At the end of the 1990s and in the beginning of the twenty-first century, the Commission delivered its first decisions. These did not concern the early complaints of the Spanish, Italian, French and Portuguese private broadcasters. The latter would have to wait until 2003, 2004 and 2005 for a decision to be issued. The decisions at hand concerned the funding of thematic channels Kinderkanal, Phoenix and BBC News 24 (respectively a children's, documentary and news channel). In these decisions, the Commission took a rather prudent stance, rejecting most complaints regarding overly wide remits and market distortion. Although the German private television and radio association VPRT argued that thematic channels only served niche audiences and, therefore, fell outside the scope of a holistic public service remit, the Commission held that such an assessment was for the member states to make as these had the autonomous power to define public broadcasters' tasks. Also, VPRT's remark that such channels and the programmes they broadcasted were already adequately catered for by the private sector was found to be an irrelevant consideration (European Commission, 1999c: 10). A similar line of reasoning was followed in BBC News 24. Here the Commission even agreed that news was a core service of public broadcasters and that a dedicated news channel contributed to the democratic goals of society (European Commission, 2001a: para. 49). However, the Commission did not completely go against private sector concerns. It observed that the entrustment of the services (i.e. the channels) to the public broadcasters was not sufficiently precise and explicit, which left room for doubt as to whether the involved member states actually intended the public broadcasters to develop new, thematic channels (ibid.: para. 69).
Importantly in 2001, the Commission adopted the Broadcasting Communication, clarifying its interpretation of Article 106(2) TFEU in cases concerning the funding of public broadcasters. The introduction of the Broadcasting Communication, binding only the Commission, not the member states, can be seen as a first landmark in the history of state aid control and PSM, since it offered guidelines for both the Commission and the member states in terms of what to expect when complaints are filed against the funding of public broadcasters. The development of a set of guidelines started in the mid-1990s. In 1998, a first, leaked, discussion document of the Commission provoked considerable criticism as it pleaded for a single (only public) funding system of public broadcasters, eliminating all commercial revenues. The draft document also took a harsh stance on sports and entertainment programmes (Kleist and Scheuer, 2006: 171). Karel Van Miert, then Commissioner for competition, subsequently omitted plans to formulate guidelines for some time, saying 'the guidelines on aid to public television [were] dead' given 'member states' attitude' (Agence Europe, 1998). Confronted with more and more complaints, the Commission and the member states progressively realised that guidelines were necessary, which eventually led to the adoption of the Broadcasting Communication. In other words, the communication 'should... be seen as a necessary means to facilitate the application of state aid law to public broadcasting and maintain the fragile peace established between the Commission and the member states' (Donders, 2012a: 85).
Not long after the publication of the 2001 communication, the Commission deviated from its rather lenient approach in its first Phoenix/Kinderkanal and BBC News 24 decisions when scrutinising the offer of online educational services by BBC. Its decision on the matter is commonly known as the BBC Digital Curriculum case (European Commission, 2003). In more detail, the Commission expressed doubt as to whether online educational software services, even if education was part of the BBC's core remit, formed part of the traditional public service remit of public broadcasters. In particular, it saw no 'close association' between the online services at issue and other BBC educational radio and television services. According to the Commission, the BBC was in fact a new player in an already existing market that was providing for educational software services. Notwithstanding, it accepted the service on the basis of Article 106(2) TFEU and granted an exception, yet without recognising the specific position of public broadcasters. This approach was fiercely criticised by commentators for going against member states' autonomy to define SGEI. Indeed, the introduction of the 'closely associated' principle, by distinguishing between core radio and television services on the one hand and peripherical services such as online and mobile services on the other, presumes that some sort of definition capacity lies with the Commission. However, this is not the case (Bardoel and Vochteloo, 2008: 9; Wiedemann, 2004). As aptly put by Moe (2008b: 221),
A competition law rationale defined the proposed scheme as outside the existing public service broadcasting remit. The Commission pointed to the situation for commercial competitors, and deemed the Digital Curriculum as belonging to the market too far beyond BBC operations. The resulting decision took a restrictive approach. It introduced the criterion 'closely associated' to radio and television programmes as a measure of online activities' public service value. Only via a detour was the curriculum endorsed, uncoupled from the broadcasters' remaining service. The decision was a clear rejection of the British Government's approval of the BBC's right to include the Digital Curriculum in its existing public service remit.
Legal insecurity was thus high in this period with the Commission, first, abstaining from coming to a lot of decisions, and, second, applying state aid rules in an incoherent manner. Indeed, whereas at times it seemed that the Commission wanted to refrain from meddling with the remit, in other instances it overstepped the division of competences between itself and the member states.
Importantly, concerning culture as a potential exemption base for state aid to PSM, already in its first decision in Phoenix/Kinderkanal, the Commission, while considering Article 107(3)(d) TFEU, did not apply it as a relevant clause to the case scrutinised. It actually rejected the German Lander's assertion that this provision could serve as a valid ground for exemption. The Commission said that exemptions from the general prohibition of state aid should be interpreted strictly. According to the Commission, the term 'culture' within the meaning of Article 107(3)(d) TFEU had to be limited to areas generally considered to be 'culture', such as, for example, heritage conservation. The financing of children and documentary channels could not be considered to serve the cultural, but rather the democratic and educational needs of the German society (European Commission, 1999c: para. 6.2).
The Commission thus adhered to a narrow interpretation of the cultural exception. Such an approach is problematic for several reasons. First, culture is one of the most contested concepts in social sciences research (Stevenson, 2001). The Commission's conclusion that the cultural remit of public broadcasters cannot be isolated from their social and democratic objectives and, hence, cannot benefit from the cultural exemption of Article 107(3)(d) is arbitrary - to say the least. It also implies that Article 107(3)(d) TFEU presumes that cultural goals have to and can be isolated from democratic, historic, social or other goals pursued by public broadcasters. To what extent this is the case is doubtful.
The Commission's constrained approach has provoked fierce criticism (e.g. Psychogiopoulou, 2006, 2008), since besides its arbitrariness, it gives unlimited leeway to the application of Article 106(2) TFEU, which directs attention to the economic instead of the cultural aspects of public service delivery in the broadcasting sector. Whereas this criticism is undoubtedly justified and the Commission has indeed closed the Article 107(3)(d) TFEU 'road' from the very beginning of state aid control of PSM funding, it has gradually developed a fairly stable approach concerning the application of Article 106(2) TFEU in PSM cases. This can, even if regrettably so for the above-mentioned reasons, be preferred over the unchartered (for PSM) land of Article 107(3)(d) TFEU.