcome of this situation is that so long as the FAPL is prepared to accept lower revenues from its foreign broadcast partners, there is very little to stop the pub landlady effectively being cut off at the pass and having far fewer programmes to broadcast in the future.  This also means that EU law makes foreign consumers worse off because they get fewer matches to watch.

The question arises of whether it would have been better to allow the decoder ban and thus enable consumers outside the UK to have the benefit of more broadcasts and FAPL greater revenues?  Or is it better to have the current situation whereby fewer matches are broadcast in a manner which can’t be prevented by law?

It is well arguable that making the ban on exporting decoders illegal, the ECJ triggered a reaction that has penalised two constituencies for no ultimate gain.  The case thus illustrates the fundamental dilemma of free market rules namely that no-one can be forced to sell outside their territory if they do not wish to do so.

For the pub landlady, such as Karen Murphy, there has to be some way of making pubs more attractive.  Bringing in the punter to watch the footy on the cheap now no longer looks like a winning strategy.  Something will have to be done about alcohol pricing in supermarkets and English pubs’ inability to compete.  This is the nub of the problem; free trade in decoders to facilitate broadcasting from Greece was never the solution.

As for Ofcom, it is difficult to see a way forward.  Content may be king and a driver of new technologies but the Olympics have reminded us that listing legislation reserves a healthy chunk of prime content to terrestrial broadcasters.  Perhaps it is now time to accept that a separate economic Pay TV market may not exist and move on to other matters.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.