State advertising spending in Hungary – an unlawful form of state aid

For many years now, Fidesz has funded its propaganda media with state resources, thereby ruining competition and distorting the entire Hungarian public discourse. Mérték Média Monitor, a Hungarian media watchdog organisation, the critical radio station Klubrádió and MEP Jávor Benedek have jointly turned to the European Commission with a complaint which demonstrates in detail how unlawful state aid is used in the Hungarian media market and what its impact is on the latter. By Dávid Kardos and Ágnes Urbán.

Fidesz has been comprehensively transforming the Hungarian media system since 2010. The public service media system operates as a propaganda machinery, and in the commercial media the state’s market-distorting impact is ever more pronounced. In recent years, a majority of media investors have abandoned the Hungarian market, and a significant chunk of independent media outlets have been acquired by investors with close ties to the governing party. Yet, there are still media that withstand these pressures, and in their case the government uses other instruments to make their everyday professional life miserable (keeping independent newsrooms from attending important political events, the boycott by governing party politicians of these media, or a failure to comply with freedom of information requests or charging prohibitively high prices for data delivery, etc.).

One of the most important market-distorting impacts is the skewed distribution of state advertising, which exerts a massive influence on market competition. We identified two distinct advertising strategy periods since Fidesz entered into office in 2010: between 2010-2014, the overall volume of state advertising spending was not much higher than in the foregoing period, but it was much more centralised than previously. This was the time when almost all state advertising was funnelled to Lajos Simicska’s media companies. During the 2014-2018 term of government there was a massive surge in the total amount of spending. Throughout this period, Simicska was completely squeezed out of the Hungarian media market. What has not changed, however, is that state advertising continues to be published in government-friendly media. The surge in the advertising volume owes primarily to the government’s successive and continuously ongoing campaigns. The billions spent on various state communication campaigns mostly end up with media whose owners have close ties to the government and which uncritically relay government propaganda.

During the previous term of parliament – since 2015 – the government spent at least 31 billion forints on media in the form of state aid. These prohibited state aids are deployed to realise three objectives: for one, they are used to fund the widest possible dissemination of the governing parties’ political messages with money from the central budget, even if the message serves no discernible public interest whatsoever. At the same time, media companies with close ties to the government need to be subsidised, and in some cases completely funded. Third, by destroying market competition they massively undermine the market positions of independent media, whose main sin is being critical of the government. In EU terms, this what is referred to as prohibited state aid.

Even though what’s at issue here is the use of public money, the relevant information about these funds is nevertheless not accessible in a database or on the website of the state agency responsible for government communication. Due to the lack of transparency, in estimating the relevant data we have to rely on information (and its particular structure) obtained by investigative journalists as part of freedom of information requests. The systemic processing of these data is primarily the result of the work performed by the investigative portal

But state advertising spending broadly understood is even higher than that if we include not only governmental campaigns but the expenditures of the entire state sector (various state institutions, municipal governments, state-owned enterprises). This phenomenon is well-established, and there are already data visualisations based on data provided by Kantar Media that present it in substantial detail.

These days we find in all media segments across the board that companies with close ties to the government receive staggering amounts of state funds while their independent competitors have no access to such resources. The pattern is the same in the print press market, both in the context of daily and weekly political newspapers. The process is also striking with respect to radios, even though the Media Council has already fulfilled its dubious “mission” in that particular segment: thanks to the frequency tenders managed by the Media Council, independent radios have almost completely disappeared from this market. In the television market, RTL is the only independent commercial channel which is also present in the political segment of the market with its daily news show, and until now it did not feature any government campaign videos. It is easy to identify the pro-government sites in the online world; apart from the propaganda content they are also distinguished by the vast amount of state advertising. Still, the online segment of the media market continues to feature strong independent players, and naturally they receive no state advertising. It is important to note that the system of prohibited state aid does not only ruin the media market narrowly understood but also the wider ecosystem wherein it operates. As we noted in our complaint to the Commission, the governmental players that perform the media planning for state advertising are readily identifiable in the market of media agencies.

The situation is becoming worse each year and there are no legal instruments to halt it. The only chance is for the European Commission to put an end to the practice of the entire pro-Fidesz media universe being funded through state advertising while independent players have to struggle to survive despite this very striking competitive disadvantage.

The European Commission has the authority to launch proceedings against prohibited state aid. The essence of this procedure is to investigate whether a given funding scheme relies on state aid and, if that is indeed the case, to ascertain whether are any grounds that justify it. State aid that impacts market competition is generally disallowed, but there are areas and causes where legitimate grounds for subsidies are recognised. If the European Commission concludes at the end of the procedure that the government’s campaign spending does qualify as state aid, then the companies affected may be compelled to pay the money back and fines may be levied as well. The Commission’s scope of authority is also stronger in the realm of competition law than in other areas because its decisions in this policy realm are directly executable, and the other affected party – the Hungarian government in this case – needs to appeal the decision, rather than the other way round, when the Commission must seek the legal remedy, as in the case of infringement procedures.

 Over the past few years, the most successful – in fact the only successful – legal action in the context of the broader processes that impinge on the Hungarian media market and media freedom was the legal procedure launched against the advertising tax, which the European Commission conducted at the request of RTL. That procedure, too, was based on the rules governing state aid. In 2016 Mérték, Klubrádió and Benedek Jávor asked the Commission to initiate a procedure on the grounds of excessive funding for public service media, which might emerge as an effective instrument for salvaging the distorted Hungarian media market and the moribund media freedom. In combination with the complaint filed now, these open up the possibility of remedying the most serious problem plaguing the domestic media situation. It is simply not true that nothing can be done at the European level for mitigating the prevailing problems. The European Commission has the necessary instruments at its disposal, now it only needs to decide whether it will avail themselves of these instruments.