Online video services Joost and Babelgum have joined Virgin Media in calling for the Kangaroo coalition of the BBC, ITV and Channel 4 to be barred from launching its planned online video joint venture. The highly critical Virgin Media submission seems particularly damaging to the prospects for the Kangaroo project. The cable operator already carries catch up programming from the BBC and Channel 4 on its own video-on-demand service and has just reached agreement with ITV.
Virgin Media said in its response to the various remedies proposed by the Competition Commission that prohibition is the most practical solution. The cable company said that the Kangaroo joint venture would concentrate content in the hands of one entity, allowing it to dictate the form and structure of the market for video on demand services, leading to lack of wholesale and retail competition.
The Virgin Media submission added that the parties have not provided any compelling evidence of significant consumer benefits, saying that that they are either illusory or do not require the joint venture to be delivered. It recommended that the Competition Commission “has no realistic alternative but to prohibit the proposed transaction.”
Joost, the online video service, also urged the Competition Commission “to consider seriously the possibility of prohibiting the joint venture on the basis that the parties can compete effectively, at both the retail and wholesale level, without any form of merger being required.”
As an alternative, Joost suggested that the joint venture could be allowed to proceed with only two of the three parties, to ensure continued competition between the major broadcasters. It further suggested that if the parties were to be permitted to pool their wholesale syndication businesses then this should involve some form of compulsory licensing on pre-defined fair, reasonable and non-discriminatory terms. Joost proposes as an example the Joint Online Licence operated in the United Kingdom by the MCPS-PRS Alliance with respect to music rights.
Babelgum, a similar service to Joost, submitted that “prohibition is the only remedy which both adequately addresses all the competition concerns raised by the Commission and results in the lowest costs to third parties and or the market.”
Pact, the trade association representing the commercial interests of the independent production sector, is not in favour of prohibition. Instead it proposes revised terms of trade between independent producers and the joint venture, allowing its members to made direct deals with retailers for video on demand rights beyond a seven-day catch-up window.
Other, anonymous, submissions support to the difficulty of establishing and enforcing fair, reasonable and non-discriminatory terms.
For their part, the BBC, ITV and Channel 4 have effectively dismissed two of the proposed remedies. One is that the joint venture should offer programming to third parties on fair, reasonable and non-discriminatory terms. The other is that programming rights should revert to independent producers after the 7 day catch-up window. They said that the joint venture would not be commercially viable and they would not proceed on those terms.
Instead they have offered a range of their own suggestions based on limiting the ability of the joint venture to wholesale programming, arguing that they still have strong commercial incentives to syndicate separately.
Virgin Media has in return questioned their incentive to provide programming to third parties on economically viable terms. It observes that that if it would not be commercially viable to offer programming on fair, reasonable and non-discriminatory terms then this calls into question the incentives and motives of the joint venture partners.
It concludes that any joint venture or co-operation arrangement, of any type, between the joint venture parties in relation to the supply of video on demand programming “will almost inevitably give rise to competition concerns”.
With a number of calls from competitors for the Kangaroo joint venture to be prohibited, the prospects for the proposition appear unpromising. If it proceeds at all it seems likely that this will be in a significantly restricted form.
So far the concerns expressed have largely been from potential competitors that themselves wish to aggregate programming that could be provided by the Kangaroo joint venture.
Another argument, which so far seems to have been missing from the debate, is whether Kangaroo should be obliged to offer third parties access to its platform to enable them to benefit from the audience it could attract in syndicating their own programming.
It will be for the Competition Commission to decide whether simply limiting the arrangements for the joint venture relating to wholesale programming will be sufficient to prevent a substantial lessening of competition in the market. It s expected to publish its final decision in February.