The Office of Fair Trading has ruled that Project Canvas, the proposed joint venture between the BBC, ITV, Channel 4, Five, BT, Talk Talk and Arqiva, does not qualify for investigation as a merger. The decision has been welcomed by the partners in the proposed platform but it could still face further challenges ahead. The OFT notes that this decision does not preclude the application of other provisions of competition law and other relevant legislation.

Project Canvas is a proposal to create a new internet-connected television platform, backed by the main public service broadcasters in Britain.

The OFT has decided that it does not have jurisdiction to review Project Canvas under the merger provisions of the Enterprise Act 2002 because none of the joint venture partners is contributing a pre-existing business to the joint venture.

The competition authority considers that “it is not proposed that the joint venture partners will contribute any video-on-demand content or other business to Canvas, and Canvas will have no role in aggregating, marketing or directly retailing any such television content”.

“In the context of a start-up joint venture such as Project Canvas, the merger control provisions are designed to capture arrangements leading to the transfer of a pre-existing business,” said Sheldon Mills, director of mergers at the Office of Fair Trading.

It considers that the joint venture partners do not intend to transfer an existing business into the joint venture. “Therefore, regardless of the potential significance of Project Canvas JV for the future of internet connected television, the notified proposals do not give rise to a merger qualifying for substantive investigation by the OFT”.

Under the Enterprise Act 2002 a relevant merger situation is created where two or more enterprises or businesses cease to be distinct and the resulting operation has a turnover above £70 million or a 25% share of the market in the United Kingdom.
The OFT did not consider this to be the case with Project Canvas.

The OFT also considered that none of the joint venture partners will have material influence to affect the policy of the transferred business.

Some might question the interpretation by the OFT of the function of the proposed joint venture, which will to all intents and purposes be a platform provider. The resulting platform, licensed by the proposed joint venture vehicle, will by definition have a role in the aggregation, marketing and retailing of programming through its prescribed user experience. The partner organisations, by virtue of their shareholding and board representation, will also have the opportunity to influence the policy of the organisation.

The decision differs from that of the Competition Commission in the case of Project Kangaroo, a previous proposed joint venture between the BBC, ITV and Channel Four to provide programming online. That was blocked on the grounds that it would substantially lessen competition in the wholesale and retail supply of video-on-demand programming.

The announcement on Canvas was well received by project director Richard Halton. He said in a statement: “The Project Canvas partners welcome the decision from the OFT, which confirms our analysis and sets the scene for the final stage of the regulatory process.”

The BBC Trust, which was awaiting the view of the Office of Fair Trading, is expected to approve the participation of the BBC in the joint venture, having already given provisional approval.

However, there could be more regulatory hurdles. The communications regulator Ofcom will also take a close interest in proposed joint venture, which could face further legal challenges.

Although the Project Canvas joint venture may not be viewed as a merger, this does not preclude the application of other competition legislation in relation to cartels or the abuse of a dominant market position.

Pay-television providers Sky and Virgin Media are predictably critical of Project Canvas, as are some new entrants that have their own hybrid broadcast and broadband offerings. Many major consumer electronics companies who have their own ambitions have also expressed reservations that a standard platform imposing a consistent user interface could reduce their ability to differentiate their products and services in the market.