Liberty/Ziggo and Liberty/DeVijverMedia Phase II cable TV mergers in the Netherlands and Belgium Thomas Buettner CET, DG COMP, European Commission ACE Annual Conference, Milan, 27 November 2015 Disclaimer: the views expressed are those of the presenter and cannot be regarded as stating an official position of the European Commission.
2 recent cable mergers Liberty Global / Ziggo Netherlands (Mainly) horizontal merger Liberty Global/ De Vijver Media Belgium (Flanders) Vertical merger Two cable operators (each with premium pay TV channels) Clearance with remedies October 2014 Phase II No SO Cable operator acquires stake in broadcasting JV Clearance with remedies February 2015 Phase II No SO
Liberty Global (UPC) / Ziggo
Liberty (UPC) / Ziggo ZIGGO(cable) UPC/Liberty(cable) UPC (Liberty) and Ziggo (target) are cable operators with non-overlapping footprints Merged entity has national footprint One main competitor KPN also with national coverage Merger also brings together 3 out of 4 premium pay TV channels: UPC: Film1 and Sports1 Ziggo: HBO film channel (JV)
Liberty/Ziggo: Main Theories of Harm 1. Elimination of (indirect) competition between of cable infrastructures? Non-coordinated effects (sequential pricing) Coordinated effects (increased symmetry) -> Concerns dropped early in phase II 2. Concerns re premium pay-tv film channels -> Addressed with commitment to divest Film 1 5
Liberty/Ziggo: Main Theories of Harm 3. Increased (bargaining) power vis-à-vis broadcasters Increased subscriber base increases bargaining power (Evidence size effect on license fees/sub from market investigation, correlations) TOHs 3a: Waterbed effect lower fees paid to broadcasters by merged entity would lead to higher fees for rival platforms -> Concern dropped in phase II 6
Liberty/Ziggo: Main Theories of Harm 3. Increased (bargaining) power vis-à-vis broadcasters TOHs 3b: OTT concern Pre-merger "attempts" to prevent internet based distribution of content "over the top" (OTT) contractually Concern: merged entity could "force" broadcasters not to engage in OTT contractually or could frustrate OTT technically -> Addressed by commitment: not to restrict OTT through contractual means to keep interconnection with internet transit providers uncongested 7
Liberty Global (Telenet) / De Vijver Media
Liberty / DeVijverMedia (Belgium) DVM (11%) VRT (~40%) Medialaan (~30%) 50% Liberty stake in DVM (JV) Liberty CABLE IPTV SATELLITE IPTV CABLE OTT TV Broadcasters TV Retailers [70-80%] 9
Liberty / DVM: Main Theories of Harm 1. Input foreclosure (total/partial) Rival TV distributors would be foreclosed from distributing the Flemish language channels Vier and Vijf 2. Customer foreclosure (partial) Non-DVM channels would be disadvantaged on the Telenet s distribution platform 10
Liberty / DVM: Input foreclosure DVM(11%) Liberty [70-80%] Ability: Vier/Vijf important channels Control of DVM decisions (legal assessmt) VRT(~40%) X Incentives: Total foreclosure: subscriber gains likely outweigh DVM losses (vertical arithmetic) Medialaan (~30%) X [10-20%] Partial foreclosure: DVM can extract higher licensing fees from Telenet's competitors (Nash bargaining) Effects: Less consumer choice/higher prices Broadcasters/ viewer shares TV Retailers/ sub shares Strengthening of Telenet dominance and entry barriers 11
Liberty/DVM: Partial input foreclosure Nash bargaining approach (see also Rogerson on NewsCorp/DirectTV, Comcast/NBCU mergers) License fee: (to DVM) =μ B b) (1 μ)(d d+t t DVM's bargaining parameter Belgacom's gains from trade DVM's gains from trade Telenet's costs of trade = μ + Surplus Profits from total foreclosure relative to status quo (vertical arithmetic) Threat of total foreclosure strengthens bargaining position of DVM Increase in license fee exceeds profits from total foreclosure Magnitude of "price" (i.e. fee) increase can be very big in percentage terms 12
Liberty / DVM: Customer foreclosure DVM(11%) Liberty [70-80%] Total foreclosure: unlikely (vertical arithmetic) Partial foreclosure: VRT(~40%) Medialaan (~30%) X X [10-20%] Reduce quality of rival channels Lower EPG position / worsening of non-linear services/ recommendations etc. Lower channel license revenues (through greater bargaining power) Effects: Likely reduced viewer experience/choice Broadcasters/ viewer shares TV Retailers/ sub shares Likely reduced investment incentives for rivals through lower advertising and license revenues 13
Liberty/DVM: Solutions Developments before Decision: Input foreclosure DVM signed carriage agreements with Belgacom, Mobistar, Snow DVM made binding offer to M7 (TV Vlaanderen) Customer foreclosure Telenet signed carriage agreement with VRT Telenet made binding and irrevocable offer to Medialaan Formal commitments in Decision: Access to Vier/Vijf + ancillary rights on FRAND terms (+anti-circumventions clauses) Offer to Medialaan valid for six months 14