2. Competition in Content Markets

3 Responses to 2. Competition in Content Markets

1. Professor Peter Humphreys says:

   September 13, 2012 at 1:57 pm

   Because of the media’s cultural, social and democratic significance, genuine content competition cannot be adequately safeguarded by the application of general competition law. For the same reason, there will always remain key differences between telecoms markets and media markets, therefore despite convergence the former’s competition regulatory model should not be deemed suitable for the latter, nor should media specific regulation be replaced by a horizontal model. In the media, competition law needs to be considered in the context of a policy framework designed to promote the production of original quality and public service content and to safeguard plurality. The delivery of public service content should not be adversely limited by too narrow an application of competition law; and competition law cannot be considered sufficient for protecting and promoting plurality. It was welcome to learn during this seminar that plurality is to be addressed in a later DCMS seminar, however in discussing the media field there are obvious dangers in compartmentalising competition and plurality issues.
2. Dermot Boyd says:

   September 10, 2012 at 10:15 am

   Communications Review Seminar Series

   Competition in Content Markets

   QVC Comments

   Too much focus on platform competition, not enough on channel competition.

   The focus of the seminar was strongly on competition between platforms rather than on competition between channels and channel providers. Regarding competition between platforms we believe that there is little evidence of cause for concern. Freeview has grown successfully to dominate free TV and become the default method of watching television in the UK whilst BSkyB has continued to successfully expand the pay satellite platform.

   The seminar also had a strong focus on pay TV. It should be remembered that free TV is a larger market in terms of number of viewers and share of viewership.

   In the pay market BSkyB is perceived as having great vertical power – although in fact bandwidth in this market is not controlled by BSkyB but by SES Astra and Eutelsat. Aided by this readily and cheaply available bandwidth there has been huge growth in the number and diversity of channels on the satellite platform and competition between both channel providers and individual channels appears to be working well. Content providers, particularly sports rights holders, appear to be benefiting.

   The free TV market is dominated by Freeview with Freesat having a smaller share. In this market the BBC, ITV and Channel 4 together have much greater vertical market power than BSkyB has in the satellite market. They control four out of the six multiplexes which provide bandwidth for the platform; they control DMOL, the body that allocates logical channel numbers (LCNs); and they operate 28 channels on the platform. In this market the number of channel providers has been falling and viewership is increasingly concentrated in PSB portfolio channels with a reduction in competition.

   We note that the take-up of new technologies is increasingly rapid. We would caution, however, that despite this it is clear that consumers viewing habits change much more slowly and that TV viewing has been rising, not falling. So Freeview is likely to continue to be the dominant source of TV viewing for many years into the future.

   We believe that the dominant position of the BBC, ITV and Channel 4 in free TV from time to time gives rise to conflicts of interest and competition concerns. Sometimes proposals from DMOL are strongly in the interests of those DMOL shareholders, being adverse for other channels.
   (Similar concerns apply to the order of channel listings on Freesat which is a joint venture between the BBC and ITV.)

   In particular, the “associated channels rule” means that when DTT (digital terrestrial television) bandwidth is being auctioned by Arqiva or by SDN, the bidders are not necessarily bidding for the same LCN. There is much research to show that different LCNs have different values and so it is hard to see how there can be a fair auction process with this rule in place.

   We are concerned that over time the number of channel providers on Freeview has fallen and that PSB portfolio channels have dominated recent channel launches. The combination of gifted bandwidth, favourable LCNs, cross promotion from the main PSB channels and the associated channels rule has led to this small number of providers having a dominant position. Since October 2006 more than 20 channels have left the platform, all but one of which have been “independents”.

   At the seminar it was commented that sometimes fewer suppliers could actually give consumers more choice. We can see that, say, BBC3 or BBC4 or ITV2 may be providing more choice of content but do not believe that this is the case with, say, ITV2+1 or 4Seven.

   We understand that normal competition law remedies apply to this market and in the seminar the view came across that mostly reliance on competition law is best.

   However, broadcasting is unique in that certain participants in the market have PSB status which means that in certain circumstances they are treated differently – for example by being gifted bandwidth or by having some or all of their portfolio channels being entitled to “appropriate prominence”. There is also a sector regulator, Ofcom, with powers to intervene before complainants have to resort to the courts.

   We believe that some simple changes could be introduced to reduce the potential conflicts of interest in the free TV market and to improve competition between channel providers.

   1. DMOL’s role in allocating LCNs should be regulated by Ofcom. At present individual multiplex operators are regulated – this is like regulating SES Astra rather than BSkyB. Since the seminar DMOL has announced that it now holds an Ofcom EPG (electronic programme guide) provider licence so this has been addressed.
   2. DMOL should concentrate on allocating LCNs in sequential order. It should avoid re-numbering and re-ordering of channels as these activities lead to significant uncertainty, and potentially to very large losses (tens of millions of pounds), for adversely affected channels.
   3. The “Associated Channels Rule” should be removed to make bandwidth auctions fairer and also because each time it is invoked a single channel receives an economic benefit whilst channels listed below that channel in the EPG suffer economic losses which aggregate to the same value.
   4. Consideration should be given to capping the number of channels that any one provider can operate on the DTT platform. This is done in France and Spain. It would be likely to lead to new entrants who over time would provide more content – and give independent producers a bigger choice of commissioning editors.
   5. It may also be necessary to cap the total bandwidth that can be used by any one provider as otherwise incumbents can simply launch HD versions of their portfolio channels to soak up all the available bandwidth and thus minimise competition. This tactic would see less cash available for content and program making, with multiplex operators benefiting.
3. Dr Des Freedman says:

   August 20, 2012 at 11:58 am

   ‘Open and competitive markets support growth and further the interests of citizens and consumers’ reads the opening line of the accompanying paper to the Competition in Content Markets seminar. But purposeful regulation can also support growth and protect the interests of citizens and consumers and it is this latter approach—of intervention that is designed to sustain the public interest— which is almost entirely absent from the assumptions underlining the DCMS paper.

   I welcome the opportunity to review existing mechanisms to ensure adequate competition in content markets but my reading of contemporary trends inside UK media leads me to the conclusion that, far from abandoning sector-specific regulation, there is a case for making it more robust and effective. Calls made at the seminar on 9 July, for example, to scrap Ofcom’s competition powers were firmly rebutted but it is clear that there is a mood amongst some in government and the industry to treat the media—despite their major contribution they make to citizenship and democracy—as little different from other industries.

   Indeed, the second paragraph of the DCMS position paper opens with the revealing proposition that ‘[a]s with markets more generally, media markets need to have a stable, robust and clear competition regime’ and goes on to consider whether competition issues within broadcasting ought to be treated more like the telecoms regime – far more a matter of infrastructure than one how best to protect pluralism and diversity. Furthermore, reflecting on the Competition Commission’s recent investigations into the pay TV market (CC 2012), the position paper argues that the CC’s provisional findings ‘suggest that the market itself may be able to adapt to meet consumer demand in an open and competitive way’ (p. 4), advocating a clearly deregulatory position. But beneath the headlines of the CC’s conclusions lie a series of trends that should concern us deeply and that do not point to an overall assessment that the market is, spontaneously, resolving competition concerns.

   First, far from describing UK pay TV as some kind of competitive nirvana, the CC concluded that ‘competition was not effective’ because of ‘the very high and stable level of concentration, the low level of switching between suppliers, the difficulty of large-scale entry/expansion as a traditional pay-TV retailer and the absence of countervailing buyer power in pay TV’ (CC 2012: 8). The fact that it concluded that the even though ‘competition was not effective in this market did not of itself lead to the conclusion that there was an AEC [adverse effect on competition]’ suggests limits to contemporary competition law more than a satisfactory assessment of the pay TV market.

   Second, the market has not generated a level playing field in the allocation of resources inside broadcasting. Having increased from 34 per cent in 2004 to 41 per cent in 2010, subscription is now overwhelmingly the dominant source of revenue in UK TV, well above that of advertising (less than 30 per cent) and licence fee income (22 per cent). Effectively, nearly a half of total revenue now goes to support the 27 per cent of audience share commanded by pay-TV (Ofcom 2011).

   While it is true that, overall, more money is now being invested in TV content, that increase is systematically skewed away from particular genres. Much more money is being spent on film and sport channels, up by a third since 2007 (Ofcom 2011), in comparison to a 22 per cent decrease for BBC1 since 2006, a 14 per cent drop for BBC2, a 21 per cent decline for ITV1 and an 18 per cent decline for Channel 4 (Ofcom 2012a: 8).

   Total hours of first-run originated peak-time output on PSB channels is pretty much the same as it was in 2005 though it has substantially decreased outside of peak hours and rather dramatically in terms of regional output. Spend on original material, however, has been really squeezed: down by 17 per cent on BBC1 since 2006, 13 per cent on BBC2, 22 per cent on ITV1 and 18 per cent on Channel 4 (Ofcom 2012a: 8).

   What has been affected is PSB output: news budgets in 2011 down by 15 per cent since 2006, arts by a huge 39 per cent, education 38 per cent, children’s 22 per cent, factual 17 per cent (despite a significant increase in the number of hours – perhaps a redefinition of ‘factual programming’ towards lower cost, lifestyle output). It is precisely those genres at the heart of the public service project that have been hit hardest while only one genre has seen spending increased: feature films. Of course, this is all relative and we still see over half a billion pounds spent on original drama by PSBs in 2011 (all from Ofcom2012a: 11). But the direction of travel is a warning Spending is being directed towards those genres that are likely to be most profitable – or rather removed from those genres with little obvious commercial viability.

   But we should also be concerned about the wider implications of a shift to subscription-based viewing and, especially, by BSkyB’s market power that was identified by the CC. We are seeing the enclosure of content that citizens are saying are key: for example 59 per cent of regular sports viewers see Premier League football as ‘must have content’ (Ofcom 2012b: 2) yet they are forced to pay premium prices for it, in part to cover the enormous costs of acquiring football rights – most recently the £3bn paid by Sky and BT for 3 years’ rights.

   But this enclosure is also happening in relation to quality drama and original progammes. Sky has signed an exclusive deal with HBO of around £150m over five years to have exclusive access to both first-run and archive HBO programmes. Should this be a public policy concern? Perhaps it should we are concerned about ensuring that quality output is available across the system to a full range of audiences. ‘Mad Men’, for example, has moved from a channel which had a 7 per cent share to Sky Atlantic, a channel with a 0.3 per cent share in May 2012 (Ofcom 2012b: 4). Even more intriguingly, Sky famously promised to spend £600m in original UK material by 2014 to go on channels like Sky One, with a 0.7 per cent audience share and the two Sky Arts channels, each of which in May 2012 had an average weekly viewing of 1 minute, with Sky Arts 1 registering a 0.1 share and Sky Arts 2 registering nothing. Yes, we should welcome any new investment into original programming but it becomes a public policy issue if this output is channelled into gated communities aimed thus far at a minority of people who happen to get the channels because, by and large, they are sports or film fans. Public money aimed at mass audiences is being replaced by private money aimed at lucrative subscription audiences with the consequence that content markets are not likely to operate in an open and competitive fashion.

   These are just some of the reasons why one suggestion contained in the DCMS position paper, that ‘[t]here may be a role for sector-specific regulation in addressing any bottlenecks’ (p. 5), needs to be confirmed and strengthened. Scrapping sector-specific mechanisms is precisely the wrong way to go at this point in time if we are interested in preserving public service outcomes, protecting diversity, and challenging the logic of concentrated markets.

   Media pluralism and diversity are not likely to be secured through a simple reliance on market behaviour but, instead, by acting decisively and using a range of financial and regulatory tools which remain open to policymakers and regulators and which should be at the heart of any review of UK communications media.

   References

   Competiton Commission 2012, Movies on pay TV market investigation
   Ofcom 2011, Communications Market Report
   Ofcom 2012a, PSB Annual Report
   Ofcom 2012b, DCMS Communications Review paper on Competition in Content Markets