Gilding the Lily?: BSkyB / ITV and the redundancy of media plurality regulation Andrew Scott 4 th Annual CCP Conference, Norwich, 7-8 July 2008

Abstract In the UK, media ownership regulation is in large part limited to the assessment of a minority of mergers in the media sector against relevant elements of a set of five media public interest considerations. The regulatory purpose, paraphrasing, is to maintain viewpoint diversity and quality of media outputs, and to sustain a plurality of ownership of broadcasting companies. The assessment is conducted by the Competition Commission alongside its consideration of the competitive impact of the given merger on relevant markets. The determinative role is performed by the Secretary of State on the advice of the competition authority. It is arguable that such an additional form of regulation specific to this one industry sector is not necessary in light of the wider regulatory, economic, social and technological context in which media companies operate. This paper brackets such general scepticism at the utility of specific media merger controls, and addresses the matter through the lens of the first case which has been assessed under the regime: the acquisition by BSkyB of a 17.9% equity stake in ITV plc. This involves a focus on the plurality of broadcasting ownership criterion alone, as only section 58(2C)(a) was invoked in the terms of reference stipulated by the Secretary of State when intervening in the normal merger review process. It is concluded that in light of the BSkyB / ITV case, it is difficult to conceive of circumstances in which deployment of the plurality criterion would ever result in a merger remedy that was not also required by the standard competition assessment. Consequently, at least this aspect of the specific media merger controls is redundant. July 2008

Depoliticisation of Merger Control Overarching aim of reforms of UK merger regime in Enterprise Act 2002 arguably the diminution of political influence over merger decisions an exclusively competition-based standard (removal of the public interest test) transfer of determinative function at merger referral and decision stages modified assessment regime for public interest mergers, and special regime for newspaper mergers July 2008

Basic Features of the UK Regime Voluntary notification of mergers above quantitative thresholds Two authorities deal with distinct stages: Phase I (OFT) and Phase II (CC) Test: will a relevant merger situation cause a substantial lessening of competition Some scope for public interest intervention by Secretary of State July 2008

Introduction of Revised Special Scheme for Media Mergers Communications Act 2003 introduced new media public interest considerations into Enterprise Act (section 58(2A)-(2C)), and repealed special newspaper regime provisions came into force on 29 December 2003 SoS must actively choose to intervene before there is any divergence from standard approach to assessment; otherwise normal process and SLC test July 2008

PHASE IPHASE IICOURTNOTIFICATION Fig.1: Assessment process for standard and public interest cases in UK merger control STD PI SofS OFTCC Ofcom July 2008

Summary of Process After intervention, OFT reports on competition and media public interest considerations (MPICs); Ofcom provides report on matters pertinent to MPICs SoS decides whether to refer to CC; bound by OFT view on competition; can refer competition and public interest issue, or public interest issue only After referral, CC inquires and reports back to SoS regarding referred issues with recommendations; advice binds SoS on competition issue SoS determines whether remedies necessary and what they will be July 2008

The Media Public Interest Considerations 5 additional substantive criteria: s58(2A): accurate presentation of news / free expression of opinion s58(2B): sufficient plurality of views in newspapers in each market, subject to reasonableness and practicality s58(2C)(a): sufficient plurality of persons with control of media enterprises serving each different audience or particular area s58(2C)(b): wide range of broadcasting of high quality and appealing to wide variety of tastes and interests to be available throughout UK s58(2C)(c): genuine commitment to attainment of prescribed standards objectives July 2008

Guidance on Meaning of Tests First two MPICs replicate provisions of old newspaper regime; app. 50 cases referred under old regime: 5 adverse findings made on public interest grounds No relevant pre-existing case-law on broadcasting and cross-media PICs; guidance published by DTI and Ofcom BSkyB-ITV share acquisition the first case involving media enterprises to prompt intervention by SoS since December 2003 July 2008

BSkyB / ITV Share Acquisition: the parties British Sky Broadcasting Group plc is a holding company active in television broadcasting and retailing in the UK and Ireland. BSkyB operates the direct-to-home satellite platform and other digital subscriber line networks and mobile networks. BSkyB also distributes a number of its channels on a wholesale basis to cable (and other) operators who act as retailers to its UK and Irish customers. These include Sky News. ITV plc (ITV) is active in a number of sectors primarily related to television production and broadcasting. ITV distributes its own third party content via a wide range of wholly owned free to air television channels broadcast on a range of platforms, and sells advertising on behalf of all 15 Channel 3 regional licencees in the UK, 11 of which it controls. ITV also holds a 40% stake in the news provider Independent Television News (ITN) and interests in two of the six digital terrestrial television multiplex platforms. July 2008

BSkyB / ITV Share Acquisition: the transaction November 2006: BSkyB announced that it had acquired 696 million shares in ITV plc representing 17.9% of ITV plc shares at a cost of £940 million BSkyB stated that it wanted to explore options to create value in the interests of both BSkyBs and ITVs shareholders… ITVs content arm is one of Europes premier broadcasting assets and production businesses Widespread suspicion that real aim was to thwart a mooted takeover of ITV plc by VirginMedia February 2007: Secretary of State intervened July 2008

BSkyB / ITV Share Acquisition: Ofcoms view Focused on the audience for national news, and in particular the UK television and cross-media audiences for national news TV: (1) increased concentration of TV news provision may raise an issue with respect to plurality, exacerbated by connection between Sky and News International (2) situation further exacerbated by linkage between Sky and ITN July 2008

BSkyB / ITV Share Acquisition: CCs view (I) Relevant merger situation: the size of BSkyBs holding both in absolute and relative terms was such that on the basis of past voting patterns it would be able to block special resolutions proposed by ITVs management… would limit ITVs strategic options, for example its ability to raise funds. BSkyBs importance and stature as an industry player, together with its position as the largest shareholder, would give additional weight to its views The counterfactual: an independent ITV July 2008

BSkyB / ITV Share Acquisition: CCs view (II) SLC: there was likely to be an SLC arising from a loss of rivalry between ITV and BSkyB in the all-TV market BSkyB could influence ITVs strategy in relation to content production/commissioning BSkyB could influence investment by ITV in high-definition television (HDTV) or in other services requiring additional spectrum BSkyB could attempt to influence the course of any future transactions involving ITV to weaken the constraint that FTA services would otherwise provide No problems on advertising markets (nb CRR remedy from Carlton and Granada merger) or market for wholesale provision of TV news July 2008

BSkyB / ITV Share Acquisition: CCs view (III) SLC remedy: two possible – (1) complete divestment, (2) partial divestment to 7.5% holding; (2) preferable as least intrusive Plurality issue: given the limited influence conferred on BSkyB by acquisition. regulatory mechanisms and strong culture of editorial independence within television news production were likely to prevent any prejudice to independence of ITV news July 2008

BSkyB / ITV Share Acquisition: Secretary of States view Para 20: Secretary of State has decided to make an adverse public interest finding on the basis that the transaction operates against the public interest taking account only of the [SLC] within the UK market for all television Para 25: the Secretary of State has decided to impose the remedies recommended by the [CC]: partial divestment of BSkyBs shares in ITV down to a level below 7.5% Para 20: even if [there was an] impact… on the sufficiency of plurality, the remedy… necessary… to address the [SLC] is likely also to be an appropriate remedy to address any such adverse effect on media plurality July 2008

Excursus: BSkyB / ITV at the Competition Appeal Tribunal – 4 Key Issues Whether the Commission could properly find a relevant merger situation (Sky) Whether the Commission could properly find an SLC (Sky) Whether the Commission and the Secretary of State could properly find that the relevant merger situation did not operate against that the media plurality need (Virgin) Whether the Commissions recommendations for, and the Secretary of States acceptance of, remedies directed at the perceived SLC were reasonable and proportionate (Sky and Virgin) Underlying all the applications is an issue as to the proper approach of the CAT in applications made under s.120 of the Act (ie the purpose of JR in this context) July 2008

The Redundancy of Media Plurality Regulation? Is it possible to extrapolate from the specificity of the Secretary of States comment to the general ? Is it possible to conceive of circumstances in which a plurality concern might arise when competition law intervention would not also take place? July 2008

Gilding the Lily?: BSkyB / ITV and the redundancy of media plurality regulation Andrew Scott 4 th Annual CCP Conference, Norwich, 7-8 July 2008