We welcome the opportunity to make a presentation to the committee today. My name is Conor Hayes and I am the chief financial officer, CFO, of RTE. In addition to my role as CFO, I also have executive responsibility for a number of RTE's business divisions, including the publishing division which carries out all our digital media activities.
At the committee's request, we will discuss the issue of fair competition in public service broadcasting with particular reference to digital media. Joining me today is Muirne Laffan, executive director of RTE publishing. She is responsible for the strategy and operations of all our web services. Aisling McCabe is director of platform development and is responsible for production of digital content. Eleanor Bleahene is a solicitor in RTE's legal department specialising in broadcasting law and regulation.
We are conscious that in its recent presentation to the committee, the National Newspapers of Ireland, NNI, lobby group made two key assertions about RTE and its online activities which can be broadly summarised as follows. First, RTE trades unfairly by using its licence fee advantage and, as a result, acts in an anti-competitive manner. Second, RTE's alleged anti-competitive behaviour is preventing the British and Irish newspaper titles represented by NNI from being able to compete in the emerging digital environment and thus preventing them from accessing what they consider to be a fair share of the Irish online advertising market.
Accordingly, it is important to clarify at the outset that www.rte.ie is a public service, acting within RTE’s public service broadcasting remit as set out in the Broadcasting Act 2009 and in compliance with applicable EU regulations. www.rte.ie is not a commercial website, although it is funded by RTE’s commercial activity. The website acts fairly, competitively and transparently in its commercial activities. RTE is fully compliant with the requirements of sections 108 and 109 of the Broadcasting Act 2009.
Public service broadcasters throughout Europe are enormously affected by the technological developments that have led to the emergence of the Internet and the digital world. Equally, European public service broadcasters are mandated to embrace this new technology and to respond to these changes by delivering content and services on digital platforms. In this context, public service broadcasters are also required to be increasingly innovative in the development of new forms of financing to enable them to provide these digital services.
All RTE's online activities comply with its public service remit. RTE's role is not just to inform and educate but to entertain and ensure it has relevance to all sections of the population. It has long been recognised by the European Union that the schedule of a public service broadcaster needs to be varied and mixed and have a broad demographic appeal. That principle is equally relevant in an online context.
Similar to public service broadcasters, newspapers worldwide have been impacted by long-term structural change in their industry, audience fragmentation arising from the emergence of divergent services and the economic turbulence of recent years. Those challenges clearly also affect the British and Irish newspaper titles sold in Ireland.
The shift to digital advertising is an international rather than an Irish phenomenon. Advertisers are following audiences and are increasingly switching some elements of media budgets away from traditional avenues towards the emerging alternatives including online media.
The NNI, in simple terms, is seeking for RTE's commercial activities or its online activity, or both, to be curtailed to the benefit of NNI's British and Irish newspaper titles. RTE believes that any such action in itself would be unfair and anti-competitive and would be against the Irish public interest. Simply put, the commercial challenges faced by the British and Irish newspaper industry have not been caused by RTE's online activities. The services we provide online to the Irish public are services they want and anything less would significantly hinder RTE's ability to fulfil its role as a public service broadcaster.
Under RTE's public service remit, RTE must maintain a website and develop and progress its online presence in response to emerging trends. In 1996www.rte.ie was first launched. Following a re-organisation of RTE in 2002 and 2003, we have progressively sought to embrace the opportunities offered by digital technologies for the benefit of the wider public. www.rte.ie offers news, business, sport, entertainment and lifestyle in addition to services such as the RTE player, News Now and Aertel online. RTE’s online schedules fulfil one or both of the two objectives, namely, RTE’s public service commitments as set out in the Broadcasting Act 2009 and its mandate to pursue commercial opportunities.
RTE not only adapts and re-purposes television and radio content for www.rte.ie, it also creates original content for online. In doing so we have fulfilled the public service remit by delivering content to audiences, both in Ireland and internationally, when they want it and where they want it. A good example to illustrate this point is how we communicated across all digital platforms during the recent weeks of extreme weather conditions. The www.rte.ie news team produced live text updates for consumption online, on mobile, and on teletext each day from 6 a.m. until 11 p.m.
To deliver our online service, www.rte.ie employs more than 70 people, including journalists, multimedia producers, web designers and technologists who carry out three principal functions. They originate and produce new content, adapt and re-purpose television and radio material that is suitable for online purposes and distribute content to our audiences on a multiplicity of devices including desktop PCs, iPhones, laptops, mobile phones and iPads.
Section 114 of the Broadcasting Act 2009 defines RTE's public service remit in very specific terms. It was also recognised by the European Commission in its 2009 broadcasting communication which referred to, and acknowledged the need for "diversification of public service services" which goes beyond broadcasting in the traditional sense to include services such as audiovisual content and online text information services.
In addition, the Commission has recognised that public service broadcasters should be both encouraged and capable of taking advantage of developments in digital media and new distribution platforms to deliver services to their audiences. It also referred to the business models of public service broadcasters generating new sources of financing such as online advertising. In essence, European policy, which informed Ireland's broadcasting legislation in 2009, mandates that public service broadcasters must be fully active online and in the area of digital media. Consistent with European policy, RTE's remit is therefore to be fully engaged in the provision of television, radio and online schedules financed by a dual funding model that enables, and quite sensibly requires RTE to pursue commercial opportunities to limit the total public cost.
As regards codes of practice, www.rte.ie behaves responsibly in its advertising activities and operates within strict advertising codes. As well as adhering to voluntary regulation under the Advertising Standards Authority of Ireland, ASAI, www.rte.ie complies with the alcohol marketing communications monitoring body. www.rte.ie also applies more stringent rules than required by the Broadcasting Authority of Ireland, BAI, children’s commercial communications code in that it carries no advertising on children’s sites. The recent audiovisual media services directive puts advertising restrictions on www.rte.ie but not on newspaper sites.
As regards funding, the costs of www.rte.ie, both in re-purposing content for digital use and in separate content origination, are partially met by commercial activities on the website itself, such as advertising, sponsorship, affiliations and e-commerce. The remainder of the cost of providing the online service is met by the proceeds from other commercial activities in the RTE publishing division, namely, RTE Guide, Aertel and our telecoms activity, together with some support from RTE’s wider commercial activities apart from publishing.
This framework, which has been approved and supported by the European Commission, means RTE is mandated to pursue commercial opportunities to enable it to earn the necessary commercial revenue to make up the significant shortfall in television licence fee funding that exists. In this regard I should point out that the television licence fee covers approximately half the cost of RTE's public service activities and does not and could not even remotely cover the full cost of all the public service commitments which are statutorily required. Hence the critical need for and legitimate obligation on RTE to generate the remainder of its annual budget requirements from its commercial activities. To date RTE Publishing has not been financed by the TV licence fee.
As regards online market revenues, contrary to what has been suggested by National Newspapers of Ireland, NNI, RTE is neither a dominant nor the largest player in the online revenue and advertising market in Ireland. In fact, of a reported total Irish online advertising spend of €97 million in 2009, as estimated in the IAB "adspend" study of April 2010, prepared by PricewaterhouseCoopers, I understand, RTE's share was just €2.5 million or less than 3% of the market. The RTE figure is specifically disclosed in our annual report, should the committee wish to check the figures. The assertion made by NNI is therefore manifestly wrong.
As regards compliant financial reporting, RTE wishes to emphasise that it has always fully complied with the provisions of EU and national competition law in the conduct of its commercial activities. Those provisions prohibit distortions of the market by any unfair use of television licence fee revenue. The same provisions require a necessary degree of transparency in terms of its accounting, to which RTE is strongly committed.
RTE's commitment to high standards of financial reporting have been explicitly recognised externally at a professional level nationally in Ireland over a number of years. For each of the past six years since 2004, RTE's group annual report has been short-listed in the published accounts awards held under the auspices of the Institute of Chartered Accountants in the category for large unquoted companies, and in both 2008 and most recently in 2009 its group annual reports have won the relevant category award.
As for a competitive landscape, in reality the strongest competition to Irish newspapers generally or more specifically in respect of online activities are not Irish broadcasters such as RTE but rather a powerful combination of global and national forces. Worldwide Internet companies providing search, display and classified advertising have a significant presence in the Irish market, for example, Google, Facebook, Microsoft and Yahoo. Then there are the specific international digital advertising networks which have increasingly encroached into this marketplace and include companies such as TradeDoubler, ValueClick Media and AOL Advertising. A third category is the multimedia platform and content distributors such as Sky and UPC. A fourth is the Irish based Internet-only offerings which have established very strong positions, especially in the classified advertising market, for example, www.daft.ie, www.carzone.ie, www.property.ie, www.myhome.ie, which is owned by The Irish Times, and www.irishjobs.ie, which is part of Saongroup owned by Denis O’Brien. In this regard RTE shares similar challenges to the newspaper titles. For its part, in response to these challenges and opportunities RTE has responded by seeking to diversify its commercial revenue streams with a view to ensuring we are in the best position to deliver a high quality service on all our platforms, including our online platform.
It is important to put an appropriate and broader industry context on this subject. Based on published information, the combined global turnover of the top 15 traditional media organisations – as ranked by turnover - selling or distributing advertising and content services into the Irish market in 2009 amounted to €43 billion. The committee has a copy of this listing. The large scale and international influence and reach of some of these organisations is perhaps well reflected in the fact that the global combined turnover of the top five amounted to €40 billion in 2009 whereas the gross national product of the Irish economy that year was €131 billion. In reducing order of size, the five largest global traditional media players with a combined global turnover in 2009 of €40 billion and with a presence in selling and distributing advertising content services in the Irish market were News Corporation - USA, Liberty Global - USA, British SKY Broadcasting Group - UK, Daily Mail and General Trust – UK, and Independent News and Media -Ireland. It is worthy of note that newspaper titles owned by three of these top five companies are represented by the NNI lobby group. This includes Independent News and Media, which is the only Irish entity in the top five grouping and which in 2009 had a turnover of €1.3 billion or more than three times that of RTE.
Out of the top 15 traditional media companies listed, the combined global turnover in 2009 of those companies which own British or Irish newspaper titles and are represented by NNI amounts to around €27 billion. It should be noted that many of these multinational companies do not specifically disclose the totality of their substantial turnovers and financial scale in the Irish media market.
By contrast, the entire turnover of the RTE group for 2009 was €375 million, placing RTE in ninth position in terms of size by turnover. Of particular relevance, RTE's online turnover in 2009 was just €2.5 million. Constraining RTE's online activities clearly will not solve the financial problems that may be faced by the shareholders of the global, national and traditional media groups that own the various British and Irish newspaper titles represented by NNI. Rather, such a measure merely serves to deflect attention away from the turbulent macroeconomic climate in which we all live and from the specific management actions and challenges with which individual newspapers must deal. It would certainly deprive the Irish public of vital news, information and other public service content and schedules currently provided by www.rte.ie.
Within the limits of its resources, RTE for its part, has prudently sought to be cost effective, innovative, proactive, fast moving and dynamic in response to the technological challenges and opportunities brought about by a rapidly changing and increasingly fragmented media landscape. RTE pursues commercial activities online in a fair and transparent manner that complies with all relevant codes and practices. The website www.rte.ie does not use television licence fee money. It is essential for RTE to drive revenue from other sources and to act commercially in order that it can fulfil its public service remit. The Irish online advertising market is tough, competitive and heavily populated with very strong global competitors. “New” media are no longer “new” and are here to stay; the clock simply cannot be turned back.
I have attached a schedule to my submission. I do not propose to refer to it but it is available to members if they wish to study it.