The Kangaroo joint video venture between BBC Worldwide, ITV and Channel 4 has been referred to the Competition Commission. It follows complaints to the Office of Fair Trading from other providers including Sky and Virgin Media. The Competition Commission will now take six months to consider the matter.
Ashley Highfield, the former head of future media and technology at the BBC, will start as chief executive of Vodco, otherwise known as the Kangaroo Project, with this unwelcome news in his in tray.
The proposed joint venture, which has yet to receive approval from the BBC Trust, plans to create a combined online offering bringing together the wholesale and retail programming of the public service broadcasters. Programmes would be available on a free, rental or retail basis.
Satellite broadcaster BSkyB has said the partners “must not be allowed to leverage their unique position in television, built on public subsidy, into the on-demand space”.
The Office of Fair Trading said “concerns arise because the concentration of these important and competing libraries of UK TV programming may give market power to the joint venture.” This could potentially lead to higher prices to wholesale customers and consumers, or limit the ways in which viewers can watch the programming.
The parties involved in the proposed project offered remedies but they were considered to be of limited scope and insufficient to resolve these concerns.
“Video on demand is a new and fast-growing consumer sector, and we should judge the issues on evidence, rather than speculate about consumer behaviour,” said Simon Pritchard, senior director of mergers at the Office of Fair Trading.
The watchdog is obliged to refer such matters if there is the possibility of a merger that may result in a substantial lessening of competition for goods or services in the United Kingdom.
Under the Enterprise Act 2002 a relevant merger occurs if two or more enterprises cease to be distinct and their turnover exceeds £70 million or results in a share of 25% of the market in the United Kingdom.
The respective broadcasters proposed to maintain their separate web video offerings, so it may not result in an effective merger of their online video operations.
Michael Grade, the executive chairman of ITV criticised the decision. “While I understand that the Office of Fair Trading is carrying out its statutory obligations,” he said in a statement. “There is a serious problem with a regulatory framework that seems unable to take the most important interest into account — that of British viewers.”
“This venture has been delayed by a reference to the Competition Commission, at the very same time that non-UK companies like Google and Apple are free to build market-dominating positions online in the UK without so much as a regulatory murmur.”
In a joint statement, BBC Worldwide, ITV and Channel 4 said they were disappointed by the decision and frustrated that it will delay the launch of Kangaroo. They said they remained committed to the plans and were confident that the Competition Commission would conclude that the joint venture “will provide wider choice for consumers and be seen as a pro-competitive force in the market place” providing “an example of UK innovation and collaboration for the benefit of consumers and advertisers alike.”
The competition concerns raised about the Kangaroo project arise primarily because the consortium has so far been unclear about its proposed business model. Aggregating programming from various sources is a straightforward platform proposition. Potentially restricting supply to other providers and refusing to stock material from third parties are entirely different issues.
As recent problems with premium rate phone lines have demonstrated, broadcasters are not above the law when it comes to issues of consumer protection.
If three leading supermarkets were considering creating a single online store, it would be expected to raise competition issues. Renting, retailing or wholesaling programmes online is no different.
The irony is that experience has shown that syndication and distribution are the keys to success in online media. In the view of informitv, rather than attempting to create their own portal, British broadcasters should be seeking to make their material available through every possible platform.
In the United States, the Hulu joint venture between News Corporation and NBC has created a successful online property that also makes its material available through other online channels.
Unfortunately, the further delay introduced by reference to the Competition Commission will reduce the effectiveness of British broadcasters to develop their online strategies at this critical time.
“We remain confident that the proposal will not stifle competition in this fast-emerging sector,” said John Smith, the chief executive of BBC Worldwide, the commercial division of the BBC. “We will now work closely with the commission to ensure any concerns raised are adequately addressed.”