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Media Convergence, Competition Law , and Industrial, and Media Policies. Robert G. Picard Media Management and Transformation Centre Jönköping International Business School Jönköping University. Convergence is. blending of industries and activities in information society
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Media Convergence, Competition Law , and Industrial, and Media Policies Robert G. Picard Media Management and Transformation Centre Jönköping International Business School Jönköping University
Convergence is • blending of industries and activities in information society • built upon technological changes that provide more control of entire value chains • based in linking the value chains of different products and services • built upon assumptions of synergy and critical mass
Types of Convergence • Technical convergence • Production convergence • Network convergence • Device convergence • Service convergence • Market convergence
technological convergence service convergence market convergence
Convergence Situations Involving Media Platforms and Producers Convergence producing limited benefits Convergence producing limited benefits print Online broadcast Convergence is being actively resisted audio recordings Strong linkages have been formed in visual entertainment sectors motion pictures Some convergence is spurred by common interests in soundtracks and distribution systems
Media Business Effects of Convergence • development of media product portfolios • increasing emphasis on cross-media activities • rising complexity in media firm organisation and operations • consolidation and concentration among media firms
Consolidation and Concentration • Consolidation • fusions (mergers & acquisitions, joint ventures • Concentration • involves control over market activities • concept at the heart of competition law • Consolidation may or may not create concentration
Consolidation and Concentration • Market changes can keep consolidation from becoming concentration • growth of number of magazines, radio channels, television channels, cable channels, online and mobile content providers • 2 examples from the “poster children” of concentration
Why consolidation and concentration occur • managers seek to reduce risk • managers seek to control sources of necessary resources • managers seek financial stability • growth imperatives for firms and managers • mangers’ fear of the future • lack of internal innovation in firms • ego needs of strong leaders • avarice
Policy Approaches to Media Convergence and Operations • Industrial Policy • designed to promote growth and development of an industry • designed to promote competitiveness and sustainability of enterprises • Competition Policy • designed to protect competition and halt harmful practices and developments that provide undue market power • Concerned with harm to competitors and harm to consumers • Cultural Policy • designed to promote and protect cultural and social interests • Political Support Policy • designed to serve political interests and concerns
Policymaking in Europe • European Commission sets broad philosophical framework and common principles of policy for member states • Latitude for member states to set national law and regulation within the EU framework and principles • EC establishes law and regulation for the combined internal market
Competition Law and Policy • Primary concerns • to ensure markets aren’t controlled and keep market dominance from growing • defining relevant market and measure for dominance and control • enforcement proceedings
Competition Law and Policy • Primary concerns in Europe • to create and protect a competitive internal market for products and services • to promote domestic competition law enforcement • history of tolerating and promoting cartels • competition law and enforcement for only about 25 years in most nations • to prohibits business activities that reduce or distort competition • to prohibits governmental activities that reduce or distort competition • state aid (subsidies) to enterprises that provide competitive advantages to specific firms
Competition Law and Policy • Primary concentration law solutions to concentration • halting competition from developing and growing further • Scrutinize M&A activities and joint ventures to ensure economic harm doesn’t occur • dismantling firms with high concentration levels • rarely used
European Competition Law • Operating aid is prohibited unless it is part of • a regional developmental programme • an industry development plan • a rescue and restructuring effort for failing firms • Conflict: Subsidies and operating aid exist for broadcast and print media in many EC member states
Competition Law and Media • A partial exemption from competition law exists for aid for cultural purposes • must not seriously harm the internal market • Irish TV documentary subsidies permitted • single payments to support production • Sociéte Français de Production general subsidies were found to be operating aid that harmed competitors • paid over number of years to same firms without restructuring plan
Competition Law and Media • Disputes over state support of public broadcasting • commercial firms argued mixed funding (license fee and advertising) created unfair competition • protocol to Treaty of Amsterdam enacted to protect PSB and license fee because of their public service obligations
Competition Law and Media • Protocol subjects commercial activities (usually converged activities) to competition policy • magazine and internet operations of BBC • Sale of access to digital network for data transmission by SVT • requires separation of public service and commercial activities • Portuguese public broadcasting case required clear accounting of subsidies and uses and separation of commercial activities • ruled RTP was using subsidies for public service activities and could show use through accounting practices • policies on internal cost transfer issues and brand transfer advantages remain undecided
Competition Law and Media • Regulators are increasingly concerned about mergers and acquisitions that create or increase dominant positions • by joining dominant positions in production and distribution • by creating potential to exclude or significantly disadvantage competitors
Recent Merger and Acquisition Concerns • Vivendi acquisition of Seagram ($34 billion) • Vivendi a major shareholder in Canal+ and BSkyB • Seagram owns Universal Studios and many broadcast rights • EC concerned deal would increase dominance of European pay cable and satellite broadcasting by vertical integration of the two firms • EC requirements for approval • Sale of BSkyB shares (22.7% stake) • Vivendi agreement not to discriminate against other pay TV operators in access to Universal Studio products
Time Warner and AOL • Both have significant European operations • EC concerned about dominance in online distribution and sale of video and audio products • because of AOL online market dominance, Time Warner product dominance, and Bertelsmann AOL ownership • Complicated by Time Warner - EMI merger • EC required Bertelsmann-AOL divestiture
Time Warner, Warner Music Group, EMI Merger • $20 billion merger of music interests • including Virgin Records (EMI), Chappell Music (Warner) • EC indicated it would block the deal • production and distribution operation merger was not problematic • EC concerned about collective dominance of recordings and catalogues. AOL ownership also a factor • TW and EMI cancelled the merger
Media Policy Approach • Increasing efforts to establish media-specific policy to control convergence effects • Proponents see competition law as not effective in addressing social concerns about media consolidation and concentration
1992 EU Green Paper on Media Concentration and Pluralism • argued that guaranteeing pluralism and cultural diversity necessary • provided the philosophy against consolidation and concentration • asserted that action is the responsibility of member states • no effective results achieved
Ownership Limitations in Media Specific Policy Efforts • Major shift during 1990s to begin regulating by audience share rather than number of media units owned by a firm • In 1997 the EC rejected an effort to create pan-European ownership limit • Proposal limited maximum ownership to • 30 percent of TV audience share • 30 percent of radio audience share • 10 percent of total audience of all cross-owned media
2002 European Parliament Resolution on Media Concentration • EC should examine political, economic, and legal implications of a European-level framework • EC should identify regulatory options for safeguarding freedom of expression and pluralism and fair competition in advertising market • direction and results uncertain
National Media Ownership Limits • France • limits newspaper ownership to 30 percent of newspaper market • forbids foreign ownership of broadcasting • United Kingdom • limits TV ownership to no more than 15 percent of total audience share • newspapers with more than 20 percent of national circulation cannot own TV licenses • foreign ownership prohibitions on broadcasting are being removed
National Ownership Limits • Germany • TV companies limited to 30 percent of total audience • law prohibits “predominant opinion power” • Special obligations for firms over 10 percent of audience • some discretion to lower the limit when one company already has high newspaper and TV ownership
National Ownership Limits • United States • No basis to regulation print media ownership except competition law • foreign ownership of broadcast stations limited (25 percent) • No firm can own television channels providing access to more than 35 percent of TV households • no firm can own more than 5 radio stations in market with 14 stations or 8 stations in market with 45 stations