Rugby Rights Row - What is the Cost of Free-to-Air Designation?
The recent decision of the Minister for Communications, Energy and Natural Resources to propose that Ireland's Six Nations and Heineken Cup rugby games be designated as "free to air" events, has provoked a storm of media commentary and a strong reaction from the Irish Rugby Football Union (IRFU).
Much of the debate in the media has been focused on the likely financial impact of the Minister's proposals. Supporters of the proposals argue that IRFU will not lose significant revenues, whereas the IRFU estimates that it will lose up to €12 million on an annual basis if the proposal is implemented.
The wide disparity in the figures cited by both sides is derived in part because of a difference of understanding as to the impact on licensing models that results from designating these sporting events as free to air.
There are two dimensions to the financial debate- (a) the impact on the domestic broadcasting rights market and (b) the potential impact on overseas broadcasting revenue that the IRFU generates. Ireland's Six Rugby games are currently shown free to air on RTE for the domestic market and are reported to generate revenues of €3 million per annum with an additional €8 million earned by the IRFU from showing Ireland's Six Nations games overseas and €2-3 million from the Heineken Cup games that are shown on Sky.
If the Minister proceeds as indicated, it is clear that his decision will only have a direct impact on the Irish broadcasting market. Under Part 11 of the Broadcasting Act 2009, the Minister's powers for designating events as "free to air" are limited to broadcasting that takes place in this State. On its face, the Minister's decision should not therefore impact the IRFU's ability to generate foreign broadcasting revenue, although there could be indirect consequences on overseas revenue that are considered below.
It should also be noted that Section 165 of the 2009 Act establishes a procedure for mutual recognition in the EU of events that are designated as "free to air" by Member States - this provision is designed to prevent a broadcaster in another Member State from acquiring exclusive broadcasting rights for a designated event and exercising those rights in such a way as to deprive a "substantial proportion" of the public in the Member State of the designated event from viewing it under the "free to air" regime. For example, if a French satellite operator not subject to Irish broadcasting jurisdiction acquired exclusive live broadcasting rights for the whole Six Nations Championship, it would have to ensure that a substantial proportion of viewers in Ireland had the possibility to view Irish games on a live basis. This mutual recognition procedure would not however oblige the French satellite operator to show Ireland's games on a free to air basis in any other Member State.
Supporters of the Minister's proposal have argued that the IRFU will be entitled to receive "reasonable market rates" for broadcasting the designated events in Ireland on a free to air basis. It might be thought that the €3 million currently paid by RTE for showing Ireland's Six Nations Rugby games will serve as the benchmark for determining reasonable market rates. One problem with this view is that the €3 million price tag was fixed in a market that included pay-TV operators - this presumably resulted in RTE paying more for the rights than if it only had to compete against domestic free-to-air competitors. What then is the "reasonable market rate" in a market where the number of potential market participants is limited?
The 2009 Act allows for this to be determined in two ways. First, it is open to the IRFU to award live broadcasting rights to the highest bidder in the normal way. Pay-TV operators could be invited to participate in such a competition, but if they won, under Section 164 of the 2009 Act, they would not be entitled to broadcast the event unless they also made it available to a free-to-air channel to broadcast at reasonable market rates.
It is very difficult to see why a pay-TV operator would participate in such a competition - it seems likley therefore that the competitive market rate for the events will be set by whatever is the highest bid submitted by the domestic free-to-air broadcasters. If the IRFU was not able to agree rates with its preferred free to air broadcaster, there is a mechanism under Section 170 of the 2009 Act to have an arbitrator appointed to make an assessment of what constitutes "reasonable market rates". The arbitrator's award would not be binding on the broadcaster, but it would bind the IRFU in the event that it was accepted by the broadcaster.
Ultimately therefore the decision as to what constitutes a "reasonable market rate" may fall to be decided by an arbitrator.
It remains to be seen whether the current €3 million per annum paid by RTE would be used by the arbitrator as the benchmark for assessing future revenues, or whether the analysis would exclude the effect of pay-TV participants bidding.
The IRFU's comments in relation to the potential loss of foreign broadcasting revenue have not to date been fully elaborated. However, they appear to be based on the argument that the Minister's decision will have potentially serious knock-on effects on the ability of the IRFU to maintain the current funding structures in place for the Six Nations Championship and Heineken Cup. According to media reports, Ireland enjoys a favourable financial position under the existing arrangements, i.e. it enjoys a greater share of the revenues than the domestic audience for Six Nations games would justify. The IRFU has expressed the view that these existing funding arrangements will be under threat because the other Six Nations countries will taken a very dim view of the Minister's action. Therefore, the IRFU's case is not based on the direct effects of the Minister's decision, which are limited to the Irish market, but on the indirect effects to the favourable position enjoyed by Ireland under existing funding arrangements.
Seen in this light, the IRFU and the Minister are approaching the proposal to designate Ireland's important rugby games as free to air events from two different perspectives. The Minister's analysis is based solely on the direct domestic impact of his proposals, whereas the IRFU is concerned with the difficulties his decision may place it in when negotiating overall funding arrangements for the Six Nations Championship and Heineken Cup.
