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May be forced to abandon the telco tax

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It might seem a no-brainer for the French government to revive prime time TV advertising on the France Television public channels, after all public finances are under relentless pressure, and the advertising ban was the controversial policy of the last government, brought in by Nicholas Sarkozy in January 2009. But the problem is that the leading commercial Network TF1, which initially enjoyed a bounce from the advertising ban on its rival public network, is now suffering from a deepening advertising slump itself and will lobby hard against a government U-turn, with many jobs at stake.

TF1's advertising revenue for the first half of calendar 2012 was €713.2m, down 5.9 per cent on the same period a year earlier, leading to a 52.6 per cent slump in operating profit to €133.9m over that time. Investment banker Morgan Stanley said that the pressure on French TV advertising was increasing further after progressive revenue decline through May, June and July, and called for government help in the form of emergency measures. Reviving advertising on public TV channels was not quite the help it had in mind, and is likely to turn the screw further on the beleaguered French commercial sector.

But the government is also desperate to secure private funding for France Televisions, and so is caught between a rock and a hard place. The original ban on advertising between 2am and 6am was introduced by Sarkozy's government as part of a package of media reforms, under the spurious pretext of improving the quality of programming. Critics then decried it as a politically motivated power grab designed to deprive the state broadcaster of funds. Yet France Televisions' own board of directors actually backed the ban, affecting the four main state-funded channels, aspiring perhaps to become a French BBC revered for its content at home and abroad. The broadcaster hoped that it would make better quality programmes through no longer having to attract large audiences in order to secure advertising revenue.

In the event there is little evidence of any improvement in overall quality, although France Televisions' sporting coverage has won accolades, not least during the recent Olympic Games when it commandeered a London bus to tour around the capital to fill in gaps between events.

The issue for the French government has been compounded by problems with both the sources of funding that Sarkozy devised to replace prime time advertising revenue. One was a higher tax on advertisements on private channels, and the other a new tax imposed on internet service providers and mobile phone operators.

The first of these is foundering on the rocks of the commercial TV advertising slump, while the second is being scuppered by the European Union, which ruled the tax illegal. In typical Gallic fashion the government ignored the EU ruling and levied the tax anyway, but now the European Commission has taken it to the European Court of Justice. If, as expected, the court backs the Commission, then France will be forced to abandon the telco tax.

Copyright © 2012, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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