Vertical integration in tv broadcasting and distribution sector in india a competition audit
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Transcript of Vertical integration in tv broadcasting and distribution sector in india a competition audit
VERTICAL INTEGRATION IN TV BROADCASTING AND
DISTRIBUTION SECTOR IN INDIA: A COMPETITION AUDIT
___________________________
INTERNSHIP PROJECT REPORT
SUBMITTED BY:
AAKSHITA BANSAL
AMITY LAW SCHOOL, AFFILIATED TO GURU GOBIND SINGH
INDRAPRASTHA UNIVERSITY, NEW DELHI
UNDER THE GUIDANCE OF:
Dr. K. D. SINGH
DEPUTY DIRECTOR (LAW)
____________________________
NEW DELHI
JULY 2013
1
ACKNOWLEDGEMENT
This report is an effort made by me with the astute guidance of my mentor,. His valuable inputs
and constant encouragement has inspired me to carry out this research fruitfully. He gave me his
valuable time to discuss the facets of this topic and guided me towards an enlightening and
holistic research.
I also put on record my gratitude towards the library staff, which has provided me help and
access to all the resourceful material for my research.
I am indebted towards Competition Commission of India, for providing me an opportunity to
have a learning experience.
AAKSHITA BANSAL
2
DISCLAIMER
This project report has been prepared by the author as an intern under the Internship Programme
of the Competition Commission of India for the period of one month from 1st July 2013 to 31st
July 2013, for academic purposes only. The views expressed in the report are personal to the
intern and do not reflect the views of the Commission or any of its staff or personnel and do not
bind the Commission in any manner. This report is the intellectual property of the Competition
Commission of India and the same or any part thereof may not be used in any manner
whatsoever, without express permission of the Competition Commission of India in writing.
3
TABLE OF CONTENTS
S. NO.
CHAPTERS
PAGE NO.
1. INTRODUCTION 5
2. INDIAN TELEVISION BROADCASTING AND
DISTRIBUTION SECTOR- A SNAPSHOT 6-8
3.
BENEFITS AND COMPETITION CONCERNS
ASSOCIATED WITH VERTICAL INTEGRATION
9-15
4. PRESENT REGULATORY FRAMEWORK IN INDIA 15-26
5.
INTERNATIONAL SCENARIO
26-28
6. MEDIA CASE ANALYSIS
(FOREIGN AND INDIAN CASES) 29-33
7. CONCLUSION 33-35
8. BIBLIOGRAPHY 36-37
9. APPENDIX 38
4
ABSTRACT
Any sort of merger between two companies of a relevant market does not result in
competition concerns to arise. Horizontal mergers are definitely harmful but vertical integration
between two companies often results in productivity gains and better quality of services. In
certain circumstances, vertical integration may result in competition loss as witnessed in other
countries around the world. India’s Competition Act and the TRAI regulations provide ample
means for the CCI to deal with competition concerns. This paper discusses all the relevant
aspects of vertical integration and provides recommendations by analyzing the current market
conditions and the future predictions for the media sector.
Research Question
The researcher seeks to find out whether a blanket ban or restrictions on the vertical integration
in the TV broadcasting and distribution segment is required in a diverse country like India?
Research Methodology
Research Methodology in this project is doctrinal and secondary sources of information like
articles, websites, case laws etc. are relied upon.
Scope and Limitations
The research paper suffers from certain restrictions and limitations like paucity of time and also
the limited space in which the researcher has restricted his research work. However, the
researcher has ensured that only standard materials are being resorted to while carrying on her
research.
Mode of Citation
The researcher has followed a uniform mode of citation throughout the course of this research
paper.
5
CHAPTER-1: INTRODUCTION
Vertical integration in the entertainment and media industry refers to the ownership and
control of two important entities – the broadcaster which provides broadcasting/content services
and the distributor which provides access to said content to the consumers. The recent trend
shows that many TV distribution platforms and broadcasting companies are venturing into each
other’s domain, for example: broadcasting companies owning Cable, DTH, HITS and IPTV etc.
and distribution platforms venturing into broadcasting sector. Therefore, the field has not
remained pure but is transforming into a hybrid one and more consumer satisfaction oriented.
Vertical integration has substantial benefits for the companies as well as the consumers.
With companies entering into vertical mergers, the efficiency between the upstream and
downstream activities increases and there is enhanced coordination between the two markets.
Such gains directly transform into major cost savings for both the companies. This allows the
same products and services to be provided to the consumer at a lower price with improved
quality. It also helps in enhancing competition in the relevant market for better quality and lower
pricing of the products and services. However, in certain circumstances vertical mergers may
enable enterprises to create entry barriers for the new players, foreclose competitors and in turn,
affect consumer choices. It may also deter investment and innovations on the part of the
vertically merged enterprises. Therefore, it is necessary to weigh the welfare effects of vertical
integration with the various anti-competitive effects in the entertainment and media industry in
India.
This report deals with the detailed analysis of the pro and anti-competitive effects of
vertical integration in the TV broadcasting and distribution segment of the entertainment and
media industry. The report also examines the need (if any) to place restrictions on such vertical
integration. The recommendations of TRAI in this matter are critically analyzed and tested with
the prevailing regulations and restrictions in foreign countries like United States, European
Union and Canada. The relevance, importance and effectiveness of the existing provisions of
Indian Competition Law and the role of Competition Commission of India, a body established
under the Indian Competition Act, 2002 to check and prevent anti-competitive practices having
appreciable adverse effect on competition, are also discussed.
6
CHAPTER -2: INDIAN TELEVISION BROADCASTING AND DISTRIBUTION
SECTOR- A SNAPSHOT
Broadly speaking, the Entertainment and Media industry is divided into four segments
i.e. TV, Print, Radio and other media like Internet Access, Film, Music, etc. According to PwC-
Global Entertainment and Media Outlook: 2012–2016, in the year 2011, the global E&M market
size was US $1.6 trillion. Presently, India is ranked as the 14th
largest E&M market in the world
and is expected to more than double its revenue by 2016. Furthermore, on the basis of the World
Bank estimates, the average annual spend (per capita) on E&M in India in 2011 is estimated to
be US $6.6. On the other hand, the expenditure on the E&M industry by the consumers as a
percentage of per capita GDP is 0.4% in India, which is similar to that in emerging markets such
as China, Russia and Brazil1. Such consumer spend contributes a major share in the total industry
revenue and has been increasing at a fast pace over the last few years. According to various
industry reports, the key consumer spend segments are TV subscription (58%), films (19%) and
print (17%)2.
Out of the four broad media segments, TV dominates the E&M industry as the most
preferred choice of entertainment of the end-consumers. TV plays a major role in the flow of
information and is equipped with the power to influence people, their beliefs and their opinions
and it being a visual medium, its impact transcends the social and educational background of its
viewers, more so, in a diverse country like India3. As far as TV channels are concerned, MIB on
20.12.2012, permitted 848 TV channels out of which 31 channels have only uplinking
permission and so are not available for viewing in India and out of the remaining 817 channels,
around 650 TV channels are operational and available for viewing in India4. Thus, the reach of
the TV media in the total population of the country is significant.
In the Indian cable TV market, there are four players on the supply side, namely,
broadcasters, aggregators, MSOs and LCOs. The broadcasters own the TV content themselves or
source them from the third party which is received and viewed by the end-consumers. They
1TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 1, pg 9.
2Ibid.
3Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011] 8.
4TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013)10.
7
transmit or uplink the content signals to the satellite from where they are further downlinked by
the distributors of such TV content. The aggregator acts like a distribution agent of TV channels
for one or more broadcasters and provides bundling services and even negotiates the subscription
revenue on behalf of the broadcasters. Furthermore, in the supply chain, the MSO downlinks the
broadcaster’s signals, decrypt the encrypted channels (if any) and provides bundled signals
(multiple channels) to the LCOs. The LCO receives such bundled feed and re-transmits them to
the subscribers in his area of operation via cable network.
Similarly, TV programming distribution market of India consists of five main platforms,
namely, Terrestrial TV, digital cable, DTH, HITS and IPTV. Terrestrial TV is available to the
consumers without charging them any subscription fee. IPTV is a very new TV viewing platform
in India and is also not available throughout the country. On the other hand, HITS is just starting
its operation as a distribution platform. Thus, in the current scenario in India, the two most
popular and preferred modes of TV viewing are the digital cable and the DTH. With the advent
of digitization, the subscriber base of DTH platform is increasing owing to its better picture and
sound quality, flexible programming, modern technology and method of access.
Reference: TRAI Consultation paper No.: 5/2013 – Monopoly/Market Dominance in Cable TV services
8
Weblink:
http://trai.gov.in/WriteReaddata/ConsultationPaper/Document/C_Paper_Cable_monopoly__3rd%20Ju
neFINAL.pdf
The total revenue of the Indian TV industry in 2011 was estimated at Rs.34,000 Cr, a
year-over-year increase of 15.7% from 2010 to 2011 and this increase is driven equally by
growth in advertising and subscription revenue, mainly due to the increase in number of TV
channels5. TV subscription fee (an amount collected from pay TV channels) is collected either
by the LCOs or the DTH players depending on the type of pay TV connection the end user has
subscribed to and the amount collected is shared between MSOs, the broadcaster and the LCO
whereas in case of DTH, the amount is shared between the broadcaster and the DTH player6.
According to the available statistics, presently in India, there are about 828 TV channels
at the broadcasting side and 7 DTH operators, 6000 MSOs and 60,000 LCOs at the distribution
platform and few IPTVs. Each year, numerous players are entering at each level of the
broadcasting value chain. For instance, in the last two years 2011 and 2012 about 240 private
satellite TV channels were given uplinking/downlinking permission by MIB to enter in to
broadcasting industry7. In such a fragmented and diverse TV broadcasting and distribution sector
in India, the competition is increasing day by day. Therefore, to have an edge over such
competitive market, to increase market power and to maximize profit, the practice of vertical
integration between the supply and distribution side of the TV segment is rampant further giving
rise to both the pro and anti-competitive effects in the said segment which are discussed below in
detail.
5Ibid.
6Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011] 11.
7Confederation of Indian Industry, CII’s Response to TRAI’s Consultation Paper (No. 01/2013) on the issues
relating to Cross Media Ownership (2013) 2.
9
CHAPTER-3: BENEFITS AND COMPETITION CONCERNS ASSOCIATED WITH
VERTICAL INTEGRATION
BENEFITS OF VERTICAL INTEGRATION
Generally, vertical integration is motivated by a desire to reduce costs, rather than
increase the prices of parties’ products8. It has been noticed that vertical integration allows the
parties to achieve greater productivity i.e. supply same quantity of products and services at lower
price or increase output at the same price. Specifically, for the broadcasting sector, there is
empirical evidence to prove that vertical integration in the broadcasting industry results in an
increase in quality of service and reduction in cost9. Greater efficiency is achieved mainly
through enhanced coordination which is made possible by the vertical integration which further
allows for the following benefits:
1. Production efficiencies and cost savings – A number of different production efficiencies
and cost savings can arise either from economies of scope or the enhanced coordination
possible from a vertical merger10
. Economies of scope signify cost savings and amount to
a combination of the upstream and downstream production activities to produce a
streamlined result. They arise when overhead, marketing, R&D, sales or other costs can
be shared for two or more related products, or when any other efficiency gains can be
reaped from the joint production and sale of related or unrelated products11
. Economies of
scope are common in the media industry since the nature of media content allows the
reformatting and repackaging of one product for several markets and whenever
economies of scope are present, vertical integration will be an economically efficient
strategy because the total cost of the diversified firm is bound to be lower than for a
group of single product firms producing the same output (Moschandreas, 1994, p. 155)12
.
Thus, the result of efficient production and cost savings is lower prices for the consumers
8Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 20. 9Ibid 22.
10Jeffrey Church, 'The Competitive Effects of Vertical Integration: Content and New Distribution Platforms in
Canada ' [27 April, 2011] 30. 11
Fiona Röder, ‘Strategic Benefits and Risks of Vertical Integration in International Media Conglomerates and Their
Effect on Firm Performance’ (DEco thesis, University of St. Gallen 2007) 89. 12
Ibid.
10
which will attract more business to the integrated firms. For example, the transportation
cost of TV material from the broadcaster to the distributor significantly decreases for a
vertically integrated entity.
2. Economies of scale – This exists in an industry where marginal costs are lower than
average costs and economies of scale are especially significant in the media industry
because of the public good attributes of the media products13
. For media firms, marginal
costs are the costs of supplying a product or service to one extra consumer and average
costs are the total costs involved in providing the product or service, divided by its
audience14
. With the increase in number of audience, the average costs to the firm of
supplying that product decreases which in turn expands the output which further leads to
the enjoyment of economies of scale and higher profits. Also, it will lead to more and
more investments and innovations on the part of the vertically integrated entity
benefitting the end-consumers and media industry as a whole.
3. Internalization of vertical externalities – Externalities arise when the actions of one entity
directly affect the welfare of another entity15
. The enhanced coordination enabled by a
vertical merger can create efficiencies from; (i) the alignment of incentives within the
vertical structure of supply; and (ii) the prevention of free-riding. Investments and
conduct by upstream and downstream firms that harm or benefit the other will cause
incentive problems if there is vertical separation, but will be internalized if there is
vertical integration. For instance, the issue of quality assurance for the distributor and the
consumer becomes internalized with vertical integration as quality checks can be
conducted in the presence of both the distributor and the broadcaster.
4. Pricing efficiency – Vertical integration can result in elimination of the concept of
‘double marginalization’ i.e. when a downstream firm marks up over their marginal cost,
13
Ibid. 14
Ibid. 15
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 20.
11
which because of market power upstream exceeds the marginal cost of the upstream
producer leading to a markup over a markup or double marginalization16
. A vertical
integration will lead to an elimination of the wholesale market transaction (one of the
markups) and will reduce the marginal cost downstream17
. It helps in increasing the
profits and lowering the price downstream.
5. Hold up problem - This involves opportunistic behavior by a buyer (lower price) or seller
(higher price) who attempt to renegotiate the terms of trade after investment in the
asset18
. The investment needed to create or acquire original TV content exposes
broadcasters to the possibility of being held up and the broadcasters will only invest in
the content that will enable them to recover both the fixed content acquisition costs as
well as the marginal costs of distribution19
. Once the first-copy costs are sunk, however,
it is possible for broadcast stations to hold out in an attempt to avoid having to contribute
to fixed costs20
. Similarly, cable content aggregators will not invest in content unless it is
likely that they will be able to recover both the fixed costs associated with creating the
programming as well as the marginal costs of distribution21
. Once the first-copy costs are
sunk, however, it is possible for the cable operators to hold out ex-post in an attempt to
drive price down to marginal cost22
. Though the contractual devices can be used to guard
against such opportunistic behavior, but it may be costly to negotiate such contracts.
Thus, in circumstances involving relatively high level of risk and the costs of negotiation
it is prudent and more efficient for the firms to use vertical integration to protect
themselves against such opportunistic behavior.
16
Ibid 22. 17
Ibid 22. 18
Ibid 21. 19
Fiona Röder, ‘Strategic Benefits and Risks of Vertical Integration in International Media Conglomerates and Their
Effect on Firm Performance’ (DEco thesis, University of St. Gallen 2007) 97. 20
Ibid. 21
Ibid 100. 22
Ibid.
12
COMPETITION CONCERNS OF VERTICAL INTEGRATION
A broadcaster basically faces competition at three different levels namely, (i) at the
content level to produce or procure TV content from third parties; (ii) access to distribution
network i.e. MSO, DTH, HITS and IPTV etc.; and (iii) viewership i.e. number of TV channels
and duration of content viewed by end consumers. For distribution companies as well, there
exists serious competition to provide popular TV channels at reasonable subscription rates. They
have to provide low carriage fee to the broadcasters and promise a robust distribution system and
infrastructure that can perform seamlessly. Distributors also need to compete with companies
operating on the same technology platform and also across different technology platforms. In the
current scenario, the competition for broadcasters and distributors in the respective fields has
grown to the level of trying to squeeze water out of a dry towel. To gain an edge and maximize
their profits in the highly competitive market, many broadcasting and distribution companies
enter into vertical integration which may have several ill effects on the competition and end user
satisfaction. Some of them are:
1. Non-provision of TV channels – It is also known as input foreclosure. In this scenario, the
vertically integrated broadcaster may foreclose, i.e. deny access, to the competing
distributors by refusing to provide its TV channel content. This will force the consumers
to move towards those distributors in the downstream market who have a programming
variety advantage gained by vertical integration with the broadcaster which in turn
increases its market power. The competing distributors thus lose market share and also
the consumers get affected because of lack of distributor choices. Therefore, the
competition in the market is effectively reduced for integrated entity.
2. Non-carriage of TV channels – This is also called as customer foreclosure. The vertically
integrated distributor - broadcaster may foreclose competition or raise entry barriers for
other competing broadcasters. As a result of reduction in the viewership of the competing
broadcasters, significant losses occur and the consumers subscribed to the vertically
integrated broadcaster - distributors are denied access to the channels of the competing
broadcasters.
13
3. Selective boycotts and disconnections – A vertically integrated distributor may abuse its
increased market power by arbitrarily disconnecting its channels from the LCOs23
.
Similarly, the vertically integrated broadcaster – distributor may also selectively boycott
the channels of a rival broadcaster. Such arbitrary exercise of increased market power
may result in loss of business to the LCOs and disruption of services to the consumers for
an unspecified amount of time and creates entry barriers for the new players entering into
the broadcasting market.
4. Carriage and placement fee – The vertically integrated distributor – broadcaster may
charge rival broadcasters discriminatory placement and carriage fees and also may
arbitrarily change such fee which would in turn raise the cost of business for such rival
broadcaster24
. In worst scenarios, this may lead the rival broadcasters to bankruptcy and a
complete monopoly in the market.
5. Consumer harm – Vertically integrated distributor – broadcaster may abuse its market
power by restricting the choice of channels for the consumers by tying in unwanted
channels with popular offerings. Such a lack of a-la-carte choices for the consumers may
result in higher cost to the consumers/subscribers.
CRITICAL ANALYSIS OF THE COMPETITION CONCERNS
a) Input foreclosure is not a potential harm/risk arising out of vertical integration of a TV
broadcaster and a distributor. If a broadcaster exclusively deals with a distributor, the
broadcaster itself is at loss of viewership because at the present scenario with number of
distribution platforms available, supplying channels to a single or a limited number of
distributors will hamper the number of people who watch the broadcaster’s channels no
matter how popular they are. With so many players operating in the broadcasting sector,
it is impractical for a particular broadcaster to be in a dominant position. Hence, no
23
Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013)
83. 24
Ibid 86.
14
question of abuse of such position arises. Thus, the ‘must provide’ obligation on a
broadcaster imposed by TRAI is not required in the current scenario.
b) Customer foreclosure is not a competition concern in the broadcasting sector. The
obligation cast on licensee distributors by TRAI to provide access to at least 500 TV
channels on a non-discriminatory basis is physically not possible. It may choke a
distributor because of technical limitations and capacity restraints to not being able to
carry all the channels25
. Secondly, a distributor will not deny access to a broadcaster
because it will not attract consumers unless it provides good quantity and quality of
channels. Also such a provision has been set aside by TDSAT by its order on 19th
October 2012. Thus, the ‘must carry’ rule recommended by TRAI is not necessary to be
implemented.
c) Arbitrary boycotts and disconnections prove to be harmful for the vertically integrated
entity. A distributor will lose its viewership if it arbitrarily boycotts TV channels of rival
broadcasters as the end-consumers will tend towards those distributors who carry good
quantity and quality of channels.
d) An increase in carriage and placement fee of rival broadcasters would ultimately harm
the viewership of the vertically integrated broadcaster- distributor. With the emergence
of number of players at each level of the value chain, it becomes very difficult for a
vertically integrated entity to completely oust a rival broadcaster from the competition by
increasing the carriage fee. Also, the CCI is well equipped to investigate and ensure that
no such anti-competitive activities occur in the market.
e) Increasing competition in the TV broadcasting sector has ensured good quality services
at reasonable prices. To connect with the consumers in the very competitive market of
TV broadcasting, the firms have to ensure that the quality of the services they provide is
second to none. With massive emergence of new media platforms and technologies, the
25
Tata Sky Limited v Zee Turner Limited [2007] (TDSAT).
15
consumers are getting many choices to consume the same TV content on their computers
and mobile phones. Thus, people are still able to enjoy TV content at low prices.
f) No barriers to entry for new players in the broadcasting industry. According to various
industry reports, the number of TV channels has increased to 828 in 2013 from 623 in
2012. Thus, it is evident that the vertically integrated entity doesn’t foreclose any
independent rival from accessing the viewers. Had there been any such foreclosure by a
vertically integrated entity, it wouldn’t have been possible for the new channels like
Colors to enter the Hindi GEC genre and garner good amount of audience and compete
with channels owned by a vertically integrated entity like Zee.
CHAPTER-4: PRESENT REGULATORY FRAMEWORK IN INDIA
This sub-chapter discusses the existing law i.e. The Competition Act, 2002 and various
guidelines, regulations and recommendations given by the Government of India which regulate
vertical integration between the TV broadcasting and the distribution lines and ensure that such
vertical integration doesn’t have any adverse effect on competition within India. They are as
follows:
1. REGULATION OF VERTICAL INTEGRATION UNDER THE COMEPTITION
ACT, 2002
The Preamble of the Competition Act, 2002 ((hereinafter referred as “the Act”) states that
the Act has been enacted with an object to establish a commission to prevent practices
having adverse effect on competition, to promote and sustain competition in the markets,
to protect the interests of consumers and to ensure freedom of trade carried on by other
participants in markets. The Act aims at bringing viewpoint plurality at all levels
including TV broadcasting and distribution industry26
.
26
Times Internet Limited, Written Comments of Times Internet Limited To Consultation Paper On Issues Relating to
Media Ownership Paper No 1/2013 Issued By TRAI On 15.02.2013 (2013).
16
The Act prohibits anti-competitive agreements27
; an abuse of dominant position28
; and
regulates combinations29
by way of acquisition, merger or amalgamation. The
Competition Commission has been established under the Act in order to ensure that there
is adequate competition in the market and all the industries are developed
simultaneously30
. The Act empowers the CCI to prevent anti-competitive agreements and
abuse of dominant position (on an ex-post basis) and regulate combinations (on an ex-
ante basis) and also sets out in detail the process to be followed and the factors to be
considered by the CCI while carrying out ex-ante analysis of combinations and ex-post
investigation of cartel (horizontal agreement) and abuse of dominance matters31
. The
CCI, on the basis of information (complaint) filed before it or a reference made to it by
the Government or a statutory authority like TRAI, can inquire into any competition
related matter. There is a Combination Division which assists the CCI by conducting an
inquiry into combinations. There is also a provision in the Act providing for a mandatory
notification to the Competition Commission of India in the case of combinations.
Furthermore, the Director General, head of the investigation department, assists the CCI
in carrying out its work. The Commission has already undertaken certain investigations
with respect to the competition concerns involved in the vertical integration in the TV
broadcasting and distribution sector and has also given its valuable observations and
findings.
An anti-competitive agreement, whether horizontal or vertical, is prohibited if it causes
or is likely to cause an appreciable adverse effect on the competition within India.
Section 3(4) of the Act specifically prohibits enterprises from entering into vertical
arrangements such as exclusive distribution/supply agreements, tying, refusal to deal and
resale price maintenance32
.
27
The Competition Act 2002 s 3. 28
The Competition Act 2002 s 4. 29
The Competition Act 2002 s 5&6. 30
Times Internet Limited, Written Comments of Times Internet Limited To Consultation Paper On Issues Relating to
Media Ownership Paper No 1/2013 Issued By TRAI On 15.02.2013 (2013). 31
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 29. 32
Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013)
79.
17
Similarly, abuse of dominant position by the enterprises is prohibited under Section 4 of
the Act by: (a) imposing unfair/discriminatory conditions or price in the purchase or sale
of good or services; (b) denying market access; (c) limiting or restricting provision of
goods or services; (d) limiting or restricting scientific development; (e) using dominant
position on relevant market to enter into or protect another relevant market; and (f)
entering into contracts with extraneous conditions33
.
In the TV broadcasting sector, an ‘Exclusive Distribution Agreement’ wherein the
arrangement restricts the supply of any channel through a competing distributor or a
‘Refusal to Deal’ wherein a vertically integrated broadcaster-distributor refuses to supply
channels to a rival distributor will attract the scrutiny of CCI under section 3(4) of the
Act34
. In addition to the above, in the event that the vertically integrated broadcaster-
distributor is a dominant entity as understood under Section 4 of the Act, its attempt to:
a) Limit or restrict the supply of TV content to a downstream distributor or refusing
access to its TV content to the downstream distributor35
; or
b) Imposing unfair or discriminatory price or condition in supply of TV content36
may be prohibited as an abuse of dominance under Section 4 of the Act.
Similarly, in the TV distribution sector, ‘Exclusive Supply Agreement’ which restricts
the distribution arm of the vertically integrated distributor-broadcaster from dealing in or
distributing the TV content of a rival broadcaster; or ‘Refusal to Deal’ wherein the
distribution arm of the vertically integrated distributor-broadcaster is prohibited from
carrying the TV content of the rival broadcaster may be prohibited under section 3(4) of
the Act37
. In addition to the above, in the event that the vertically integrated distributor-
33
Ibid 80. 34
Ibid 81. 35
Ibid 80. 36
Ibid. 37
Ibid 83.
18
broadcaster is a dominant entity as understood under Section 4 of the Act, its attempt not
to carry the TV content of its rival broadcasters may also be prohibited as:
a) A limit or restriction on the provision of distribution services by refusing to carry the
channels of a competing broadcaster38
; or
b) A practice which leads to ‘a denial of market access’ to the rival broadcaster by
refusing to carry the channels of a competing broadcaster39
.
The practice of selectively boycotting the channels of rival broadcasters followed by a
vertically integrated distributor having increased market power can be treated as ‘refusal
to deal’ under Section 3(4) of the Act and may be subjected to the scrutiny of CCI if it
causes or is likely to cause an appreciable adverse effect on competition within India.
Such a practice may also be prohibited as an abuse of dominance under Section 4 of the
Act if it restricts the provision of distribution services to the broadcaster or denies it
access to the market.
Also, if a vertically integrated distributor-broadcaster charges the rival broadcasters
discriminatory placement and carriage fees or arbitrarily change its carriage fees thus,
increasing the cost of business for such rival broadcasters, such a practice may be
prohibited as abuse of dominant position under section 4 being in the nature of unfair or
discriminatory condition in sale of services.
Combinations like mergers, acquisitions, and amalgamations are entered into by the
enterprises in anticipation of financial gains which may result in pro or anti-competitive
effects. The combinations which exceed the financial threshold laid down under section 5
of the Act and are not exempted by the CCI’s Combination Regulations or notifications
issued by the Government are regulated by CCI. The process involves determination of
the likely competitive effects of such a combination on the relevant market which is
defined under section 2(r) of the Act as the market determined by the relevant product
market or relevant geographic market or with reference to both the markets. According to
38
Ibid. 39
Ibid.
19
section 6(2) of the Act, parties to the transaction are required to notify within 30 days
from a) the date of signing the binding documents in case of acquisitions; or b) the date
of board approval of the enterprises involved in the merger or amalgamation. The Act
also prescribes various factors which CCI will have regard to while determining the
relevant product market and the relevant geographic market under section 19(7) and (6)
respectively. Some of the factors to be considered while determining relevant product
market include - physical characteristics or end-use of goods; price of goods and services;
consumer preference; exclusion of in-house production; existence of specialized
producers; classification of industrial products whereas while determining a relevant
geographic market, factors like regulatory trade barriers; local specification requirements;
national procurement policies; adequate distribution facilities; transport costs; language,
etc. are to be taken into consideration.
After defining the relevant market, the CCI is required to consider all or any of the
factors listed under section 20(4) while determining the competitive effect of the said
transaction on the relevant market40
. Some of the factors include- actual and potential
level of competition through imports in the market; extent of barriers to entry into the
market; level of concentration in the market; degree of countervailing power in the
market; extent of effective competition likely to sustain in a market; extent to which
substitutes are available or are likely to be available in the market; nature and extent of
vertical integration in the market; nature and extent of innovation etc.
Last but not the least, in order to ensure an efficient regulation of vertical integration in
the TV broadcasting sector, the Act by virtue of Section 21 and 21A enables and
encourages mutual consultation between the CCI and the statutory authorities (including
TRAI). Also, the Competition Amendment Bill, 2012 under Section 21A of the Bill,
proposes to make it mandatory that such mutual consultation should be undertaken where
a competition issue arises, and after obtaining the views of the CCI / statutory authority,
pass a reasoned order in the case.
40
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 31.
20
2. GUIDELINES AND REGULATIONS
GUIDELINES FOR “DTH” BROADCASTING SERVICE IN INDIA DATED
15th
MARCH, 2001 ISSUED BY MIB
In the Guidelines for Obtaining License for providing DTH Broadcasting Service in
India, restrictions have been prescribed which restrict the stake that can be held by a
broadcasting and/or cable network company in the company owning the DTH
platform and vice versa41
. The restriction states as under:
“1(4) The Licensee shall not allow Broadcasting Companies and/or Cable Network
Companies to collectively hold or own more than 20% of the total paid up equity in
its company at any time during the license period42
. The Licensee shall submit the
equity distribution of the Company in the prescribed proforma (Table I and II of
Form-A) once within one month of start of every financial year. The Government will
also be able to call for details of equity holding of Licensee Company at such times as
considered necessary43
.”
“1(5) The Licensee Company not to hold or own more than 20% equity share in a
broadcasting and/or Cable Network Company44
. The Licensee shall submit the details
of investment made by the Licensee Company every year once within one month of
start of that financial year. The Government will also be able to call for details of
investment made by the Licensee Company in the equity of other companies at such
times as considered necessary45
.”
The guidelines do not prescribe any restrictions on the number of licenses.
41
TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 2, pg 18. 42
Ibid. 43
Ibid 74. 44
Ibid 18. 45
Ibid 74.
21
GUIDELINES FOR PROVIDING “HITS” BROADCASTING SERVICES IN
INDIA DATED 26TH
NOVEMBER, 2009
In the Guidelines for providing HITS Broadcasting Services in India dated
26.11.2009, the following provision have been prescribed which restrict the stake that
can be held by a Broadcasting and/or DTH Licensee Company in a company
providing HITS based broadcasting services in India46
:
“1(6) Broadcasting Companies and/or DTH Licensee Companies will not be allowed
to collectively hold or own more than 20% of the total paid up equity in the company
(getting license for HITS operation) at any time during the permission period.
Simultaneously, the HITS permission holder should not hold or own more than 20%
equity share in a Broadcasting company and/or DTH Licensee Company. Further, any
entity or person holding more than 20% equity in a HITS permission holder company
shall not hold more than 20% equity in any other Broadcasting Companies and/or
DTH Licensee Company and vice-versa. This restriction, however, will not apply to
financial institutional investors. However, there would not be any restriction on
equity holdings between a HITS permission holder company and a MSO/cable
operator company47
.”
Also, no restrictions on the total number of HITS permissions have been prescribed in
the said Guidelines and the permissions will be issued to a company which fulfills the
eligibility criteria & necessary terms and conditions prescribed thereunder.
THE TELECOMMUNICATION (BROADCASTING AND CABLE
SERVICES) INTERCONNECTION (SIXTH AMENDMENT)
REGULATIONS, 2010 ISSUED BY TRAI
The Regulation 3(1) restricts broadcasters from entering into exclusive arrangements
with distributors that prevent other distributors from obtaining TV channels for
distribution48
and Regulation 3(2) impose a ‘must provide’ rule on every broadcaster.
46
Ibid 19. 47
Ibid. 48
Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013)
80.
22
The said rule provides that every broadcaster shall provide on request, signals of its
TV channels on non-discriminatory terms to all distributors of TV channels, which
may include, but will not be limited to a cable operator, DTH operator, MSO, HITS
operator. HITS operators and MSOs shall also on request re-transmit signals received
from a broadcaster, on a non-discriminatory basis to cable operators49
. This ‘must
provide’ rule will definitely solve the competition concern related to input
foreclosure.
THE TELECOMMUNICATION (BROADCASTING AND CABLE
SERVICES) INTERCONNECTION (DIGITAL ADDRESSABLE CABLE
TELEVISION SYSTEMS) (FIRST AMENDMENT) REGULATIONS, 2012
ISSUED BY TRAI
The Regulation 3(2) and 3(8) of the said Regulation impose a ‘must carry’ rule on the
MSOs by providing that the MSOs with subscribers over 25000 must carry 500
channels from January 1, 2013 whereas the MSOs with less than 25000 subscribers
have to carry 500 channels starting April 1, 201350
. The ‘must provide’ rule can be
enforced on the broadcasters only by the MSOs which fulfill the said carriage
requirement. Only MSOs carrying 500 channels can enforce the ‘must provide’ clause
on broadcasters.
However, the requirement of carrying capacity of 500 channels has been set aside by
an order given by TDSAT on 19th
October, 2012.
Also, Regulation 3(10) provides that every MSO shall, within sixty days of receipt of
request from the broadcaster or its authorized agent or intermediary, provide on non-
discriminatory basis, access to its network or convey the reasons for rejection of
request if the access is denied to such broadcaster provided that nothing contained in
this sub-regulation shall apply in case of a broadcaster who has failed to pay the
carriage fee as per the agreement and continues to be in default. The said sub-
regulation further provides that an imposition of unreasonable terms and conditions
49
TRAI, Recommendations on MEDIA OWNERSHIP (25 February, 2009) 11. 50
Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013)
82.
23
for providing access to the cable TV network shall amount to the denial of request for
such access. Furthermore, by virtue of the first amendment made to the regulations of
2012, sub regulation 3(11A) has been inserted which provides that no MSO shall
demand from a broadcaster any placement fee.
However, it is worth noting that the provision of ‘must carry’ has not been prescribed
for the non-addressable Cable TV systems (analog cable TV systems) and DTH
platforms because of capacity constraints in these distribution platforms51
. It is
evident that the ‘must carry’ rule has the effect of eliminating the problem of
customer foreclosure.
Furthermore, Regulation 3(4) prohibits any broadcaster, MSO or HITS operator from
disconnecting the TV channel signals to a distributor of TV channels except by giving
three weeks’ notice to the distributor for the proposed action along with the reasons
stated therein. The MSO, broadcaster or HITS operator is also required to publish
such action in the prescribed manner. Such regulation eliminates any possibility of
abuse of increased market power of a vertically integrated MSO or any other
distributor by arbitrarily disconnecting its channels to LCOs.
Also, Regulation 5(5) of the said regulations lays down that no broadcaster can
compel any MSO to include its channels or bouquet of channels in any package or
scheme offered by the MSO to its subscribers and thus, the MSO has the freedom to
package its channels according to consumer demand and provide them to its
subscribers52
.
Lastly, Regulation 3(12) of the said regulations lays down that the carriage fee
charged by a distributor must be uniform for all broadcasters which in turn ensures
that the carriage fee paid by broadcasters is non-discriminatory and not subject to
arbitrary changes53
. If the vertically integrated distributor-broadcaster is a dominant
51
TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 6, pg 72. 52
Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013)
85. 53
Ibid 86.
24
enterprise, then, such a practice may be prohibited under section 4 of the Act as an
unfair or discriminatory condition in sale of services.
THE TELECOMMUNICATION (BROADCASTING AND CABLE)
SERVICES (FOURTH) (ADDRESSABLE SYSTEMS) TARIFF (FIRST
AMENDMENT) ORDER, 2012 ISSUED BY TRAI
TRAI regulations fully protect the consumer’s choice and ability to select the
channels he/she wishes to watch by virtue of clause 5 of the 2012 Tariff Order which
mandates that each MSO/DTH/IPTV/HITS operator providing broadcasting services
to its subscribers using an addressable system must offer all channels to consumers on
a-la-carte basis.
Furthermore, the 2012 Tariff Order also lays down a regulatory framework for the
pricing of a-la-carte channels vis-à-vis the pricing of the same channel in a
bouquet54
by providing that the sum of the a-la-carte rates of channels, forming part of
a bouquet, shall not be one and a half times the rate of the bouquet of which such
channels are a part; and the a-la-carte rate of any channel shall not exceed three times
the average channel rate of the bouquet of which such channels are a part55
. These
conditions regulating the price ensure that the consumer’s choice of TV channels is
not illusory and the distributor does not have to carry pre-fixed bouquets but has the
choice of carrying channels on a-la-carte basis56
. In the digitized areas, TRAI protects
the consumers’ interest by regulating the pricing of TV channels at the wholesale
level. According to TRAI, there exists adequate competition at the retail level, thus,
the authority has left the pricing of TV channels to be determined by the market
forces at such level.
Further, a bundling arrangement or a lack of a-la-carte choices which causes or is
likely to cause an appreciable adverse effect on the competition in India may be
prohibited by the CCI as a ‘tie-in arrangement’ under Section 3(4) of the Act57
. If the
54
Ibid 85. 55
Ibid. 56
Ibid. 57
Ibid.
25
vertically integrated broadcaster-distributor is a dominant enterprise, the sale of
channels as part of a pre-fixed bouquet may also be prohibited under Section 4 of the
Act.
3. TRAI RECOMMENDATIONS
A. In the Recommendations of TRAI (the Authority) on “Media Ownership” dated
25th
February, 2009, the Authority made the following recommendations to the
Government with respect to the vertical integration in the TV broadcasting and
distribution sector:
a) The broadcaster should not have ‘control’ in the distribution and vice-versa.
b) The definition of ‘control given by the Authority is any entity which has been
permitted/ licensed for television broadcasting or has more than 20% equity in a
broadcasting company shall not have more than 20% equity in any Distributor
(MSO/Cable operator, DTH operator, HITS operator, Mobile TV service
provider) and vice-versa.
c) The existing broadcasters who may have control in distribution sector and entities
in the distribution sector who may have similar control over broadcasting should
be given sufficient time of three years for restructuring.
The Authority also recommended that for the purpose of putting in place effective
safeguards to prevent vertical integration between the broadcasting sector and its
distribution platforms the word ‘entity’ be given a broad meaning so as to include
any person including an individual, a group of persons, a public or private body
corporate, a firm, a trust, or any other organization or body and also to include
inter-connected undertakings defined under section 2(g) of the Monopolies and
Restrictive Trade Practices Act, 196958
.
B. On February 15th
, 2013, in the Consultation Paper on “Issues relating to Media
Ownership”, TRAI has made the following recommendations to the Government
58
TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 2, pg 24.
26
with respect to the vertical integration in the TV broadcasting and distribution
sector:
a) Every broadcaster must provide on request signals of its TV channels on a non-
discriminatory basis to all distributors of TV channels including cable networks,
DTH, HITS.
b) No exclusive contracts are permitted between broadcasters and distributors of TV
channels.
c) The broadcasters are not to insist on guaranteed, minimum subscription amounts
from distributors of TV channels.
CHAPTER-5: INTERNATIONAL SCENARIO
Even though vertical mergers/integration seldom create harm to competitors and
consumers, competition authorities in many countries/jurisdictions including the EU59
and the
US have identified possible ways in which vertical integration may have an appreciable adverse
effect on competition i.e. through:
a) Input or customer foreclosure, and
b) Coordinated effects
The EC Guidelines on the assessment of non-horizontal mergers under the Council
Regulation on the control of concentrations between undertakings prescribe a three step process
for the assessment of vertical mergers60
.
a) First, whether the merged entity would have, post-merger, the ability to substantially
foreclose access to inputs? This step involves the assessment of whether the merged firm
59
Commission Notice 2008/C 265/07 of 18 October 2008 laying down the Guidelines on the assessment of non-
horizontal mergers under the council regulation on the control of concentrations between undertakings [2008] OJ
C265/6. 60
Commission Directive October 2010 laying down the Guidelines on the assessment of non-horizontal mergers
under the council regulation on the control of concentrations between undertakings [2010] OJ.
27
has significant market power in either of the two markets such that it can induce
foreclosure61
.
b) Second, whether it would have the incentive to do so? This step evaluates whether a
foreclosure strategy would be profitable considering only the static responses of rivals
and consumers62
.
c) Third, whether a foreclosure strategy would have a significant detrimental effect on
competition downstream? This step is the most important as this determines the overall
impact on competition. This step entails the assessment of the potential dynamic
responses of the competitor firms. Factors such as buyer power, likelihood of entry and
the impact of efficiencies are examined to determine the long run impact of the merger on
competition. Merely proving the existence of harm to competitors is not sufficient to deter
a merger. Instead, it needs to be shown that there will be harm to competition. This can
take the form of increased prices, reduced quality or reduced choices that are available
to consumers63
.
The US Department of Justice, Merger Guidelines articulated following theories of harm
to competition and consumer welfare from vertical integration:
a) Raising rivals’ costs and two level entry64
;
b) Facilitating collusion by making it easier to monitor prices or by eliminating a disruptive
buyer65
.
The guidelines issued by the US Department of Justice (US guidelines) do not contain a
step by step analysis like the EU but they reflect the same approach66
. However, these guidelines
mention various factors including market concentration, conditions of entry, advantages
possessed by the merger in comparison to other firms, etc. which the agency will consider for the
61
The guidelines state that a non-horizontal merger is unlikely to be anti-competitive if the merged firm has market
share of less than 30 per cent in each market and post-merger HHI is below 2000. However, it cannot be presumed
that a non-horizontal merger that exceeds this threshold will necessarily give rise to competitive concerns. 62
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 25. 63
Ibid. 64
Ibid 24. 65
Ibid. 66
U.S. Department of Justice Merger Guidelines, 'Non-Horizontal Merger Guidelines' (justice.gov, 1992)
<http://www.justice.gov/atr/public/guidelines/2614.htm> accessed 18 july 2013
28
assessment of vertical mergers. In addition, the US guidelines list three conditions that are
necessary, but not sufficient, for vertical mergers to result in competition concerns:
a) First, the degree of vertical integration between the two markets must be so extensive that
entrants to one market (the "primary market") also would have to enter the other market
(the "secondary market") simultaneously.
b) Second, the requirement of entry at the secondary level must make entry at the primary
level significantly more difficult and less likely to occur.
c) Finally, the structure and other characteristics of the primary market must be otherwise
so conducive to non-competitive performance that the increased difficulty of entry is
likely to affect its performance67
.
It is evident from the above stated guidelines that the competition authorities in both the
jurisdictions (the EU and the US) follow a rule of reason approach which is effects based for the
assessment of vertical mergers and not per se or a form based approach. There is consensus
among competition authorities that vertical mergers are less likely to raise competition concerns
than horizontal mergers68
.
Also, both the countries lay emphasis on the consideration of efficiencies arising out of
the vertical integration like removal of double marginalization, expansion in output, better
coordination between the integrated entities etc.69
. The authorities are of the view that restricting
vertical integration will deny the end-consumers these potential advantages. Thus, per se
restrictions are not desirable. In a recent study undertaken by the Organization for Economic
Cooperation and Development on 19th
February, 2013 on “Competition Issues in TV and
Broadcasting”, it was found that the prohibitions or restrictions on vertical mergers in TV
broadcasting and distribution sector have been rare. It was also found that the major concern of
the competition authorities in EU and US in relation to the vertical media mergers is to ensure an
access to the content to the new entrants in the relevant market. Vertical foreclosure is also one
of their concerns in respect of which the authorities have imposed commitments to allay such
competition risks and have also prescribed certain structural modifications.
67
Ibid. 68
Ibid. 69
Commission Directive October 2010 laying down the Guidelines on the assessment of non-horizontal mergers
under the council regulation on the control of concentrations between undertakings [2010] OJ, paras 54-57.
29
CHAPTER-6: MEDIA CASE ANALYSIS (FOREIGN AND INDIAN CASES)
Time Warner/Turner Broadcasting System Merger – US Case Study
In 1996, Time Warner merged with Turner Broadcasting Systems (TBS).
Telecommunication Inc. (TCI) was a major stakeholder in TBS with 21% interest. The deal was
that TCI would trade its interest in TBS for the third largest stake in Time Warner of 9%. The
rationale behind the Time Warner and TBS merger was to increase the breadth of vertically
integrated content and distribution operations in video programming70
. Time Warner’s cable
network now included CNN, TBS, TNT, HBO, the Cartoon Network, Cinemax, the WB network
and a 50% interest in Comedy Central. Time Warner thus became the second largest cable
system operator after AT&T (who bought TCI, thus Time Warner was effectively second to TCI
in the market). The concerns raised by the Federal Trade Commission (FTC) were:
a) Time Warner could unilaterally raise prices for its own programming, as well as for
programming offered by TBS71
.
b) Given TCI’s ownership interest in Time Warner and its complementary long-term
contractual obligations to carry Turner programming, the deal could undermine the
incentives of TCI, the nation’s number one cable operator, to run better or less expensive
programming competitive with that offered by Time Warner, thereby augmenting Time
Warner’s programming market power even further72
.
c) It could lead to higher cable service prices for consumers, and reduce the programming
choices available to them and that the acquisition could block future entry into all-news
networks73
As a remedy for this case, the consent decree prohibited Time Warner from
discriminating against providers of programming services in its cable operations and competing
multi-channel distribution services in its programming service business74
.
70
Fiona Röder, ‘Strategic Benefits and Risks of Vertical Integration in International Media Conglomerates and Their
Effect on Firm Performance’ (DEco thesis, University of St. Gallen 2007) 128. 71
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 38. 72
Ibid. 73
Ibid 39. 74
Ibid.
30
Such situation is less likely to arise in the fragmented media industry of India where the
media broadcasting and distribution industry is regulated by TRAI regulations and they explicitly
mandate “non-discriminatory treatment” and “non-exclusivity” on the broadcasters similar to
what FTC said in the above mentioned remedy for the Time Warner – TBC merger. Also, TRAI
regulations provide for bouquet and a-la-carte pricing of TV channels both at whole sale and
retail levels. Otherwise, exclusivity would ultimately harm the viewership of the upstream player
and would also affect its subscription and advertisement revenues. Therefore, exclusivity is
commercially unviable in the Indian scenario.
Merger between Newscorp and Telepiù – EU Case Study
On 16 October 2002, the European Commission received notification according to which
The News Corporation Limited, Australia (Newscorp) would acquire control of the whole of the
Italian pay-TVs Telepiù Spa and Stream Spa by way of purchase of shares. Telepiù and Stream
would then merge their activities in a combined satellite pay-TV platform. Telecom Italia, the
Italian telecom incumbent, would hold a minority stake (maximum19.9%) in the new combined
pay-TV platform.
The deal creates a quasi-monopoly in the pay-TV market. With a market share of more
than two third of the Italian pay-TV market, Telepiù is already in a dominant position and the
merger with Stream will strengthen this position75
.
Telepiú and Stream (which entered the Italian market respectively in 1991 and 1996)
have never been profitable. Indeed programming costs, stemming mainly from the acquisition of
'premium' content films and sports rights always exceeded revenues. Moreover, the strong
presence of 12 national free-to-air broadcasters in Italy mainly the state-owned RAI channels and
the Mediaset companies and of an array of local broadcasters has had an impact on the rate of
penetration of pay-TV, and therefore on its profitability76
.
75
Commission clears merger between Stream and Telepiù subject to conditions' (europa.eu , 2003)
<http://europa.eu/rapid/search-result.htm?query=45> accessed 18 july 2013. 76
Ibid.
31
In the European Commission's view, the challenge was, therefore, to impose sufficient
and adequate conditions upon the merged satellite pay-TV platform to ensure that the market
remains open. The Commission cleared the proposed acquisition by Australian media group
Newscorp of Italian pay-TV company Telepiù from Vivendi Universal holding the view that
such merger, subject to appropriate conditions ensuring access to content via a reduction in the
duration of exclusivity agreements with premium content providers and establishment of
sublicensing scheme through a wholesale offer; and access to infrastructure i.e. access to the
satellite platform for pay-TV distribution as well as to the technical services associated with pay-
TV77
, will not be anti-competitive in the market.
Such situation is less likely to arise in the fragmented media industry in India. The media
broadcasting and distribution industry is regulated by TRAI regulations and they explicitly
mandate “non-discriminatory treatment” and “non-exclusivity” on the broadcasters similar to
what European Commission said in the above mentioned remedy for the Newscorp and Telepiù
merger. Also, TRAI regulations provide for bouquet and a-la-carte pricing of TV channels both
at whole sale and retail levels. Otherwise, exclusivity would ultimately harm the viewership of
the upstream player and would also affect its subscription and advertisement revenues.
Therefore, exclusivity is commercially unviable in the Indian scenario.
Acquisition by UTV Global Broadcasting Limited of 26% equity shareholding in IC Media
Distribution Services Private Limited- Indian case study (CCI order passed on 19th
February, 2013).
IC Media is a wholly-owned subsidiary of IndiaCast Media Distribution Pvt. Ltd, which
is into the business of aggregation of TV channels broadcast by TV18 Broadcast, Viacom18
Media and certain other broadcasters. On the other hand, TV18 is a subsidiary of Network18
Media and Investments Ltd. Network18 also holds a 50% stake in Viacom18. UTV Global
Broadcasting had filed a notice seeking approval for the 26% stake buy in IC Media with the
regulator on 24th
January, 2013. It was stated in the notice that the Disney Group and the
77
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s
Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 36.
32
IndiaCast Group shall grant exclusive license to IC to distribute their TV channels. It was also
stated in the notice that post-combination, UTV Global Broadcasting and IndiaCast would cease
their aggregation business in India as they now propose to carry out the business of providing the
service of aggregation in India through IC (Media) by way of the proposed combination. UTV
Global Broadcasting is engaged in the business of aggregation and sub-licensing of pay TV
channels for its two subsidiaries—UTV Entertainment Television Ltd and Genex Entertainment
Ltd. UTV Global Broadcasting is an indirect subsidiary of Walt Disney group that broadcasts
nine TV channels in India.
CCI observed that the proposed combination relates to the supply of TV channels in
India. The broadcasting sector in India is regulated by the TRAI, which has framed various
regulations which make it obligatory for a broadcaster to provide signals of its TV channels
on a non-discriminatory basis to every DTH operator/MSO and not to enter into exclusive
agreements with any MSO/distributor that prevents others from obtaining such TV channels
for distribution. The CCI also observed that the market for providing the service of aggregation
is competitive with a number of players operating therein. Considering the facts on record and
the details provided in the notice and after assessing the proposed combination by considering
the relevant factors mentioned in sub-section (4) of Section 20 of the Act, CCI approved the
combination by holding that it is not likely to have an appreciable adverse effect on competition
in India.
News Corporation Ltd. acquisition of ESS through StarTV ATC – Indian Case Study (CCI
order passed on 20th
September, 2012)
The Rupert Murdoch-owned News Corp (NWS) had announced plans to buy out the
remaining 50 per cent stake in ESPN Star Sports (ESS) from ESPN in India. The ESS was partly
owned by EGP company and Yarraton Ltd. EGP is an indirectly owned subsidiary of Walt
Disney Group, whereas Yarraton is under the control of NWS. A combination was proposed
where StarTV ATC, a subsidiary of NWS, would buy the 50% interest of EGP in ESS and the
proposed acquisition would result in a change in the ownership of the ESS India subsidiaries,
which would be owned by NWS once the transaction is complete. StarTV ATC acts as a
33
broadcaster, aggregator and distributor for all Star channels in India as well as an aggregator for
the channels of NWS subsidiaries. Thus by gaining 100% interest in ESS, NWS enters into a
vertical merger and controls the broadcasting, aggregation and distribution of ESS in India.
The CCI observed that though the proposed combination results in transfer of joint
control to sole control of NWS over ESS, it would not result in elimination of any competitor
from the market as NWS and ESPN, the joint venture partners are not competing with each other
in the market for broadcasting of sports channels in India. Also, considering the presence of
other sports channels in India, such as DD Sports, TEN Action Plus, Ten Sports, Ten Cricket,
Ten Golf, Sony Six, Neo Sports Plus, Neo Prime etc. the proposed combination is not likely to
give rise to any adverse competition concern in India. ESPN can again consider an entry into the
Indian market, after completion of the non-compete period specified in the agreements.
Therefore, the acquisition was given a green signal by CCI without subject to any further
conditions.
The two Indian cases, clearly rule out the TRAI recommendation imposing a cap of 20%
equity shareholding which a TV broadcasting company can have in a TV channel distribution
company and vice versa. In both the Indian cases discussed above, CCI applied a ‘rule of reason’
approach. CCI very aptly held that in a highly competitive Indian TV broadcasting and
distribution industry, with so many players entering into the market at each level of the value
chain, an equity based approach for assessing the anti-competitive effect of the combination
resulting from vertical integration is totally obsolete.
CHAPTER-7: CONCLUSION
The object of this report was to bring forth the benefits and harmful effects of vertical
integration in the TV broadcasting and distribution sector in a neutral light and then critically
analyze each one of them. As per the available statistics, India is currently ranked as the 14th
largest E&M industry in the world and is expected to more than double its revenue by 2016. The
TV channels are increasing day by day and are mostly distributed using cable and terrestrial
network. With the coming up of digitization, the distribution platforms like DTH and HITS are
gaining popularity very quickly. With vertical integration between the broadcaster and
34
distributor, the competition gets benefitted because of many reasons. Firstly, the coordination
between the broadcaster and distributor improves. This helps in providing greater efficiencies
and cost savings. Secondly, the efficiency improvements allow for economies of scale and scope
to be created which in turn result in higher profits. With higher profits comes more investment
and innovations. Lastly, the quality of the service also improves and the consumers get better
services at lower prices.
In certain circumstances, vertical integration may give rise to competition concerns that
may not be ignored because of the numerous benefits. Some of the concerns are: input and
customer foreclosure, arbitrary boycotts and disconnections, arbitrary increase in carriage and
placement fee and entry barriers for new players. These concerns are legitimate in many other
countries like the US and EU because the market is governed by only two to three major players
who have 75% - 80% of the market share. On the other hand, the Indian media market is
fragmented with many players entering the fray every year. Had there been a barrier to entry for
the new players in the Indian market, such rapid increase in number of channels and customer
viewership would not be present. Therefore, the competition concerns mentioned do not have
much relevance and therefore, any blanket ban to counter these concerns should not be applied.
Furthermore, the existing provisions of the Competition Act, 2002 and the powers assigned to
the CCI are comprehensive enough to deal with such competition concerns whenever they arise.
Also, if an unforeseen circumstance occurs, then the CCI can employ the ‘rule of reason’
approach i.e. case by case analysis to come to a conclusion rather than holding any transaction
‘per se’ anti-competitive. The CCI may also hold mutual consultations with statutory authorities
like TRAI to deal and handle such issues.
However, the TRAI recommendations of ‘must carry’, ‘must provide’ and ‘non-
exclusivity’ do not hold good in the Indian scenario with so many existing players and so many
players adding to the list every year. ‘Must provide’ obligation on the broadcaster is not required
because if a broadcaster exclusively deals with a distributor, the broadcaster itself is at loss of
viewership as in the present scenario with number of distribution platforms available, supplying
channels to a single or a limited number of distributors will hamper the number of people who
watch the broadcaster’s channels no matter how popular they are. Similarly, ‘must carry’ rule
recommended by TRAI for the distributors need not be applied as it is obvious that a distributor
35
will not deny access to a broadcaster because it will not be able to attract consumers unless it
provides good quantity and quality of channels. Lastly, the TRAI recommendation of 20% equity
share holding cap is also not called for in such fragmented and diverse Indian broadcasting
industry as is evident from the CCI orders passed in the UGBL acquisition in IC Media
Distribution Services Pvt. Ltd. and NWS acquisition of ESS through StarTV ATC
36
BIBLIOGRAPHY
TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February,
2013)
Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011]
Confederation of Indian Industry, CII’s Response to TRAI’s Consultation Paper (No. 01/2013)
on the issues relating to Cross Media Ownership (2013)
Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory
Authority of India’s Consultation Paper on Issues relating to Media Ownership (25 April, 2013)
Jeffrey Church, 'The Competitive Effects of Vertical Integration: Content and New Distribution
Platforms in Canada ' [27 April, 2011]
Fiona Röder, ‘Strategic Benefits and Risks of Vertical Integration in International Media
Conglomerates and Their Effect on Firm Performance’ (DEco thesis, University of St. Gallen
2007)
Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership –
01/2013 (2013)
Times Internet Limited, Written Comments of Times Internet Limited To Consultation Paper On
Issues Relating to Media Ownership Paper No 1/2013 Issued By TRAI On 15.02.2013 (2013)
TRAI, Recommendations on MEDIA OWNERSHIP (25 February, 2009)
Zee, Response of Zee Network to TRAI Consultation Paper No 01/2013 On Issues relating to
Media Ownership (2013)
TRAI, Consultation Paper on Monopoly/Market dominance in Cable TV services (3 June, 2013)
Entertainment Network India Limited, Consultation paper on Issues related to Media Ownership
ENIL counter comments (2013)
37
GUIDELINES AND REGULATIONS REFERRED
Guidelines For “DTH” Broadcasting Service In India Dated 15th
March, 2001
Guidelines For Providing “HITS” Broadcasting Services In India Dated 26th
November, 2009
The Telecommunication (Broadcasting and Cable Services) Interconnection (Sixth Amendment)
Regulations, 2010
The Telecommunication (Broadcasting and Cable Services) Interconnection (Digital Addressable
Cable Television Systems) (First Amendment) (First Amendment) Regulations, 2012
The Telecommunication (Broadcasting and Cable Services) (Fourth) (Addressable Systems)
Tariff (First Amendment) Order, 2012
The EC Guidelines on the assessment of non-horizontal mergers under the Council Regulation
on the control of concentrations between undertakings, October 2010
The U.S. Department of Justice Non-Horizontal Merger Guidelines, 2 April, 1992
WEBLIOGRAPHY
U.S. Department of Justice Merger Guidelines, 'Non-Horizontal Merger Guidelines' (justice.gov, 1992)
<http://www.justice.gov/atr/public/guidelines/2614.htm> accessed 18 July 2013
Commission clears merger between Stream and Telepiù subject to conditions' (europa.eu , 2003)
<http://europa.eu/rapid/search-result.htm?query=45> accessed 18 July 2013.
Competition, regulation in TV channels distribution (thehindubusinessline.in, 2004)
<http://www.thehindubusinessline.in/2004/11/06/stories/2004110600020800.htm> accessed 18
July 2013
GUIDELINES FOR DTH BROADCASTING SERVICE IN INDIA (indiantelevision.com,
2013) <http://www.indiantelevision.com/dth/dth11.htm> accessed 15 July 2013
38
APPENDIX A: ABBREVIATIONS
TV - Television
HITS - Head-end in the Sky
DTH - Direct–to-Home
IPTV - Internet Protocol Television
TRAI - Telecom Regulatory Authority of India (the Authority)
CCI - Competition Commission of India
E&M - Entertainment and Media
MIB - Ministry of Information and Broadcasting
R&D - Research and Development
LCO - Local Cable Operator
MSO - Multi -System Operator
TDSAT - Telecom Disputes Settlement and Appellate Tribunal
GEC - General Entertainment Channel
Pg- Page
Cr- Crore
Ch- Chapter
CP- Consultation Paper
OJ- Official Journal of the European Union