The Competition Commission has provisionally concluded that the proposed video on demand joint venture between the BBC, ITV and Channel Four will restrict competition in the supply of video on demand services in the United Kingdom. The UKVOD initiative, also known as Project Kangaroo, is likely to result in a reduction in competition in the wholesale and retail market, the commission has concluded. It is now consulting on possible remedies or modifications.

“Video on demand is a relatively new and rapidly expanding medium and UKVOD clearly has much to offer,” said Peter Freeman, the chairman of the Competition Commission and of the inquiry into the initiative. “However, we are concerned that a loss of rivalry between BBC Worldwide, ITV and Channel 4, who are normally regarded as close competitors, could restrict existing and future competition for VOD. Whatever benefits viewers would gain from this rivalry would clearly be lost.”

The commission considered that the parties control most domestically produced programming, putting them in a powerful position in relation to competitors and viewers.

“We think that it would be difficult to obtain content from third parties to match UKVOD’s offer in scale or attractiveness,” said the chairman of the Competition Commission.

“In this situation, UKVOD would have the ability and incentive to impose unfavourable terms when licensing domestic content to rival VOD providers. At the extreme, UKVOD might withhold content from its rivals altogether. Any reduction in access to content would be likely to impact unfavourably on viewers.”

The broadcasters responded in a joint statement, saying: “We will continue to make the case for a service that will be both in vast majority free and non-exclusive, and of great benefit and value to British consumers.”

The proposed joint venture is an initiative between the BBC through BBC Worldwide, ITV plc and Channel Four Television Corporation. They signed an agreement in November 2007 and formed a limited liability partnership, UKVOD LLP.

The plan was that the members of the partnership would contribute a minimum number of hours of their archive material for a minimum period and that the joint venture would represent their main route to market for archive material.

They said the intention was to create a customer proposition that could compete in the video on demand market against powerful competitors and to maintain control of their content to avoid disintermediation by other distributors.

The Office of Fair Trading referred the anticipated joint venture to the Competition Commission at the end of June this year under the Enterprise Act. This required them to refer the matter in the case of a merger situation which “may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”.

It appears that the joint venture was unprepared for this. It submitted its case at the end of August and followed up with a further submission at the end of October. It seems that the Competition Commission was not persuaded by their submission.

Ashley Highfield, the head of the Kangaroo project, resigned in November to move to Microsoft.

The Competition Commission has published for consultation a notice of possible remedies.

The remedy options being considered include prohibiting the proposed merger altogether, although that does not preclude the parties entering into other arrangements that would not be considered anti-competitive.

An alternative would be to require the venture to offer access to material to third parties on a fair, reasonable and non-discriminatory basis.

Another option would be to require changes to the scope of the venture or its level of exclusivity.

Any interested parties have two weeks to provide their views or propose alternative remedies. The commission will publish its final decision on the competition issues and remedies in February.