Excelsior Group Productions Limited v Yorkshire Television Limited [2009] EWHC 1751
The UK High Court decided earlier this year that a TV broadcaster only had to pay a production company a royalty based fee instead of the more substantial flat licence fee for the broadcast on its digital channels.
Background
Yorkshire Television Limited (YTV) had three agreements with Excelsior Group Productions Limited (Excelsior) in relation to the broadcast of The Darling Buds of May, A Touch of Frost and My Uncle Silas TV series on the ITV Network. YTV was one of the regional licensees of the ITV channel.
The agreements required YTV to pay Excelsior a flat fee (residuals) for the broadcast of repeats of:
- The Darling Buds of May from the Independent Broadcasting Authority (IBA) transmitters serving ITV or Channel 4
- A Touch of Frost from the transmitters of the Independent Television Network (formerly IBA) and Channel 4, and
- My Uncle Silas from the ITV Network.
The agreements also required YTV to pay Excelsior percentage based royalties if the programs were transmitted by ‘other methods or means’. This usually covered sales to third parties, including overseas sales.
The contracts were not for a set period and would continue until the underlying rights expired.
ITV digital channels
ITV2 was launched in 1998 as a ‘catch-up’ channel showing repeats of recent broadcasts of the analogue ITV1 channel. ITV3 was launched in 2004 as an ‘archive’ channel showing the best of ITV1 programs.
The network was organised so ITV Network had an exclusive licence to broadcast the programs of the regional licensee. The ITV Network was prohibited from selling the programs directly to ITV2 and ITV3 under the terms of its licence. Instead the regional licensee, in this case YTV through its agent Granada International, sold the program directly to ITV2 and ITV3.
Excelsior’s claim
Repeat broadcasts of The Darling Buds of May, A Touch of Frost and My Uncle Silas were shown on the digital channels ITV2 and ITV3. YTV paid Excelsior a royalty for the broadcast based on the payment received from ITV2 and ITV3.
Excelsior claimed a flat fee was payable for the digital broadcasts. YTV refused to pay arguing the flat fee was only payable in respect of repeats shown on ITV1.
Excelsior sued seeking a declaration that repeat broadcasts of the programs on ITV2 and ITV3 attracted a flat fee payment.
Court decision
The High Court in the UK rejected Excelsior’s claim and found royalties were payable for the repeats of broadcasts on ITV2 and ITV3. The repeats did not attract a flat-rate fee as they were not considered to be shown in ‘ITV’.
Excelsior argued the reference to ‘ITV’ covered any terrestrial transmission. However, the court took a more literal approach deciding ‘ITV’ did not encompass ITV2 and ITV3 and the flat licence fee was only applicable to broadcasts on ITV’s analogue channel.
The court:
- considered relevant the fact that digital television was not in the contemplation of the parties at the time the first contract was made (Excelsior conceded the later agreements were intended to have the same meaning as the original contract)
- found the words of the contract must be interpreted ‘in accordance with what they meant objectively’ at the time each contract was entered, and
- did not want to give the contract a wider meaning merely because the television industry had developed in a way ‘disadvantageous to Excelsior’. When construing a contract, the court should only have regard to the background knowledge reasonably available to the parties at the time each agreement was made. The court should disregard pre-contractual negotiations, the subjective intentions of the parties and their subsequent conduct.
Excelsior argued that given transmissions on ITV2 and ITV3 were not covered by the royalty clause, they must somehow be covered by the residuals clause. The court rejected this argument as it would extend the scope of the residuals clause and instead took a robust interpretation of the royalty clause so it applied to broadcasts other than on ITV’s analogue channel.
Lessons from the case
The case demonstrates the difficulties in trying to trying to make agreements adapt to changes in technology and the operating environment. In particular, content owners must be careful when negotiating licence agreement to ensure they can adapt to changes in technology. This is important with the growth of digital technology including the transmission of television programs and other content over the internet and mobile devices.
This article was written by Orana Swan, Senior Associate, Sydney.
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