The World: Is public service television going commercial?

European PSBs are exploring commercial avenues as tensions over their funding grow. Stewart Clarke investigates.

There's something in the air among Europe's public service broadcasters.

Confronted by fragmented markets and hostility from the commercial sector, several are looking to make an exit from the public service sector.

Italy's RAI will be partially privatised early next year. The Danish government has issued a tender for a chunk of TV2. Two Dutch PSBs are considering linking up with the Belgian commercial broadcaster VTM. In Spain, an investigation into RTVE's funding is ongoing, and Ofcom is in the final stages of its review of public service broadcasting in the UK.

"The biggest single issue between public broadcasters and commercial players is that the public broadcasters get money from advertising as well," Ross Biggam, the director-general of the Association of Commercial TV in Europe, says.

TV2 has first-hand experience of the tension created by funding from both state and advertising. It takes the lion's share of Danish TV ad revenues in a market dominated by print media. The level of state subsidies led to a complaint from the Modern Times Group and an ensuing European Union investigation ruled the cash it received exceeded the amount necessary for it to fulfil its PSB remit.

Ironically, MTG is a possible buyer, along with the likes of SBS, Bonnier and Egmont, now that part of TV2 is up for sale. However, Hans Holger Albrect, MTG's chief executive, is sceptical. "If TV2 doesn't get subsidised it is loss-making - it's a question if you can privatise it," he said recently.

The Danish government is committed to trying, in part at least; between 51 per cent and 66 per cent is for sale. The culture minister, Brian Mikkelsen, estimates saving at least DKr100 million (£9.4 million) in licence fees.

From an advertiser's perspective the new ratecard, complete with increases of up to 10 per cent, could be a sign of things to come as a more commercially focused TV2 looks to extract maximum value. That's a strategy local agencies say could backfire. TV2 has encouraged the bigger advertisers to develop more creative solutions and, in turn, longer advertisements. These are popular with viewers, who rate the best ad each month.

But these are the advertisers most affected by the new ratecard. "The larger advertisers are hit hard and feel they are getting less value for money," Jonas Hemmingsen, the chief executive of MediaCom Denmark, says.

"They are puzzled because TV2 has given them incentives to make longer commercials and invest in quality content."

In The Netherlands, the PSBs TROS and AVRO are weighing their options.

Both are examining the feasibility of leaving the public system and launching a fully commercial channel with the Belgian free-to-air outfit VTM.

AVRO's overwhelming priority is to remain a public service channel. "The public system is the first, second and third choice for us," AVRO's spokesman, Ad Everaars, says. TROS is more commercially minded but it maintains that its motivation for the feasibility study is also rooted in retaining identity and control of programming, not increasing sales. Both say they will make a decision before March.

Bart Bijvank, the spokesman for the Dutch Media Authority, says the government wants a decision before the end of 2004, given that the public broadcaster's five-year licences are up for renewal next September; that in itself makes it possible for TROS and AVRO to leave the system if they so choose.

The broadcasters already air advertising, although only one-third of their audience is in the desirable 20- to 49-year-old demographic. An alliance with VTM would mean more mouths feeding from the TV advertising pool. But local media watchers say despite the pressure on price, the incumbent commercial players, RTL-4 and SBS, might welcome the clearer lines of competition, given their rivals would not be getting state funding as well.

The Italian picture is different again. Silvio Berlusconi's government has pledged to float 20 per cent of RAI early next year. The rules on privatisation, however, mean it is likely to have little effect on the TV ad market. No one player will be allowed more than a 1 per cent stake, with pacts between the shareholders forbidden. "The situation is that 20 per cent will be offered but fragmented across so many shareholders that nothing interferes with RAI's activities," MediaCom Italy's chief executive, Alessandro Cortellazzo, says.

Similarly, the status quo looks like being maintained in Spain. The government-ordered investigation into the funding of RTVE will conclude that the system of state aid plus advertising revenue should be maintained if local reports are to be believed. Confirmation is likely around the turn of the year, by which point the broadcaster's debt will top Euro seven billion.

Some PSBs have made the switch to commercial broadcasting. In The Netherlands, Veronica left the public system back in 1995. Its entrepreneurial management initially aligned it with Holland Media Group. SBS subsequently bought the brand name and rebranded its V8 channel Veronica.

TF1 left the French public system in 1987, marking the launch of commercial TV in the country. Ironically, given its heritage, TF1 sparked a lengthy EU investigation in 1993 into the financial assistance received by the PSBs France 1 and France 2. France 2 is rumoured to be a target of the media conglomerate Lagardere, should it be made available.

THE FUTURE OF PSBs

DANMARKS RADIO, DENMARK

Funding State/advertising.

Tender issued for part of TV2, with the Danish government retaining a

share

FRANCE TELEVISIONS, FRANCE

Funding Licence fee/advertising.

Plans to privatise France Televisions are denied by the French

government

ARD/ZDF, GERMANY

Funding Licence fee/advertising.

Both ARD and ZDF have resisted recent plans to scrap advertising

RAI, ITALY

Funding Licence fee/advertising.

Part-privatisation slated for 2005

NOS, THE NETHERLANDS

Funding State/advertising.

Considering a full commercial launch

RTVE, SPAIN

Funding State/advertising.

A Spanish Government committee is examining possible reform of RTVE

BBC, UK

Funding Licence fee.

BBC Worldwide and other commercial ventures are currently under review;

licence fee reviewed in 2006

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