Unscripted drama: recent European Commission Phase II mergers in pay-tv

Transcription

1 Unscripted drama: recent European Commission Phase II mergers in pay-tv ACE conference Gareth Shier Senior Consultant

2 Content producers Channel providers Retail pay-tv platforms Overview A range of concerns at various levels of the market 1 Liberty Global/Ziggo (Netherlands) (1a) unilateral price effects in retail: chain of substitution? [dropped in phase II] (1b) coordinated effects in retail: increased symmetry? [dropped in phase II] (1c) buyer power over TV channels: where is the potential harm? [remedied] (1d) foreclosure concerns: customer/network access foreclosure? [remedied] 2 Liberty Global/De Vijver Media (Flanders region, Belgium) 2a: input foreclosure: is total foreclosure a credible threat in a dynamic setting? [remedied] 2b: customer foreclosure: is this at odds with the input foreclosure concerns? [remedied] 2

3 1a. Unilateral price effects in retail (I) LG/Ziggo merging parties footprints do not overlap so no direct competitive pressure but is competitive pressure transmitted by the national player? UPC NL (region 1 only) Ziggo (region 2 only) 1 UPC NL reduces price (or increases quality) 2 KPN responds to UPC NL action with improved offer 3 Ziggo responds to national competitor with improved offer KPN (national competitor) 3

4 1a. Unilateral price effects in retail (II) LG/Ziggo review of the competitive interaction between the parties and the national competitors over time no evidence of competitive pressure being transmitted Price -> KPN (national) and party 1 move, but not party 2 Parties 1 and 2 move, but not the national competitor Source: Oxera Party 1 Party 2 National competitor Time -> 4

5 1b. Coordinated effects in retail LG/Ziggo No clear focal product coming to multi-play from different directions numerous product criteria accurately monitoring deviations is very difficult Costs and innovation cycles differing cost of upgrades leap-frog technical advantage long lead time for roll-outs: fear of deviation Unstable market recent expansion of KPN threats from outside: LTE wireless in NL other EU operators disruptive technologies No punishment mechanism price war non-credible harmful to punishing party deviation is an irreversible network upgrade no return to coordination 5

6 1c. Buyer power over TV channels LG/Ziggo Possible harm from buyer power Hampering of emerging services? Impact on breadth and quality of content? Negative impact on competing providers? Prohibiting OTTs commercial reality: can t charge for free content! competition business models for channels: wide distribution, more advertising revenue limited distribution, higher carriage fees Reduced investment background of everincreasing content costs fees = balancing item in a symbiotic relationship TV retailers need highquality content content producers need exposure Waterbed effect? increased bargaining position of Ziggo channels recover lost revenues from other pay-tv retailers but if they can charge more to other retailers, why aren t they already doing so? 6

7 1d. Foreclosure concerns LG/Ziggo Input foreclosure refusal or worsened terms of supply for the premium pay-tv channels (Film1 and HBO) to other TV retailers credible consideration: substantial profits from multi-play remedied by divestiture of Film1 Customer foreclosure Network access foreclosure refusal to carry TV channels or new TV channel services (e.g. HbbTV) blocking OTT signals on broadband IP network technical challenges Commercially credible? reputational risk: incomplete pay-tv service filtered Internet content unilateral degradation of own service: inconsistent with premium service vertical arithmetic shows large losses from losing multi-play subscribers 7

8 2a. Input foreclosure LG/De Vijver Media agree with bargaining framework both parties offer value to the other carriage fees = balancing item Channel providers (e.g. De Vijver Media, VRT, Medialaan) Selection of compelling channels Viewing share and advertising reach Retail platforms (e.g. Telenet, Belgacom) queries on total foreclosure nonlinearities in advertising revenues premium for 100% coverage? dynamic effect of reduced exposure and thus relevance of Vier and Vijf? queries on partial foreclosure under the bargaining model, the surplus (and thus the eventual fee) reduces but does the bargaining power μ (i.e. the share of the pie) change? if Belgacom has sufficient surplus, does this matter? F post = μ B b (1 μ)(d d + T t) 8

9 2b. Customer foreclosure LG/De Vijver Media remedied through long-term contracts but was this really necessary? Total customer foreclosure refusal to carry other pay-tv channels (e.g. Medialaan s VTM, VRT s een and Canvas) non-credible concern other channels are likely to be more important than Vier and Vijf (viewing share) vertical arithmetic shows substantial losses to Telenet from subscriber churn inconsistent with input foreclosure concerns? Partial customer foreclosure worsened terms of carriage for other pay-tv channels (e.g. worsened EPG position, or refusal to carry ancillary services) again, unilateral worsening of service reputational risk difficult to use or incomplete service vertical arithmetic highlights the associated commercial risk 9

10 Contact: Gareth Shier +44 (0) Follow us on Oxera Consulting LLP is a limited liability partnership registered in England No. OC392464, registered office: Park Central, 40/41 Park End Street, Oxford, OX1 1JD, UK. The Brussels office, trading as Oxera Brussels, is registered in Belgium, SETR Oxera Consulting Limited , registered office: Stephanie Square Centre, Avenue Louise 65, Box 11, 1050 Brussels, Belgium. Oxera Consulting GmbH is registered in Germany, no. HRB B (Local Court of Charlottenburg), registered office: Torstraße 138, Berlin 10119, Germany. Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, the Company accepts no liability for any actions taken on the basis of its contents. No Oxera entity is either authorised or regulated by the Financial Conduct Authority or the Prudential Regulation Authority. Anyone considering a specific investment should consult their own broker or other investment adviser. We accept no liability for any specific investment decision, which must be at the investor s own risk. Oxera, All rights reserved. Except for the quotation of short passages for the purposes of criticism or review, no part may be used or reproduced without permission.