EU blesses (once again) the public broadcasting financing «à la française»

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The adequacy of ex post control mechanisms remains a crucial matter in the assessment of the compatibility of public broadcasting financing systems under EU State aid rules. This is an open issue in all Member States where the risk of cross-subsidisation is inherent in the lack of effective transparency in the calculation and accounting of public service costs.

A recent example of the ongoing debate concerns the French public broadcasting financing system at the centre of the judgment delivered by the General Court of the European Union in case TF1, M6 and Canal+ v. Commission (T-520/09). In that case, the Court upheld the European Commission decision C 27/09 of 1 September 2009 which authorized under EU State aid rules – namely Article 106(2) TFEU – the budgetary grant to be issued by France in favour of France Télévision (FT), the French public service broadcaster.

The State aid measure under review consisted of a permanent, multiannual public financing to be granted as from 2009 to FT in the frame of the reform which, in view of increasing FT’s freedom of programming, foresaw the progressive reduction of advertising and related commercial revenues on the public service channels.

Provisional “net public service costs” as parameter to set the amount of the forthcoming grant

By the challenged decision the European Commission found that the measure at stake was proportionate and did not entail any overcompensation of the public service mission’s costs since the exact amount of the budgetary grant would have been fixed each year in the French finance law in relation to the forecasted net costs of the public service mission (i.e. the costs reduced by the remaining net commercial revenues).

In this respect the Commission noted that – according to the information provided by the French authorities – the total indicative public resources remained related to, although lower than, the amounts of the gross costs of supplying the service as forecasted in the business plan for the 2010-2012 period. In view of the relative predictability of the gross costs, which are less volatile than the commercial revenues used to establish the net costs, the indicative figures of the business plan confirmed a priori the assertion of the French authorities concerning the decisive nature of the criterion of the net public service costs to set the annual amount of the forthcoming grant. Consequently, the method of calculating the annual subsidy in relation to the net cost of the public service mission was considered proportionate within the meaning of the Commission Public Service Broadcasting Communication.

EU principles on proportionality and separation of accounts

Under the Commission Broadcasting Communication, EU Member States shall provide appropriate control mechanisms in view of preventing overcompensation of public services and scrutinising the level and the use of the “public service reserves”. In order to be effective the controls should be “carried out by an external body independent from the public service broadcaster at regular intervals, preferably on a yearly basis”.

In the fulfilment of the proportionality and transparency principles, EU Member States  should ensure the separation of accounts between public service and non-public service activities, providing that internal accounts corresponding to different activities are separated and all related revenues and costs are correctly assigned.

The Commission Broadcasting Communication recognises that separation of accounts poses no particular problems on the revenue side (on which broadcasting operators should give detailed account of the sources and amount of all income accruing from the performance of public and non-public service activities). On the other hand, problems may arise on the cost side since – where the public service broadcaster carries out also commercial activities – only the costs associated with the public service may be taken into consideration when a public financing scheme comes into question.

Competitors’ concerns on ex post control mechanisms in the lack of effective transparency

In the TF1, M6 and Canal+ v. Commission case, based on the principles laid down by the Commission Broadcasting Communication M6 and TF1 tried to argue that the lack of appropriate cost accounting tools would have led structurally to overcompensation of FT’s public mission costs (and cross-subsidisation of its commercial activities) since the grant would have been based on non-objective and poorly managed cost elements.

As in previous cases [1], FT competitors’ arguments were dismissed both by the European Commission and the General Court which confirmed the admissibility of the French public broadcasting financing pursuant to Article 106 (2) TFEU.

In rejecting the competitors’ concerns, in the upheld decision the Commission brought forward a formal argument concerning the examination of (i) the existence of an economic advantage for FT, as opposed to (ii) the compatibility of the compensation of its public service costs. In this respect the Commission noted that “the examination of the compatibility of the compensation with the internal market, contrary to that relating to the existence of an economic advantage for FT, is not based on the costs that a typical, well-run undertaking in the sector could incur to perform the service of general interest, but on those which FT will in fact incur, including therefore the reduction in commercial revenues forecasted for the future; as shown above, the total amount of public resources to be paid to FT will be lower a priori than the costs incurred to provide the public service and will be fixed so as to avoid overcompensation, once the net commercial revenues have been deducted”.

This position remains debatable: in fact public compensation of poorly managed costs can be considered as distorting competition to an extent that is contrary to the interests of the Union (in breach of Article 106 (2) TFEU), since it ultimately charges the commercial broadcasters with the economic burden stemming from the inefficient fulfilment of the public service mission.


[1] See Commission decisions of:  10 December 2003¸ relating to the investment grants received by France 2 and France 3 and the capital injections received by France 2 between 1988 and 1994; 20 April 2005 concerning the licence fee scheme benefiting FT (on which see also case T 354/05); 16 July 2008 relating to the proposed grant of a capital funding of EUR 150 million to FT; 1 September 2009 relating to the budgetary grant of EUR 450 million for 2009 in favour of FT.

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