On 26 March 2015, the Department for Culture, Media and Sport (DCMS) published a consultation paper titled "The balance of payments between television platforms and public service broadcasters – options for deregulation" (the Paper) evaluating the existing regulatory framework governing the relationship between public service broadcasters (PSBs) and distribution platforms.

At present, an array of legislative provisions and regulatory codes impose various obligations on PSBs including the requirement to offer content to platforms free of charge. In return, all of the main TV platforms must ensure PSB content is available to all of their customers. This represents one of the key issues driving the consultation – with pay-tv revenues expected to reach £5.5 billion by 20191, should PSBs have to continue to offer their services whilst receiving no direct financial return in the form of carriage fees?

The Paper questions whether the current legislation should be reviewed in order to keep up with this changing broadcasting landscape and evolving technology in the audiovisual sector. In its consideration of what is best for the audience, the DCMS is yet to be convinced that a deregulated regime would be beneficial. The interrelated nature of the various regulations in this sector makes it difficult to deregulate in some areas whilst retaining regulation in others. This is why the industry has been asked to give evidence of how consumers, content investment and the creative sector may be affected should any reforms take place. We have considered the current regulatory framework, and the potential effects of any changes, below.

Is the existing broadcasting framework outdated?

Currently, the key regulatory provisions that set the parameters for how PSB content should be distributed are (as identified in the Paper):

  • Section 73 Copyright, Designs and Patents Act 1988 (CDPA) as substituted by the Copyright and Related Rights Regulations 2003 and the Communications Act 2003 – This provision dictates that immediate retransmission of PSB programming (transmitted within the UK) via cable is not an infringing act.
  • Must Offer/Must Carry – sections 64, 272 and 273 of the Communications Act 2003 – PSBs must offer their core channels to all major platforms and these must be carried by all Electronic Communications Networks (ECNs).
  • Technical Platform Services rules (TPS) – Operators of conditional access systems must offer technical platform access services on a cost-recovery basis with such charges being fair, reasonable and non-discriminatory (FRAND).
  • EPG prominence – section 310 of the Communications Act 2003, establishing the Ofcom EPG Code – All PSB channels must be given appropriately prominent EPG slots.

The primary reason for introducing section 73 CDPA was to ensure that quality content created by PSBs was accessible to all as TV moved from analogue to digital broadcast back in the 1980s. Other drivers for the regulatory framework included:

  • supporting the development of cable infrastructure; 
  • providing important programming (including regional news) across the country; and
  • ensuring the broadcast of high-quality programming content.

In return for the benefits of "Must Carry", funding received through licence fees (in relation to the BBC) and a prominent EPG position, PSBs "Must Offer" their programming free of charge and contribute to public service objectives enshrined by the regulators. Accordingly, they must comply with a variety of requirements under the Communications Act 2003 including meeting the 25 per cent independent production quota. So the regulatory framework aims to keep a delicate balance between PSBs and other content providers (such as HBO and Discovery). PSBs receive favourable treatment in some arenas but these benefits come with associated responsibilities. Similarly platform providers are able to broadcast PSB content free of charge but they must give up their most valuable EPG slots at no cost.

However, as TV technology has advanced, so other entities are taking advantage of some of the benefits unintentionally afforded to them under the regulations without taking on any of the responsibilities in return. Entities such as TV Catchup have broadcast PSB content online for free in reliance on the regulations. These entities have come into existence as a result of the broadcasting landscape changing dramatically over the past few decades. With the technical evolution in both methods and means of viewing, audiences are watching content in a much broader variety of ways than was initially envisaged by legislators including via the internet, Smart TVs, on-demand services and over-the-top (OTT) services such as Netflix and Amazon.

Live streaming of broadcasts over the internet has led to particular concerns as demonstrated by the TV Catchup, case which continues to roll through the courts. The case concerns an entity broadcasting PSB content (amongst other content) over the internet and attempting to rely on section 73 CDPA as a defence. The latest instalment in the litigation came in March of this year when the Court of Appeal made a second reference for an opinion to the European Court of Justice relating to the scope of the defence of section 73. The High Court in this case has already held that the section 73 defence does apply to retransmission via the internet demonstrating that recent technological advances have clearly resulted in the application of the current legislation to situations unintended by the legislators (see our note on TV Catchup here).

Recognising that the legal framework is not keeping up with technological change, the UK Government is now considering whether any changes are needed. There are many questions to contend with, including:

  • In light of the variety of ways in which consumers can now access content, is it still vital for PSB content to be found and positioned prominently on all of the major platforms?
  • Considering the popular, creative and innovative content created by PSBs, the investment that goes into making this content and the value it represents to platforms, is it fair that platforms receive this content for free?
  • Given the plethora of content available, does PSB content require the special protections afforded to the PSB broadcasters?
  • If PSBs are to be permitted to charge licence fees for such content, should they still be permitted to receive a windfall through claiming the top EPG slots?
  • Essentially, is the current regulation required to ensure fairness or would greater fairness come from deregulation and an open negotiation in a commercial arena?

Industry views

Many key figures in the television industry have spoken on these points recently; it is clear this is something which is high on the agenda of the key stakeholders.

One key change PSBs would like to see is the repeal of section 73 CDPA, which could mean that cable operators would not be able to broadcast PSB content free of charge. PSBs would then be able to charge licence fees providing them with a valuable revenue stream for further content creation. It has been estimated that the annual value of PSB content to pay-TV platforms is around £200 million2.

PSBs argue that figures like this demonstrate the large contribution PSBs make (a contribution which, they maintain, should not be provided free of charge). David Abraham, CEO of Channel 4, opined in his impassioned 2014 McTaggart Lecture that the current situation is "bizarre", and that it "undervalues the UK creative economy of which we are all part and that simply cannot be right" 3. Indeed, the initial drivers behind the introduction of section 73 no longer seem applicable – cable infrastructure is now well established and PSBs have many other routes for disseminating their content and so are not reliant on cable platforms in any event.

The Paper argues that the development of multi-channel and digital TV on satellite and increasingly on IP platforms means cable operators no longer require this differential arrangement. Furthermore,  this provision is being used to justify the non-payment of licence fees when retransmitting PSB content over the internet – something for which section 73 was never intended.

With 60 per cent of audiences watching programmes and films via the internet and on-demand services4, PSBs are keen to address the unintended consequences section 73 is now starting to have in the sphere of free broadcast of PSB content (as demonstrated by the TV Catchup case). Their proposal is to repeal section 73 in its entirety, allowing PSBs to charge a licence fee.

However, the fact that PSBs are unable to charge for their content cannot be viewed in a vacuum. The current regulatory framework provides that major platforms must carry their content. It is difficult to see how repeal of section 73 could occur without any changes to the "Must Carry" provisions as this could lead to a situation where platforms would be forced to broadcast PSB content via valuable access points whilst also having to pay for that content. Negotiations between platforms and PSBs would be highly unbalanced in such a scenario. PSBs potentially being able to charge extremely high fees safe in the knowledge that platforms would have to pay them in order to meet their regulatory obligations to broadcast such content (although this approach could potentially raise competition law issues).

And how about PSBs' favourable EPG treatment? PSBs are able to jump to the head of the queue whilst other channels must pay fees running into the millions to secure their EPG slots. David Wheeldon, Director of Policy and Public Affairs at Sky, recently refuted Channel 4's claim that its EPG position is a public good and instead highlighted the advertising revenues the channel is able to command and stated the EPG position "is a private good appropriated" 5. If PSBs were also able to charge licence fees as a result of a repeal of section 73, this argument would seem even more compelling.

From a review of just some of the issues at play, it is evident that amendment of one provision has great repercussions on others. They must all be viewed as a whole if the right balance is to be struck. So why not deregulate the market as a whole? This would avoid the difficulties around knock-on effects. However, many do not see this as a desirable option either. The current regulation in this area has allowed Britain to become a world leader in television content. Many consider PSB content to be some of the most ground breaking, original and independent content created. It competes against content created by huge, incredibly well-funded content creators from countries around the world. If PSBs were forced to operate in a purely commercial context, they would be subject to the same commercial drivers as all the other broadcasters. If content and quota requirements were removed, obligations on PSBs, such as ensuring that large amounts of content are sourced from independent providers, would be lost. Creativity could suffer as a result and consumers could become the victims.

What does this mean for TV platforms and PSBs?

It is clear from the above that there are vastly divergent views across the industry as to the best approach to regulating broadcasting. PSBs, major platforms, content providers and telcos are all amongst those affected. Whilst nothing has happened yet, change to the existing framework is likely. There are increasingly diverse scenarios in which viewers watch content and audiences are able to access more content than ever before. This poses issues for PSBs as they compete with global content creators with multi-million-pound budgets. It also poses problems for regulators as they try to keep up with technological advances and to create legislation that will be applicable to future innovations. Finally, as the UK's creative industries (including the film and television industries) represent £76.9 billionper year to the UK, the Government is keen to ensure that any regulatory changes do not damage the value of these industries to the UK economy.

With so much uncertainty about the full effect of amending the current regulatory framework, the Government has requested views in order to build a more substantive evidence base and to better understand the overall impact of regulation on investment. It has asked TV platforms and PSBs to respond to the consultation if they have views on any of the issues raised or, more importantly, evidence of the potential impact of the proposals, in particular in relation to section 73 CDPA. All responses to the consultation were required by the Government by 16 June 2015 with the Government expected to publish the consultation outcome later this year.

The full consultation document can be found here.