On 3 September 2020, the European Court of Justice (“ECJ”) issued its judgment in Vivendi SA v Autorità per le Garanzie nelle Comunicazioni (case C-719/18), ruling that the application by the Italian Government of national media plurality laws in relation to Vivendi’s acquisition of a minority equity interest in Mediaset was illegal and in breach of fundamental EU Treaty principles. The judgment is noteworthy in stressing that media plurality rules must be applied on a proportionate basis i.e. taking into account the structure, dynamism and innovation that characterise media markets.
The judgment responded to a preliminary ruling requested by the Regional Administrative Court of Lazio following AGCOM’s 2017 decision that forced Vivendi to sell an approximate 2/3 of its Mediaset stake, acquired in 2016. This was on the basis of Vivendi’s infringement of Article 43 TUSMAR, which prohibits any company with a 40% (minimum) share in the Italian electronic communications market from acquiring control of undertakings holding at least 10% of revenues in the Italian integrated communications system. Vivendi’s newly acquired 28.8% stake in Mediaset had raised its market shares above these thresholds, thus prompting Mediaset’s complaint.
The ECJ found that these thresholds “bear no relation to the risk of media pluralism” and that Article 43 TUSMAR breaches the freedom of establishment under EU law, specifically Article 49 of the Treaty on the Functioning of the European Union (“TFEU”).
Vivendi, which has yet to state publically its future intentions with regard Mediaset, cited the judgment as having renewed its “commitment” and “willingness” to invest in Italy. It will be interesting to gauge whether the ECJ judgment may lead to express reform of the national media plurality laws and more generally stimulate M&A activity within the Italian media sector.
Background to the case
In December 2016, Vivendi, a French company that exercises control over Telecom Italia, launched a hostile bid for shares in Mediaset, an Italian-based mass media company, securing 28.8% of its share capital and 29.94% of its voting rights.
Mediaset subsequently lodged a complaint with the Italian Communications Regulatory Authority (“AGCOM”), alleging that Vivendi had infringed Article 43(11) of TUSMAR (the “Italian Provision”), a 2005 legislative decree intended to safeguard media plurality.
The Italian Provision prohibits any company with a share of at least 40% in the Italian electronic communications market (which is narrowly defined as markets amenable to ex ante regulation) from acquiring control of undertakings holding at least 10% of revenues in the Italian integrated communications system (the “SIC”), which includes press and electronic publications, radio, audio visual services, cinema, external advertising, communication initiatives for goods and services and sponsorship.
Mediaset’s complaint resulted in AGCOM finding, in April 2017, that Vivendi had infringed the Italian Provision, concluding that:
- In accordance with Article 2359 of the Italian Civil Code (the “Civil Code”), Vivendi was affiliated with Telecom Italia and Mediaset as it held more than one fifth of the voting rights in each company;
- Vivendi subsequently accounted for 59% of the revenues generated in the electronic communications sector; and
- Mediaset accounted for 13% of the revenues generated in the SIC.
As such, AGCOM ordered Vivendi to sell 19.19% of its stake in Mediaset to another entity within 12 months. Whilst Vivendi did so, in April 2018 it launched a challenge against AGCOM´s decision before the Regional Administrative Court of Lazio claiming that:
- AGCOM had incorrectly defined the electronic communications sector, as it only included markets susceptible to ex ante regulation;
- AGCOM had incorrectly interpreted the concept of “affiliated company”, within the meaning of Article 2359 of the Civil Code;
- AGCOM’s decision had infringed Article 49 TFEU in so far as it adversely affected the ability of a company registered in France to acquire a minority shareholding in a company registered in Italy; and
- The Italian Provision is discriminatory, given that for certain other operators in the electronic communications sector, it set the threshold for revenue obtained in the SIC at 20% instead of 10%.
The Regional Court referred each of these questions to the ECJ.
Advocate General´s Opinion
The Opinion of Advocate General Campos Sánchez-Bordona, issued in December 2019, recommended that the ECJ declare the Italian Provision contrary to EU law. Campos Sanchez-Bordona assessed its compatibility with the freedom of establishment under Article 49 TFEU. He observed that, in principle, the Italian Provision was an appropriate means of attaining its objective of protecting media and information pluralism, as it prevented a single company from acquiring a substantial share of the media market, whilst also stopping dominant companies in the electronic communication services sector from taking advantage of their position to entrench their market power.
However, Campos Sanchez-Bordona stressed the general principle of EU law that national legislation must be proportionate to the objective it is trying to achieve. In this regard, he observed that:
- the Italian Provision defines the electronic communications sector too narrowly, relating only to markets amenable to ex ante regulation and thus excluding new markets that have become the vital for media access (e.g. retail mobile telephone services, internet-related electronic communications services and satellite broadcasting services);
- the low percentage of revenues (10% in the SIC and 40% of total revenues in the electronic communications market) may not be proportionate; and
- it is disproportionate for AGCOM to take account of the revenues of “affiliated companies” (in addition to “controlled companies”) in determining whether undertakings reach the Italian Provision’s thresholds, as an undertaking won’t necessarily be able to exert considerable influence over its affiliates.
ECJ decision
The ECJ noted that the questions referred to them had to be examined together in the light of the TFEU provisions relating to the freedom of establishment, as the purpose of the Italian Provision is to set limits on the control which may be exercised over companies active in the SIC.
Article 49 TFEU precludes any national measure which is liable to hinder or render less attractive the exercise by EU nationals the freedom of establishment, even if such restriction does not discriminate on the grounds of nationality. The ECJ emphasised that such a restriction is permissible only if it is justified by overriding reasons in the public interest and is appropriate and proportionate to achieving its intended purpose.
The ECJ found that the purpose of the Italian Provision is to ensure pluralism of information and of the media. This unquestionably constitutes a legitimate aim in the public interest and could, in principle, justify restricting the freedom of establishment. However, on the grounds of proportionality, the ECJ found that the Italian Provision was not lawful, ruling that:
- while the EU’s regulatory framework applicable to electronic communications services makes a clear distinction between the production of content, which involves editorial responsibility, and the transmission of the content, which does not entail such responsibility, the Italian Provision does not take into account such differentiation;
- the issue of whether or not an undertaking generates 10% of revenues in the SIC is not, in itself, an indication of any risk of an entity influencing media pluralism. For example, if the 10% threshold was reached but was spread across each of the markets comprising the SIC, the meeting of this threshold would not necessarily point to a risk of media pluralism;
- AGCOM had defined the electronic communications sector restrictively, encompassing only the markets susceptible to ex ante regulation and excluding markets of increasing importance for the transmission of information, namely mobile telephone retail services or other electronic communications services linked to the internet and satellite broadcasting services. As these have become key avenues of access to the media, there is no justification for excluding them from the market definition; and
- for the purpose of identifying the revenue generated by an undertaking in the electronic communications sector or in the SIC, AGCOM considered not only the revenue obtained through “controlled” companies, but also that obtained through “affiliated” companies, which likely distorted the calculation of revenue.
As such, the ECJ confirmed that Article 49 TFEU must be interpreted as precluding the Italian Provision. Whilst recognising that Italy’s media plurality laws serve a legitimate purpose of protecting information pluralism, this decision is important in stressing how imperative it is for media plurality rules to be applied on a proportionate basis, taking into account the structure, dynamism and innovation that characterise media markets.
Contacts
Kyriakos Fountoukakos
Managing Partner, Competition Regulation and Trade, Brussels
Key contacts
Kyriakos Fountoukakos
Managing Partner, Competition Regulation and Trade, Brussels
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