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80/08 30 June 2008
The OFT has today referred the proposed video on demand (VOD) joint venture between BBC Worldwide Limited (BBCW), ITV plc (ITV) and Channel 4 Television Corporation (Channel 4) - also known as Project 'Kangaroo' - to the Competition Commission (CC) for further inquiry. The CC now has 24 weeks to consider the issues, and collect better evidence on the key issues than is currently available.
The joint venture will combine the parties' retail activities, creating a common website of UK TV content accessible on demand to consumers. It will also bring together the parties' wholesale activities, which consist of syndicating the content rights to third parties that offer VOD services. The collective rights library will be the largest and richest source of UK TV content, not least because BBCW and ITV are each contributing the two single largest archives of popular British TV, and all three parties are combining their significant portfolios of rights to various recent independent UK TV shows.
Consumers will benefit from the ability to browse online through this entire library of British TV comedy, drama and other material in a searchable website, and watch video content on a free, download-to-rent (DTR) or download-to-own (DTO) basis. At the same time, concerns arise because the concentration of these important and competing libraries of UK TV programming may give market power to the joint venture, enabling it to charge higher prices in syndicating content to wholesale customers, and potentially raise DTR and DTO prices paid by VOD consumers, or limit the range of ways in which viewers can watch the parties' content on demand.
In reaching its decision, the OFT carefully considered all evidence as to whether the joint venture would face enough competition from other sources. If it were true that enough VOD users would switch away from using the joint venture if it put its DTR and DTO prices up, then the joint venture would not find it profitable to do so. These alternative VOD choices could be one or more of watching the same UK TV content elsewhere (say, by video recording off the TV, or DVD rental or purchase), watching competing content (such as hit U.S. TV series, Hollywood and other films) or a combination of watching different content in a different way.
While it is easy to speculate about what different UK viewers might do if the joint venture charged a higher price, there was a lack of good evidence available on these issues. In the recent LoveFilm/Amazon case - involving related issues in online DVD rental services - the OFT obtained sufficient evidence to clear the merger. But in this case a lack of evidence meant that the OFT could not make a robust judgment as to whether the joint venture's future pricing (and non-price offer) would, in fact, be constrained by competition from other sources. As such, it is appropriate to refer this joint venture to the CC for further evaluation.
In order to avoid reference, the parties did offer remedies, but they were of limited scope, which the OFT did not consider sufficient to resolve the above concerns in a clear-cut fashion.
Simon Pritchard, Senior Director of Mergers at the OFT, said: 'Video on demand is a new and fast-growing consumer sector, and we should judge the issues on evidence, rather than speculate about consumer behaviour. We were in a position to clear the recent LoveFilm/Amazon merger, but that outcome would have been unsafe in this case because we lacked the evidence to make the right judgment. The CC, however, can start with our roadmap of the issues and ultimately decide what remedies, if any, are in fact required.'
1. The CC's deadline is 12 December 2008.
2. BBCW is the commercial arm that is independent of the BBC's public service function, but is the entity that controls the ability to exploit the VOD rights in respect of the BBC's archive of UK TV programming as it has first refusal on these rights.
3. Aside from the joint venture website, Channel 4 and ITV will also retain their own websites that include VOD material.
4. Third parties that offer VOD in the UK include Apple's iTunes service, BT Vision, Joost, Sky, Tiscali and Virgin.
5. In the OFT's recent analysis of the LoveFilm/Amazon merger of online DVD rental services, the OFT obtained compelling evidence that LoveFilm would face so much competition from other suppliers of film and other video content that it would not be able to raise prices or reduce quality over a sustained period, because too many customers would desert LoveFilm if it did. For further details on the OFT's decision to clear LoveFilm's acquisition of Amazon's online DVD rental business, see press release 51/08, 15 April 2008.
6. The reference test - the OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that a relevant merger situation has been created; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
7. Under the Enterprise Act 2002, a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
8. The text of this decision will be placed in the mergers section of the OFT website as soon as is reasonably practicable.
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