1. Media Convergence, Competition Law, and Industrial, and Media Policies Robert G. Picard Media Management and Transformation Centre Jönköping International Business School Jönköping University

2. Convergence is blending of industries and activities in information society built upon technological changes that provide more control of entire value chains based in linking the value chains of different products and services built upon assumptions of synergy and critical mass

3. Types of Convergence Technical convergence  Production convergence  Network convergence  Device convergence Service convergence Market convergence

4. technological convergence  service convergence  market convergence

5. print audio recordings broadcast Convergence is being actively resisted Convergence Situations Involving Media Platforms and Producers motion pictures Some convergence is spurred by common interests in soundtracks and distribution systems Strong linkages have been formed in visual entertainment sectors Online Convergence producing limited benefits

6. Media Business Effects of Convergence development of media product portfolios increasing emphasis on cross-media activities rising complexity in media firm organisation and operations consolidation and concentration among media firms

7. Consolidation and Concentration Consolidation  fusions (mergers & acquisitions, joint ventures Concentration  involves control over market activities  concept at the heart of competition law Consolidation may or may not create concentration

8. Consolidation and Concentration Market changes can keep consolidation from becoming concentration  growth of number of magazines, radio channels, television channels, cable channels, online and mobile content providers 2 examples from the “poster children” of concentration

9. Why consolidation and concentration occur  managers seek to reduce risk  managers seek to control sources of necessary resources  managers seek financial stability  growth imperatives for firms and managers  mangers’ fear of the future  lack of internal innovation in firms  ego needs of strong leaders  avarice

10. Policy Approaches to Media Convergence and Operations  Industrial Policy  designed to promote growth and development of an industry  designed to promote competitiveness and sustainability of enterprises  Competition Policy  designed to protect competition and halt harmful practices and developments that provide undue market power  Concerned with harm to competitors and harm to consumers  Cultural Policy  designed to promote and protect cultural and social interests  Political Support Policy  designed to serve political interests and concerns

11. Policymaking in Europe European Commission sets broad philosophical framework and common principles of policy for member states Latitude for member states to set national law and regulation within the EU framework and principles EC establishes law and regulation for the combined internal market

12. Competition Law and Policy Primary concerns  to ensure markets aren’t controlled and keep market dominance from growing  defining relevant market and measure for dominance and control  enforcement proceedings

13. Competition Law and Policy Primary concerns in Europe  to create and protect a competitive internal market for products and services  to promote domestic competition law enforcement history of tolerating and promoting cartels competition law and enforcement for only about 25 years in most nations  to prohibits business activities that reduce or distort competition  to prohibits governmental activities that reduce or distort competition state aid (subsidies) to enterprises that provide competitive advantages to specific firms

14. Competition Law and Policy Primary concentration law solutions to concentration  halting competition from developing and growing further Scrutinize M&A activities and joint ventures to ensure economic harm doesn’t occur  dismantling firms with high concentration levels rarely used

15. European Competition Law Operating aid is prohibited unless it is part of  a regional developmental programme  an industry development plan  a rescue and restructuring effort for failing firms Conflict: Subsidies and operating aid exist for broadcast and print media in many EC member states

16. Competition Law and Media A partial exemption from competition law exists for aid for cultural purposes  must not seriously harm the internal market Irish TV documentary subsidies permitted  single payments to support production Sociéte Français de Production general subsidies were found to be operating aid that harmed competitors  paid over number of years to same firms without restructuring plan

17. Competition Law and Media Disputes over state support of public broadcasting  commercial firms argued mixed funding (license fee and advertising) created unfair competition  protocol to Treaty of Amsterdam enacted to protect PSB and license fee because of their public service obligations

18. Competition Law and Media Protocol subjects commercial activities (usually converged activities) to competition policy  magazine and internet operations of BBC  Sale of access to digital network for data transmission by SVT requires separation of public service and commercial activities  Portuguese public broadcasting case required clear accounting of subsidies and uses and separation of commercial activities ruled RTP was using subsidies for public service activities and could show use through accounting practices  policies on internal cost transfer issues and brand transfer advantages remain undecided

19. Competition Law and Media Regulators are increasingly concerned about mergers and acquisitions that create or increase dominant positions  by joining dominant positions in production and distribution  by creating potential to exclude or significantly disadvantage competitors

20. Recent Merger and Acquisition Concerns Vivendi acquisition of Seagram ($34 billion)  Vivendi a major shareholder in Canal+ and BSkyB  Seagram owns Universal Studios and many broadcast rights EC concerned deal would increase dominance of European pay cable and satellite broadcasting by vertical integration of the two firms EC requirements for approval  S ale of BSkyB shares (22.7% stake)  Vivendi agreement not to discriminate against other pay TV operators in access to Universal Studio products

21. Time Warner and AOL Both have significant European operations EC concerned about dominance in online distribution and sale of video and audio products  because of AOL online market dominance, Time Warner product dominance, and Bertelsmann AOL ownership  Complicated by Time Warner - EMI merger EC required Bertelsmann-AOL divestiture

22. Time Warner, Warner Music Group, EMI Merger $20 billion merger of music interests  including Virgin Records (EMI), Chappell Music (Warner) EC indicated it would block the deal  production and distribution operation merger was not problematic  EC concerned about collective dominance of recordings and catalogues. AOL ownership also a factor TW and EMI cancelled the merger

23. Media Policy Approach Increasing efforts to establish media- specific policy to control convergence effects Proponents see competition law as not effective in addressing social concerns about media consolidation and concentration

24. 1992 EU Green Paper on Media Concentration and Pluralism argued that guaranteeing pluralism and cultural diversity necessary  provided the philosophy against consolidation and concentration asserted that action is the responsibility of member states no effective results achieved

25. Ownership Limitations in Media Specific Policy Efforts Major shift during 1990s to begin regulating by audience share rather than number of media units owned by a firm In 1997 the EC rejected an effort to create pan- European ownership limit  Proposal limited maximum ownership to 30 percent of TV audience share 30 percent of radio audience share 10 percent of total audience of all cross-owned media

26. 2002 European Parliament Resolution on Media Concentration EC should examine political, economic, and legal implications of a European-level framework EC should identify regulatory options for safeguarding freedom of expression and pluralism and fair competition in advertising market direction and results uncertain

27. National Media Ownership Limits France  limits newspaper ownership to 30 percent of newspaper market  forbids foreign ownership of broadcasting United Kingdom  limits TV ownership to no more than 15 percent of total audience share  newspapers with more than 20 percent of national circulation cannot own TV licenses  foreign ownership prohibitions on broadcasting are being removed

28. National Ownership Limits Germany  TV companies limited to 30 percent of total audience law prohibits “predominant opinion power” Special obligations for firms over 10 percent of audience some discretion to lower the limit when one company already has high newspaper and TV ownership

29. National Ownership Limits United States  No basis to regulation print media ownership except competition law  foreign ownership of broadcast stations limited (25 percent)  No firm can own television channels providing access to more than 35 percent of TV households  no firm can own more than 5 radio stations in market with 14 stations or 8 stations in market with 45 stations