Mergers & Broadcasting

Transcription

1 e-competitions Competition Laws Bulletin Mergers & Broadcasting Mergers in the broadcasting sector: An overview of EU and national case law Mergers, Foreword, Merger (notion), Settlement, Remedies (mergers), Joint-venture, Market definition, Vertical restrictions, Audiovisual Note from the Editors: although the e-competitions editors are doing their best to build a comprehensive set of the leading EU and national antitrust cases, the completeness of the database cannot be guaranteed. The present foreword seeks to provide readers with a view of the existing trends based primarily on cases reported in e-competitions. Readers are welcome to bring any other relevant cases to the attention of the editors. Antonio Bavasso, e-competitions, N 45140, Co-founder and Executive Director of the Jevons Institute for Competition Law and Economics at University College London. The author has advised in relation to a number of cases mentioned in this article including News Corp / Telepiu, News Corp / Sky and Sky/ITV. The broadcasting sector has seen an extraordinary decade of transformation. Mapping the history of European merger control enforcement through e-competitions' case summaries is interesting. In the earlier part of the last decade consolidation has been the pre-requisite for the necessary market evolution and investment into digital broadcasting, particularly in the pay-tv business. More recently we have seen an increasing number of joint ventures between existing players designed to take advantage of the new services made possible by the switchover to digital broadcasting, in particular video on demand (VOD) and catch-up services. Some of these transactions have been approved by competition authorities subject to remedies to preserve the possibility of entry or re-entry. In other cases transactions have hit the rocks of merger control and have been blocked. Broadly speaking, there have been two waves of significant cases in this sector over the last decade. The first wave relates to what I would call the "first generation" of horizontal consolidation in the pay TV sector. The common thread running through merger control enforcement during this phase was to allow the necessary consolidation but combine it with behavioural remedies that prevented content foreclosure and preserved the possibility of some form of competition. Competition has remained fierce. Arguably the strongest propeller for competition has been the technological drive of digitalisation which was already apparent a decade ago and has now become a reality. This gave rise to what I would call a "second generation" of merger cases: those that are increasingly emerging, often in the form of full function joint ventures, to take advantage of the business opportunities in a digital word. In particular non-linear broadcasting is one of the main areas of innovation in the sector and a number of merger control decisions have focused on these aspects. The main first generation cases emerged in the period. At that time it became clear that a number of major pay-tv players were simply not viable and this resulted in either mergers (Spain, Italy and France) or market exit (UK's digital terrestrial pay TV provider). Three of the largest European markets witnessed a period of consolidation approved by Page 1/7

2 competition authorities. TV markets are regarded as typically national but a twist of jurisdiction resulted in four different European authorities looking at three substantively similar deals. The Spanish case [1] started in Brussels but went back to the Spanish Competition Authority after a reference back under Article 9 of the EUMR. The acquisition by Telepiu (at the time part Canal Plus group) of Stream (jointly controlled by News Corporation and Telecom Italia) was originally notified in Italy but, when the deal changed so that it resulted News Corp acquiring Telepiu, the European Commission gained jurisdiction and the Italian Authority did not request it back. The merger was eventually approved subject to commitments [2]. The failing firm defence was run in that case but did not, itself, win the day. It was nevertheless an important consideration in the overall assessment. A couple of years later, in 2006, the two main pay TV French broadcasters (Canal Sat and TPS) merged and the French authority approved the deal subject to a long list of commitment (interestingly, however, that approval was recently revoked as a result of an alleged breach of the merger commitments) [3]. In this first phase as a quid pro quo for approval, competition authorities requested commitments to ensure that content acquisition (in particular premium sports and movies) remained contestable at regular intervals or, in some cases, to mandate wholesale provision of certain channels. This was combined with provisions that allowed third party access to the platform and, in the case of News Corp / Telepiu, a mandatory wholesale offer for "premium" packages and channels based on a retail minus methodology. The French case took place in a market where satellite/direct to home (DTH) operators were already facing considerable competition from broadband, digital terrestrial TV (DTT) and cable operators. Despite that competition, however, the merger approval was subject to a detailed list of 59 remedies ranging from content acquisition, to must carry and must offer obligations of content. Most recently the implementation of these remedies came under renewed scrutiny and as a result of the alleged infringement of some of the conditions imposed in 2006 the clearance decision has been revoked [4]. The paradigm of merger control enforcement deployed in this first wave of broadcasting mergers has somewhat crystallised but as the market has evolved, so too has the approach of competition authorities and a number of variations over key themes have emerged, not least with respect to the definition of relevant product markets. First the archetypal distinction between free and pay TV has shown some cracks within the landscape of European merger control enforcement. In its 2003 News Corp / Telepiu decision [5], for example, the European Commission found that " there is a clear distinction, from the viewpoint of both customers and suppliers, between free-to-air TV and pay-tv" [6], without drawing any distinction between means of transmission of the relevant content. At the upstream level, the European Commission considered that there were separate markets for the acquisition of different types of TV content. The European Commission followed a similar approach almost a decade later in its review of another News Corp acquisition, this time of the remaining 60.9 per cent of the shares in British Sky Broadcasting Group PLC (Sky) that it did not already own [7], where it again found that the retail supply of pay-tv and free-to-air (FTA) TV constituted separate markets. In that case, the European Commission also considered whether product markets should be further segmented according to the method of retail distribution (e.g. DTH v. DTT), but again concluded that "different distribution modes are part of the same product market for the retail distribution of content to consumers" [8]. It is interesting, and perhaps illustrative, to contrast this approach to market definition in broadcasting mergers at the EU level with that of the UK competition authorities in a number of high profile reviews of transactions in the second wave of broadcasting mergers. Back in 2003, in News Corp / Telepiu, the European Commission considered non linear broadcasting only very briefly and it concluded that "[a]s concerns in particular services such as "pay-per-view" (PPV), "near-video-on demand" (nvod) and "video-on-demand" (VoD), the market investigation has revealed that, for the time being, they could be considered as segments within the pay TV market" [9]. However, in News Corp / Sky the European Commission noted that its market investigation confirmed that non-linear services comprising DVDs and pay-per-view/vod were not substitutable with Page 2/7

3 pay-tv linear channels at the retail level. As such, the European Commission concluded that "within the pay-tv market, the retail supply of non-linear services and linear channels belong to two separate markets" [10]. A similar inconsistency is found in the UK but within a much shorter timeframe in relation to content to be supplied for VOD services. In its review of Sky's acquisition of a 17.9 per cent stake in ITV [11], for example, the Competition Commission ( CC) held - in contrast to the European Commission's decision in News Corp / Telepiu - that the relevant market for the purposes of assessing that transaction was 'all-tv' including both pay-tv and FTA services. The CC held that "for content suitable for VoD, there is sufficient demand- and supply-side substitution between VoD and linear broadcasting that VoD should form part of the same market" [12]. A little over a year later, however, the CC swung to the other extreme and adopted a market definition in respect of its analysis of the 'Kangaroo' joint venture between the BBC, Channel 4 and ITV [ 13], that was not only narrower than its own decision in Sky / ITV, but arguably also the European Commission's approach in News Corp / Telepiu. Specifically, the CC defined the relevant market to constitute the supply of VOD content excluding film VOD, short-form and user-generated content, illegal content, DVDs / PVRs, non-uk content and, most interestingly, linear broadcast TV: "Although linear TV, PVRs and DVDs all allow consumers to view some of the same programmes which are also available as UK TV VOD content, there are a number of reasons why, in our view, none of them are likely to be a close substitute to UK TV VOD" [14]. Although the CC noted in Sky / ITV that its "relatively broad market [definition]...does not imply that the same market definition should necessarily be used to analyse other mergers in the industry" [15], it seems curious that, despite a number of major EUMR decisions in this sector over the last decade, such a widely differing basis for competition law (including merger control) and other regulatory intervention has arisen in broadcasting merger control in the UK. In terms of theories of harm developed by competition authorities in this sector over both generations of broadcasting mergers, one concern has been identified (or at least assessed) in many of the largest broadcasting mergers: the ability of downstream pay-tv providers to foreclose rivals through comparatively better and/or cheaper upstream access to content. In News Corp / Telepiu, for example, the European Commission found that News Corp's "monopoly" in the DTH broadcasting was sufficient to give it the ability and economic incentive to foreclose actual and potential competitors wishing to enter the pay-tv market [16]. With regard to the upstream part of that market, the European Commission found that the merged entity would have access to "unparalleled" content including exclusive access to films of the major Hollywood studios and popular sport rights that were vital for a successful pay-tv offering. These factors led the European Commission to identify a 'vicious circle' of self-reinforcing pay-tv dominance based on the incumbent providers' comparatively favourable access to exclusive content rights: "Competitors' prospects of securing any substantial volume of attractive pay-tv broadcasting rights will be small. To have any hope of acquiring broadcasting rights, it is vital to have access to viewers, in the form of an established subscriber base [ ] Newscorp will have a competitive advantage compared to any potential competitor in the negotiation of contracts for premium content [ ] The Commission has therefore concluded that contracts affording the merged entity exclusive rights with Studios will foreclose potential market entry" [17]. A variation on this input foreclosure theory of harm was deployed nearly a decade later by France's Autorite de la Concurrence (the Autorite) in its 2010 decision that TF1's acquisition of AB Group, the sole owner of the NT1 French TV station and 80 per cent owner of France's TMC station, would give rise to negative feedback effects in the markets for the acquisition of TV broadcast rights and television advertising. In particular, the Autorite found that the combination of a strong buyer position in the former market with a dominant position in the latter was likely to amplify the transaction's negative impact on competition insofar as any growth in advertising revenues would lead to an increased ability to purchase attractive content, thereby boosting audience numbers which, in turn, would result in even higher advertising revenues. The Autorite concluded that "strong positions on the market for rights and for television advertising mutually strengthen one another and encourage a spiral effect that is likely to further amplify the operation's effects" [18]. Although Page 3/7

4 not itself merger review, it is nonetheless also interesting to note that a very similar theory of self-reinforcing competitive harm was assessed in the CC's 2011 provisional findings in its review of the UK movies on pay-tv market: [19] "as a result of Sky's control of the acquisition and distribution of FSPTW[first subscription pay-tv window] movie content on pay TV, Sky's market power in the pay-tv retail market is enhanced, which further strengthens its advantages when bidding for FSPTW movie content" [20]. In Kangaroo, the CC found that the ability to acquire VOD rights was often closely associated with holding or acquiring linear TV rights and that the linear broadcaster of that content was in an advantageous position when negotiating for VOD rights to it. As such, the CC found that it was unlikely that third-party VOD retailers would be able to acquire sufficient content to offer an effective competitive constraint to the parties in that JV. The CC's review also concluded that it may have been in the parties' interest to engage in strategies that would have further limited the ability of a rival service to compete with the JV, such as by attempting to foreclose access to content or otherwise increasing its cost. Interestingly, it seems that CC was conscious that this theory of harm was dependent in no small part on its uniquely narrow market definition: "Given our finding that non-uk VOD content was not, in general, a good substitute for the parties' VOD content, we did not find that VOD retailers offering non-uk content acted as an effective competitive constraint on the parties" [21]. Vertical overlaps in pay-tv broadcasting were also assessed by the Commission in its December 2010 clearance of News Corp / Sky [22]. In that decision, the European Commission noted that News Corp and Sky were mainly active in different markets and competed with each other only to a limited extent in the wholesale supply of basic pay-tv channels and in the supply of online and TV advertising space. The European Commission's assessment therefore focused on whether the proposed transaction could lead to anticompetitive effects arising from vertically linked or neighbouring activities in the audiovisual sector, in newspaper publishing or in advertising. With respect to audiovisual content, the European Commission assessed whether or not News Corp would be able to prevent or significantly limit access by Sky's competitors to premium movie content. Ultimately, although its market investigation revealed concerns over Sky's exclusive deals with Hollywood studios, the European Commission concluded that the proposed transaction would not have a material impact on the status quo [23]. In particular it found that, based largely on market share data, News Corp was unlikely to have a significant degree of market power in the upstream market for the licensing of movie content. Moreover, to the extent that third parties raised concerns that News Corp movie content could be regarded as an "essential" input to TV retailers, the European Commission noted that these concerns generally related only to the first pay-tv window in the UK and that "BSkyB already has exclusive deals in this regard for premium movies with all the Hollywood majors. The proposed transaction does not change the structure of this long-established network of contracts" [ 24]. Given the focus on input-foreclosure and vertical overlaps in competition reviews of broadcasting mergers, it is not surprising that where competition authorities have identified substantive concerns they have often required behavioural commitments relating to content access as a condition to merger clearance. In News Corp / Telepiu, for example, the European Commission accepted a commitment from News Corp to waive any exclusive rights to content with respect to TV platforms other than DTH and for pay-per view, VOD and near VOD broadcasting (on all platforms), in addition to a number of commitments with respect to future content acquisition agreements. In particular, News Corp agreed to limit the duration of exclusive rights acquisition agreements with football clubs and film studios to two and three years respectively. Moreover, in relation to football and worldwide sports events, News Corp committed to granting its contractual counterparts a unilateral right to terminate the relevant agreement on a yearly basis. In addition, News Corp committed to offer "third parties and possible new DTH entrants" access to its platform on non-discriminatory terms. A similar approach was followed in Spain for the Sogecable / Canelsatelite Digital / Via Digital merger and in France with the Canal Plus / TPS merger. A comparable but less extensive set of behavioural commitments was accepted by the Autorite in TF1 / AB Group some seven or so years later. Most significantly, with respect to the acquisition of broadcast rights, TF1 committed to broadcast the rights it acquired on no more than two free-to-air channels within the TF1 group and to surrender certain contractual provisions in its content acquisition agreements that would otherwise have enabled it to exercise a right of first Page 4/7

5 and last refusal irrespective of whether or not it was willing to match or beat terms offered by competing broadcasters. In Germany the remedies recently imposed seem a function of the peculiarities of the German market which has a very different dynamic from the other main European markets. The cable network, formerly owned by Deutsche Telekom, reaches over 20 million subscribers and is divided amongst four regional players. In December 2011 the German competition authority (the Bundeskartellamt) cleared the acquisition of Kabel Baden-Württemberg by Liberty Global Europe Holding (Liberty Global), reducing the number of cable players from four to three, on the basis of a package of behavioural commitments, this time primarily relating to downstream customer supply contracts [25]. In particular, Liberty Global committed to grant special termination rights for large retail TV services contracts and to forgo certain contractual exclusivity clauses to address concerns identified by the Bundeskartellamt stemming from high barriers to entry in the supply of retail TV services to residential premises with multiple housing units (in particular premises operated by housing associations). Despite the general emphasis of both the European Commission and Member State competition authorities in the three years since the publication of the Remedies Notice that "divestitures are the benchmark for other remedies in terms of effectiveness and efficiency" [26], therefore, remedies in the broadcasting sector focusing on upstream and downstream contractual exclusivity look set to remain as important a part of competition enforcement in the EU over the coming years as they were a decade ago. However the overall emphasis seems to have shifted from merger control to ex post behavioural cases and market investigations with the UK investigation into movies on pay-tv being at the forefront of the new frontier of enforcement as well cases at the intersection between regulatory and competition powers such as the football sports channel cases decided by Ofcom under its licensing powers [27]. The outcome is still uncertain but the approach taken by the CC during the course of the case which is still pending raises a number of questions, in particular as to the theories which underpin enforcement action which sit in a grey area between foreclosure and regulation of alleged incumbency. [1] Case M Sogecable / Canelsatelite Digital / Vía Digital, referred back to the Spanish Competition Authority on 16 August see Commission press release IP/02/1216: See Kay Parplies, Mary Loughran, Roosmarijn Schade, The European Commission grants the referral requested by the Spanish Competition authorities with regard to the integration of the two satellite digital television platforms operating in Spain (Sogecable/Canalsatélite Digital/Vìa Digital), 14 August 2002, e-competitions, n [2] See Vincenzo Baccaro, The European Commission gives the green light to the merger between the two existing satellite pay-tv platforms in Italy subject to a complex package of conditions (Newscorp/Telepiu), 2 April 2003, e-competitions, n [3] See Stephanie Yon, Olivier Freget, The French Minister of Economics clears the merger between the two pay-tv operators with 59 commitments after consultation of both the audiovisual regulator and the NCA (TPS/Canal Sat), 30 August 2006, e-competitions, n 12542, Olivier Beddeleem, The French Competition authority sentences two media groups for violating merger remedies in the satellite television sector (TPS and CanalSatellite), 20 September 2011, e-competitions, n [4] See and Jean-Mathieu Cot, Alice Blanchet, Revocation of clearance : The French NCA revoks, for the first time, the clearance of a concentration because of a breach of commitment (CanalSatellite/TPS), Concurrences N , pp [5] Case M.2876, News Corp / Telepiu, 2 April 2003 (News Corp / Telepiu). [6] See News Corp / Telepiu, at paragraph 19. Page 5/7

6 [7] Case M.5932, News Corp / BSkyB, 21 December 2010 (News Corp / Sky). See Max Findlay, The European Commission clears a merger in the telecommunications sector leaving open the debate on media plurality in the UK (News Corp/BSkyB), 21 December 2010, e-competitions, n [8] See News Corp / Sky, at paragraph 105. [9] See News Corp / Telepìu, at paragraph 43 [10] See News Corp / Sky, at paragraph 107. [11] Acquisition by British Sky Broadcasting Group PLC of 17.9 per cent of the shares in ITV PLC, Report sent to Secretary of State (BERR), 14 December 2007 (Sky / ITV). See Una Glazier-Farmer, The UK Government refers a media merger to the Competition Commission finding that the proposed transaction could raise substantial issues concerning the plurality of news provision for both cross-media and television news (BSkyB/ITV), 24 May 2007, e-competitions, n and Grant Saggers, The UK Secretary of State for Business, Enterprise & Regulatory Reform, consistent with the recommendations of the UK Competition Commission, required partial divestment of a shareholding and behavioural remedies with respect to an investment in the TV broadcasting sector (BSkyB/ITV), 29 January 2008, e-competitions, n ; Ilan Sherr, The English Court of Appeal confirms divestment remedies in a TV merger (BSkyB/ITV), 21 January 2010, e-competitions, n [12] See Sky / ITV, at paragraph [13] A report on the anticipated joint venture between BBC Worldwide Limited, Channel Four Television Corporation and ITV plc relating to the video on demand sector, 4 February 2009 (Kangaroo). [14] See Kangaroo, at paragraph [15] At paragraph [16] The Commission's assessment in this decision was conducted under the provisions of the original EC Merger Regulation and ultimately concluded that the concentration would lead to the creation of a near monopoly in the pay-tv market in Italy, thereby strengthening the merged entity's dominant position in the Italian pay-tv market. [17] See News Corp / Telepiu, at paragraphs 186 and 187. [18] See See Sergio Sorinas, Gregoire Colmet Daage, The French Council of State confirms the clearance of a merger in the free TV sector (TF1/NT1/Monte-Carlo Participations), 26 January 2010, e-competitions, n [19] Competition Commission, Movies on Pay TV Market Investigation, Provisional findings report, 19 August [20] Movies on Pay TV Market Investigation, Provisional findings, at paragraph 36. [21] See Kangaroo, at paragraph 18. [22] See Max Findlay, The European Commission clears a merger in the telecommunications sector leaving open the debate on media plurality in the UK (News Corp/BSkyB), 21 December 2010, e-competitions, n Page 6/7

7 [23] As noted above, the supply of UK pay-tv movies is currently the subject of a Competition Commission market investigation. [24] See News Corp / Sky, at paragraph 141. [25] See At the time of going to print, there were press reports of a possible challenge to the Bundeskartellamt's clearance decision by Deutsche Telekom and Netcologne (see [26] Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 (2008/C 267/01), at paragraph 61. [27] See Ofcom's Pay TV Statement published 31 March 2010, available at: and Ilan Sherr, The UK Office of Communications imposes price controls in order to open up the wholesale pay TV market (BskyB), 31 March 2010, e-competitions, n Antonio Bavasso Allen & Overy (London) Antonio.Bavasso@AllenOvery.com Page 7/7