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On 2007, British Broadcasting Corporation ( BBC ) through BBC Worldwide Limited ( BBCW ) , Channel Four Television Corporation ( C4C ) and ITV plc wanted to make a joint venture associating to the picture on demand ( VOD ) sector. Video on demand ( VOD ) is a engineering which allows the consumers to take audiovisual content for immediate or subsequent screening. The beginnings of the UK broadcasters for their audiovisual content are in house production ; commissioning from 3rd party production companies ; or licensing of rights to work bing content. The rights proprietors of audiovisual content may supply a VOD service straight to consumers or to retail merchants who will present VOD to viewing audiences. Viewing audiences can entree content over the cyberspace without subscription ( Open VOD, for illustration, iTunes, Joost and Babelgum ) ; in a assortment of ways with a subscription ; or utilizing dedicated hardware or connexions ( Closed VOD, for illustration, Virgin Media, Sky, BT Vision, Tiscali, Top Up Television ) .[ 1 ]VOD concern theoretical accounts vary between Free-to-air ( FTA ) advertisement funded ( i.e. Joost ) ; subscription funded ( i.e. Sky and Virgin Media ) ; and pay-per-view funded ( i.e. iTunes ) theoretical accounts. Content may be watched instantly ( “ streamed ” ) ; downloaded temporarily as a time-limited file ( Download to rent-DTR ) ; or downloaded for good ( Download to own-DTO ) . Content may besides be categorized in short signifier ( short picture cartridge holders ) vs long signifier ( full-length stuff ) ; catch-up V archive ; or other classs like for case the beginning of content ( UK or non-UK ) .

THE PARTIES

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BBC is the longest-established national Television channel operator in the UK. BBCW is a wholly-owned subordinate of the BBC. It offers a broad scope of commercial activities in the audiovisual sector both in the UK and over-seas. BBCW does non hold a portion in VOD retail market but a assortment of VOD services are offered. Particularly, BBC launched the BBC iPlayer, on 25 December 2007, to offer a catch-up service via Internet for programmes for up to seven yearss after transmittal ( or longer for go oning series ) . Viewing audiences can stream or download these programmes. BBC iPlayer is besides available through iTunes, the Nintendo Wii, Sky and Virgin Media.

C4C is a statutory corporation which was created by Act of Parliament in 1982. It chiefly offers typical scheduling that the market may otherwise non supply. Television advertisement is the chief beginning of grosss.[ 2 ]C4C operates Channel 4 which is a public service UK Television station. It was the first of the parties to establish a VOD service. 4OD was launched on overseas telegram and broadband. It is now free to viewing audiences who can stream or download programmes on DTR or DTO footing.

ITV is the UK ‘s largest commercial FTA broadcaster and has been in operation for more than 50 old ages. Consumers can entree a broad scope of ITV stuff like 30-day catch-up and some archive stuff over ITV ‘s web site, ITV.com. Online advertisement is the chief beginning of grosss and it was the first preponderantly free streamed video service in the UK. Some ITV content is licensed to other VOD services.

Description OF THE JV

On 27 November 2007, the parties formed a limited liability partnership ( UKVOD LLP ) under an interim understanding. Under the footings of the understandings, UKVOD will provide VOD content to any consumer with a Personal computer and to third-party VOD retail merchants in the UK. Each party of JV will keep an equal interest in the limited liability partnership and UKVOD will be each party ‘s chief path to market for their archive VOD content.[ 3 ]The bulk of positions are expected to be of free, advertising-funded content. ITV, C4C and BBCW will supply a minimal figure of hours of content to UKVOD.[ 4 ]It has been agreed that C4C and ITV will do available VOD rights in all content, including archive and catch-up. BBCW will do available VOD rights in the majority of the archive content. The exclusivities of JV will be: the greater portion of ITV ‘s and C4C ‘s archive stuff will be licensed to UKVOD and will no longer be available on place web sites, although catch-up content will go on to be provided. Merely the UKVOD service will supply the 4OD service and ITV.com ( and non on ITV.com ) . The intent of the JV is to vie the powerful rivals of VOD market, to command their content in order to avoid “ disintermediation ” faced by music companies ( i.e. success of iTunes ) and limit the person hazard in an unsure VOD sector. Equally far as the legal power is concerned, Competition Commission ( CC ) concluded that the bing archive VOD concerns of each of ITV and C4C will discontinue to be distinguishable from those of each of the other two parties.

Market DEFINITION

Market definition is the preliminary measure towards the appraisal of market power before sing implicit in factors impacting competition. To happen the relevant market, the US Department of Justice has launched the SSNIP trial which is presently being used by antimonopoly governments worldwide.[ 5 ]Would a conjectural monopolizer of a merchandise happen it profitable to increase the monetary value of the merchandise above the current degree in a non transitory degree by 5-10 % ? If the reply is yes so there are no other merchandises that replacement plenty so this merchandise should be considered as a separate market. If the reply is no so we should broaden the market adding more merchandises.[ 6 ]

In order to specify the relevant market for the VOD services provided by BBCW, ITV and C4C, the SSNIP trial was used. The get downing point was the narrowest convergence in the merchandises supplied by the parties, the retail supply of UK TV VOD archive content viewed on a Personal computer. The parties submitted three empirical surveies to back up their positions: analysis of consumers ‘ sing forms on UK additive Television ; analysis of the DVD sector ; and a consumer study. In CCs ‘ position, these empirical surveies provide interesting information but they do non demo that the aggregative restraint from consumers ‘ willingness to replace off from UK TV VOD content would supply a important restraint on a conjectural monopolizer of UK TV VOD content. Harmonizing to CCs ‘ analysis, movie VOD, short-form and user-generated content and illegal content should be excluded by the relevant merchandise market. They besides found that non-UK content is non a good replacement for UK content. Furthermore, CC decided that it is non right to section the market for UK Television VOD harmonizing to the bringing method or concern theoretical account. Non-VOD content like additive Television, PVRs and DVDs are non close replacements and can non be competitory restraint to a supplier of UK TV VOD content. The CC concluded that the markets for the retail supply of VOD services and the whole-sale licensing of content for VOD development should be defined by mention to the supply of VOD content and should include long-form VOD content delivered by both unfastened and closed services. Besides, catch-up and archive content should be treated as portion of the same markets and that the geographic market should be no wider than the UK.

Competition EFFECTS

A joint venture is a concern understanding in which the parties agree to develop, for a finite clip, a new entity and new assets by lending equity. JV can do similar effects like a amalgamation. The three chief theories of injury are one-sided effects, foreclosure and co-ordinated effects.

First, JV can give rise to one-sided effects if and merely if an addition in monetary values ( or curtail end product ) could be profitable regardless of the reactions of the staying rivals.[ 7 ]In add-on, the larger the market portion of the JV, the more likely the JV is, ceteris paribus, to give rise to one-sided effects. Normally, combined market portions below 25 per cent do non raise competition concerns.[ 8 ]

Equally far as the impact of the JV on competition in the relevant VOD market is concerned, CC found that the JV was likely to ensue in a loss of competition in the supply of VOD content at the sweeping degree. When the third-party VOD retail merchants purchase VOD content from the parties so a monetary value addition or other inauspicious alteration in footings might be passed on to consumers. The parties were each other ‘s closest rivals for the supply of UK VOD content, and other providers would non be in a place to offer content which would let third-party VOD retail merchants to move as an effectual competitory restraint to UKVOD.

Foreclosure is divided into input and client foreclosure. Input foreclosure is where the amalgamation is likely to raise the costs of downstream challengers by curtailing their entree to an of import input. Customer foreclosure is where the amalgamation is likely to prevent upstream challengers by curtailing their entree to a sufficient client base. For both types of foreclosure, the bill of exchange guidelines consider three chief issues: the ability to prevent entree to inputs/customers ; the inducement to prevent such entree ; and the overall likely impact on effectual competition.

CC found that the parties may restrict the ability of any rival service to sabotage the JV, by, for illustration, trying, partly or wholly, to prevent entree to content or otherwise increasing the cost of this content to their challengers, or by restricting the mode in which the content could be exploited.

A amalgamation may give rise to coordinated effects when the consequent alteration in the market construction, including the decrease in the figure of houses and the greater market portion held by the unifying party, better enables the incorporate house and at least one of its staying rivals to conspire and thereby raise monetary values.[ 9 ]

CC concluded that the JV was besides likely to ensue in a loss of competition at the retail degree. This loss of competition between them would enable the parties to offer less attractive footings to clients, ensuing in viewing audiences paying higher monetary values for some content, paying for a higher proportion of content, and/or having lower quality or less advanced offers. The loss of competition and the concentration of content in one entity could besides cut down the chances for future enterprises or developments by 3rd parties of options to the JV. CC concerned that the interaction between the parties via the JV would ease silent coordination and give ITV and C4C the ability to aline their schemes to UKVOD ‘s syndication scheme. CC concluded that the JV would be probably to take to a loss of competition between the parties, amounting to a significant decrease of competition ( SLC ) in the supply of UK TV VOD content at the wholesale and retail degrees.[ 10 ]

Barriers to entry

The Horizontal Merger Guidelines right province that “ when come ining a market is sufficiently easy, a amalgamation is improbable to present any important anticompetitive hazard. ”[ 11 ]As we said above, the likeliness of a new entry is an of import component of the competitory appraisal of one-sided effects. High barriers to entry make non ever indicate that the amalgamation will give rise to one-sided effects. We can measure entry under two classs. The first is the “ tip-and-run ” entry[ 12 ], when entry can happen with no, or really low, sunk costs and the 2nd is the long-run entry[ 13 ]when houses incur sunk costs and purpose to stay in the market in the long-run. Entry sunk costs are publicizing, research and development and investings in irrecoverable assets.[ 14 ]The Horizontal Merger Guidelines province that in order for entry to be considered a sufficient competitory constrain, entry must be shown to be probably, seasonably and sufficient.[ 15 ]

The CC found three possible barriers to entry: engineering, publicity and entree to content. First, there are no important technological barriers to entry as it is comparatively cost-efficient to construct a basic proficient platform. On the other manus, a sophisticated web site would be more dearly-won to be developed. Second, the publicity and selling of a new VOD service does non represent a important barrier to entry and enlargement. The parties claimed that the publicity was available to any possible entrant and there were many ways in which sites could be promoted. Finally, CC found that non-UK content is non a good replacement for UK content. They besides found that VOD retail merchant is improbable to be able to entree sufficient UK VOD content to supply VOD service in order to vie efficaciously with the other parties. So, content could be a barrier to entry.

Buyer power

Buyer power refers to the ability of purchasers to alter the construction of the supply market.[ 16 ]As the Horizontal Merger Guidelines note, purchaser power can be exercised by endangering to fall back to options beginnings of supply.[ 17 ]

The most of import beginnings of bargaining strength were the grade of importance attached to the content under dialogue and the ability to exchange, or endanger to exchange, between providers. The CC found that the parties had greater bargaining strength than the VOD retail merchants to whom they supply content. Particularly, BBCW had greater bargaining strength than C4C or ITV.

Milliliter looked at degrees of competition in the retail supply of VOD services and concluded that, absent the JV, there was, or would be in the hereafter, strong competition between the providers of UK VOD content and that the competition between third-party VOD retail merchants is weaker. Given that non-UK VOD content was non, in general, a good replacement for the parties ‘ VOD content, CC did non happen that VOD retail merchants offering non-UK content acted as an effectual competitory restraint on the parties.

Furthermore, it is improbable that third-party VOD retail merchants would be able to get sufficient UK content to offer an effectual competitory restraint to the parties. CC concluded that sweeping clients can difficulty to exchange, or endanger to exchange, off from the parties as providers should they be un-able to hold satisfactory footings.[ 18 ]This indicated to us that, absent the JV, the parties would be in a strong place in the sweeping market.

Redresss

An anti-trust authorization ( AA ) might unclutter a amalgamation merely if the meeting houses adopt certain redresss. There are two classs of amalgamation redresss. ( I ) Structural redresss modify the allotment of belongings rights: the divestiture of an full ongoing concern or the partial divestitures are included. ( two ) Behavioural redresss set constrains on the meeting parties non to mistreat certain belongings rights, or to come in into specific contractual agreements.[ 19 ]

CC considered assorted redress options like prohibition, entree redresss, material alterations to the footings of the JV and other types of redresss. They concluded that prohibition of the JV would be an effectual redress to the SLC and inauspicious effects that they found. However, entree redresss would be improbable to be effectual in turn toing the SLC and inauspicious effects that they found. Equally far as the stuff alterations to the footings are concerned, restrictions on the JV ‘s ability to sweeping ITV and C4C catch-up content were proposed. CC concerned that the parties are likely to hold a one-sided inducement to syndicate content to third-party VOD retail merchants that chiefly entree new viewing audiences. However, the inducements to syndicate content to other third-party VOD retail merchants would be much weaker and an outlook that syndication would happen could non be formed. CC besides concerned that the parties might hold the inducement to tacitly organize on a scheme of keep backing content from third-party VOD retail merchants. This might affect either entire or partial foreclosure. In add-on, the parties proposed a redress bundle which incorporates the sweeping redress and conserves three separate retail merchandising points under a “ husbandmans market ” . CC concluded that it is likely that the parties might retain to some grade both the inducement and the ability to keep back content or to do syndication of content at the sweeping degree unattractive to third-party VOD retail merchants. Besides, this bundle of redresss would non be effectual in turn toing the SLC and inauspicious effects that they found. Finally, CC concluded that redresss to curtail engagement in the JV and to modify the Footings of Trade would non be effectual in turn toing the SLC and inauspicious effects that they found.

To sum up, BBCW, ITV and C4C wanted to supply VOD services to VOD retail merchants and consumers via JV. CC found groundss for the one-sided effects, input foreclosure and co-ordinated effects and concluded that the collection of such of import UKVOD content would be probably to take to a loss of competition between the parties amounting to a significant decrease of competition in the supply of UK TV VOD content at the wholesale and retail degrees. However, CC decided that the comparative geographic market was the UK content which was non replacement of the non-UK content. This might non be wholly right. Consumers do non separate Television programmes to UK and non-UK. For case, many US programmes are really popular in the UK telecasting. For this ground, the geographic market might be wider.

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