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Will 'Murphy's law' hit content rights holders?

Mark Colville Principal, Consulting

A recent ECJ ruling has the potential to spark fundamental changes in the way TV rights are sold in the EU, although for the short term at least the status quo is likely to remain.

Prior to an EU Court of Justice (“ECJ”) ruling on 4 October 2011 few people were likely to have heard of Karen Murphy. However, the same could have been said about Belgian league football player Jean-Marc Bosman prior to another ECJ ruling on 15 December 1995.

The now infamous “Bosman ruling”, which determined that football clubs were no longer allowed to sell to other clubs the rights to registration of football players whose contracts had expired, was seen as a landmark legal decision. It fundamentally changed the way in which football clubs could trade players and placed enormous importance on keeping players under contract. Of course, the result has been an enormous rise in players’ salaries, to the cost of the clubs, and ultimately consumers, although some would argue that the ruling has also improved the quality of football matches through increased professionalism in the game.

In the UK, Portsmouth-based pub landlady Karen Murphy lost an initial court case brought against her by the Football Association Premier League (‘FAPL’), the body that represents the Premier League football clubs, for using a decoder from Greek satellite broadcaster Nova to show live Barclays Premier League football matches. Her appeal led to the latest ECJ ruling – now referred to as ‘Murphy’s law’ in some quarters.

More commonly, Murphy’s law refers to the notion that anything which can go wrong, will go wrong. This may be how the FAPL and the football clubs are currently feeling, as the latest ECJ ruling has the potential to have a negative impact on them again. This time, however, the outcome for consumers may be somewhat different from that of the Bosman ruling, as discussed below.

This ruling concluded that the current system of licensing broadcasters on a national basis, to show content such as FAPL football, will no longer be considered allowable under EU competition law. The case must still be heard by the High Court in the UK, but it seems unlikely that the final decision will be materially different from the ECJ’s ruling.

The ECJ ruling applies to broadcasters throughout the EU, and could have a substantial effect on rights holders such as the FAPL, which generally assign territorial licences on a national basis at present.

The issue which may cause problems for the FAPL is if the ruling affects its ability to maintain price discrimination between customers in different EU Member States. At present, the FAPL charges variable prices to broadcasters for exclusivity within a given national market. The price charged for a particular market depends both on the number of potential subscribers in that market and on the intrinsic appeal of its content to those subscribers.

For commercial premises such as pubs, the impact of price discrimination on licences acquired from national broadcasters such as BSkyB is particularly acute. As a result, there are clear incentives to look further afield for a solution. For example, charges to show premium sports content may reach GBP1000 per month for some pubs in the UK, depending on their size, whereas charges from broadcasters in other EU Member States may be as little as 10% of this. This level of price discrimination is likely to be what led Karen Murphy to use Nova’s service, and ultimately resulted in the ECJ’s ruling.

The situation for residential customers may be similar, but less pronounced. In particular, the level of price discrimination for residential services is less readily apparent, particularly in the context of content aggregation into channels and packages of channels, where there may be only a limited overlap of desirable content between different EU Member States.

One particularly interesting aspect of the ECJ’s ruling is the distinction between opening video sequences, the Premier League anthem, pre-recorded highlights and certain graphics, which are considered “works”, and the matches themselves, which are not. Under the ruling, works would be protected by copyright law but other content would not. The implication of this has not yet been clarified, but commercial premises may have to obtain permission to broadcast the “works” aspects of the programming, even if not the matches themselves.

Given the amount of money at stake (the FAPL makes over GBP1 billion per year through TV rights sales), the FAPL and host broadcasters will doubtless have been considering their next steps carefully. We envisage various options which the FAPL may choose to pursue:

  • Exploiting a potential loophole in the ruling relating to the copyright of “works”. This may involve requiring all national broadcasters to display some part of the content package, designated as works, on the screen at all times during a match, so that any commercial premises would then need the FAPL’s permission to show the content
  • Selling licences through an EU-wide tender, which would essentially allow a single broadcaster to retail content across the whole of the EU 
  • Requiring non-UK broadcasters to pay prices similar to those in the UK (although this would be likely to dissuade all other EU countries from purchasing the content) or selling to national broadcasters at a price that varied according to the number of subscribers
  • Launching an “FAPL TV” channel which could be distributed across the EU (and potentially beyond) at prices set by the FAPL (although this might reduce bundling efficiencies with other sporting content).

In its judgment, the ECJ noted that: “National legislation which prohibits the import, sale or use of foreign decoder cards is contrary to the freedom to provide services and cannot be justified either in light of the objective of protecting intellectual property rights or by the objective of encouraging the public to attend football stadiums.”

The FAPL currently sells rights to broadcast live matches at 3pm on Saturday afternoons to broadcasters outside the UK. It has always avoided selling these rights within the UK, in order to help maintain a high level of demand for tickets to watch matches in the grounds . The ruling could allow Saturday 3pm matches to be screened in the UK (using a foreign broadcaster’s service) for the first time. The FAPL may therefore consider removing these matches from future EU tenders, to ensure they cannot be shown in the UK.

The implications of the ruling could affect other content rights holders beyond the FAPL, and even non-sports rights holders. Some sports rights holders, such as the International Olympic Committee, may be more open to offering pan-European tenders, because their content holds similar value to subscribers across all Member States. However, the impact on others (such as national football leagues) may be more profound, due to arbitrage opportunities that would be created by allowing national licence holders to sell to other EU Member States. At this stage, it is unclear exactly how the ruling will affect content such as movies. A movie, for example, may contain intellectual property which a football match does not and may therefore remain protected by copyright law, at least for the time being.

In summary, the ECJ ruling has the potential to spark fundamental changes in the way TV rights are sold in the EU. However, for a variety of reasons it is too early to assume that these changes will actually happen. For the short term at least, the status quo is likely to remain, while the Murphy court case is finalised and various stakeholders decide how to respond to the decision. In particular, loopholes relating to copyright and works will probably limit the impact of the ruling in the short term, and possibly beyond.

In the longer term, however, content rights holders such as the FAPL may face more difficult choices. In the USA, major sport leagues are already launching their own connected TV offerings, and the FAPL may well consider following the same route. This would be likely to create tension between rights holders like the FAPL and broadcasters such as BSkyB, similar to those observed in the USA.

Whether rights holders choose to pursue a direct-to-market route or take a pan-European tender approach, if the current system of territorial monopolies does come to an end this is likely to fundamentally change the experience of consumers, to their ultimate benefit.

Analysys Mason works with content rights holders, pay-TV retailers and regulators across the globe, examining a wide range of issues relating to the sale of content rights.