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

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

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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.

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TABLE OF CONTENTS

S. NO. 1.

CHAPTERS INTRODUCTION INDIAN TELEVISION BROADCASTING AND DISTRIBUTION SECTOR- A SNAPSHOT BENEFITS AND COMPETITION CONCERNS ASSOCIATED WITH VERTICAL INTEGRATION

PAGE NO. 5

2.

6-8

3.

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

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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.

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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.

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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 PwCGlobal 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
1 2

TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 1, pg 9. Ibid. 3 Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011] 8. 4 TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013)10.

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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

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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.

5 6

Ibid. Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011] 11. 7 Confederation of Indian Industry, CII’s Response to TRAI’s Consultation Paper (No. 01/2013) on the issues relating to Cross Media Ownership (2013) 2.

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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

8

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. 9 Ibid 22. 10 Jeffrey 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.

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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 14

Ibid. 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.

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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 17

Ibid 22. 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.

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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.

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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.

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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).

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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).

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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 exante 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 matters 31. 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 28

The Competition Act 2002 s 3. 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.

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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 broadcasterdistributor 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 34

Ibid 80. Ibid 81. 35 Ibid 80. 36 Ibid. 37 Ibid 83.

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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 39

Ibid. Ibid.

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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.

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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 42

TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 2, pg 18. Ibid. 43 Ibid 74. 44 Ibid 18. 45 Ibid 74.

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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 (SIXTH

AND

CABLE

SERVICES)

INTERCONNECTION

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 47

Ibid 19. Ibid. 48 Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013) 80.

21

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 nondiscriminatory 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 subregulation further provides that an imposition of unreasonable terms and conditions
49 50

TRAI, Recommendations on MEDIA OWNERSHIP (25 February, 2009) 11. Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013) 82.

22

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 52

TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 6, pg 72. Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013) 85. 53 Ibid 86.

23

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 bouquet54by 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 55

Ibid 85. Ibid. 56 Ibid. 57 Ibid.

24

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.

25

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 nondiscriminatory 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 nonhorizontal 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.

26

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 approach 66. 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) accessed 18 july 2013

27

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 68

Ibid. 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.

28

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.

29

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) accessed 18 july 2013. 76 Ibid.

30

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 payTV77, 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.

31

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

32

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 14 th 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

33

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 ‘nonexclusivity’ 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

34

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

35

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)

36

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) accessed 18 July 2013 Commission clears merger between Stream and Telepiù subject to conditions' (europa.eu , 2003) accessed 18 July 2013.

Competition,

regulation

in

TV

channels

distribution

(thehindubusinessline.in,

2004)

accessed 18 July 2013 GUIDELINES FOR DTH BROADCASTING SERVICE IN INDIA (indiantelevision.com, 2013) accessed 15 July 2013

37

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

38