The fun and games and contrary decisions of competition regulators

Raymond Snoddy says it would be good to see competition regulators in the UK concentrate on real abuses of market dominance that actually harm consumers’ interests rather than disadvantaging consumers in pursuit of theoretical models of competition….

There are few things so entertaining in the media world as competition regulators getting themselves in a tangle – or coming to the correct decision for the wrong reasons.

Today’s decision by the Competition Commission that no further action should be taken on BSkyB’s hold over the rights for the first pay-TV subscriber window is a collectors item

Last August the Commission provisionally determined that Sky’s exclusive contracts with six Hollywood majors were anti-competitive and should be weakened.

Then amid signs of back-sliding in March, Ofcom, the communications regulator, urged the Commission to stand firm and break Sky’s powerful hold on the pay-TV market in the UK. All to no avail.

The Commission now argues that the arrival of Netflix and the presence of Amazon-owned LoveFilm, quite apart from Tesco-owned Blinkbox, have weakened BSkyB’s dominance.

Tell that to rivals BT or Virgin Media, who were howling with frustration at the Competition Commission decision.

They argued that competition in the UK pay-TV market is still ineffective and BT in particular complained of being “locked out” from showing the most recent films on its service.

Can that much have changed since August? Has Netflix, LoveFilm and Blinkbox really made such an impact on the UK market so as to undermine in any way BSkyB’s dominance in the pay-TV market?

The Competition Commission seems to be quite aware of some of the contradictions in its position. Competition in the overall pay-TV retail market, it says, is ineffective. But it’s brief was only to look at the first window movie pay-TV market and that is fine now thanks to Netflix, LoveFilm etc.

This is so, the Commission goes on, because that means there are more opportunities for consumer to access films online.

It also believes that the range of content and price are more important factors than recency in the mind of consumers.

This is very odd. If so it would mean that BSkyB is behaving with reckless abandon in paying premium sums to get the first window movie rights from the major studios.

Then there is the small matter of the 2010 ruling by the Competition Appeal Tribunal that found that the wholesale rates offered for Sky Sports and Sky Sports 1 and 2 should be offered to all comers.

And yet without any real evidence – real evidence that is not contradictory – the Competition may have stumbled their way to the correct outcome.

A strong case can be made that studios, which often risk hundreds of millions of dollars on making a movie, should have the right to charge a premium for the first pay-TV window and the way to exact that premium is through sale of exclusive rights.

Take away exclusivity in time windows and films become commodities and are in danger of attracting commodity prices.

The issue of the exclusivity premium is much more central in sports rights – where there is a near collapse in value between live and exclusive and recorded and everywhere.

Football fans have already been greatly disadvantaged by the European Commission’s competition policies on football rights.

At the wholesale level it seems rational to carve football rights up into a number of packages so that one company – in this case Sky – cannot own them all.

At the consumer level it is a very different matter with fans having to buy two packages to see all the matches they want – and it is very doubtful indeed whether there can be cost savings when you consider duplication of production costs.

Fans can just about cope with two owners of Premium League packages – further fragmentation in the interests of perfect competition would simply cause chaos.

Ultimately the chaos could run up the value chain to harm the creator of the sports rights – the football associations.

Competition regulators, however powerful, cannot control, and therefore should respect, the huge financial difference between exclusive rights and rights that have merely become commodities because they are available to anyone who turns up.

It is good that panels set up by organisations such as the Competition Commission have the independence under general rules to make independent decisions.

The down side is the inconsistency in the decisions taken, even within the communications industry.

While the panel that looked into the first pay-TV window under Laura Carstensen “revised” its decision to take account of new competition in the market, the panel that looked into minor local newspaper consolidation in Kent clearly did not.

The market was looked at narrowly in the context of over-lapping local newspaper ownership and more journalist jobs were lost as a result.

Did they really take into account sufficiently the current economics of the local and regional newspaper business and in particular the way the classified advertising market for jobs, car and houses has drifted off to the internet?

Then there were the highly distinguished Competition Commission panels that ruled that Project Kangaroo – before it was even effectively set up – would be a threat to competitors who were themselves barely in the market.

The result? A huge delay to a British product that was technologically innovative at the same time as giant international corporations such as Google and Facebook faced no such restraints – at least for now.

Would it be asking too much for competition regulators in the UK to pay rather more attention to how markets are drawn and seek greater precision in how competition in those markets are assessed?

It would also be good to concentrate on real abuse of market dominance that actually harms consumers’ interests rather than disadvantaging consumers in pursuit of theoretical models of competition. And above all avoid anticipating such abuse of market dominance before the market has even been created.

Until something like that happens the fun and games and contrary decisions will continue.