vertical integration in tv broadcasting and distribution sector in india a competition audit

VERTICAL INTEGRATION IN TV BROADCASTING AND

DISTRIBUTION SECTOR IN INDIA: A COMPETITION AUDIT

___________________________

INTERNSHIP PROJECT REPORT

SUBMITTED BY:

AAKSHITA BANSAL

AMITY LAW SCHOOL, AFFILIATED TO GURU GOBIND SINGH

INDRAPRASTHA UNIVERSITY, NEW DELHI

UNDER THE GUIDANCE OF:

Dr. K. D. SINGH

DEPUTY DIRECTOR (LAW)

____________________________

NEW DELHI

JULY 2013

1

ACKNOWLEDGEMENT

This report is an effort made by me with the astute guidance of my mentor,. His valuable inputs

and constant encouragement has inspired me to carry out this research fruitfully. He gave me his

valuable time to discuss the facets of this topic and guided me towards an enlightening and

holistic research.

I also put on record my gratitude towards the library staff, which has provided me help and

access to all the resourceful material for my research.

I am indebted towards Competition Commission of India, for providing me an opportunity to

have a learning experience.

AAKSHITA BANSAL

2

DISCLAIMER

This project report has been prepared by the author as an intern under the Internship Programme

of the Competition Commission of India for the period of one month from 1st July 2013 to 31st

July 2013, for academic purposes only. The views expressed in the report are personal to the

intern and do not reflect the views of the Commission or any of its staff or personnel and do not

bind the Commission in any manner. This report is the intellectual property of the Competition

Commission of India and the same or any part thereof may not be used in any manner

whatsoever, without express permission of the Competition Commission of India in writing.

3

TABLE OF CONTENTS

S. NO.

CHAPTERS

PAGE NO.

1. INTRODUCTION 5

2. INDIAN TELEVISION BROADCASTING AND

DISTRIBUTION SECTOR- A SNAPSHOT 6-8

3.

BENEFITS AND COMPETITION CONCERNS

ASSOCIATED WITH VERTICAL INTEGRATION

9-15

4. PRESENT REGULATORY FRAMEWORK IN INDIA 15-26

5.

INTERNATIONAL SCENARIO

26-28

6. MEDIA CASE ANALYSIS

(FOREIGN AND INDIAN CASES) 29-33

7. CONCLUSION 33-35

8. BIBLIOGRAPHY 36-37

9. APPENDIX 38

4

ABSTRACT

Any sort of merger between two companies of a relevant market does not result in

competition concerns to arise. Horizontal mergers are definitely harmful but vertical integration

between two companies often results in productivity gains and better quality of services. In

certain circumstances, vertical integration may result in competition loss as witnessed in other

countries around the world. India’s Competition Act and the TRAI regulations provide ample

means for the CCI to deal with competition concerns. This paper discusses all the relevant

aspects of vertical integration and provides recommendations by analyzing the current market

conditions and the future predictions for the media sector.

Research Question

The researcher seeks to find out whether a blanket ban or restrictions on the vertical integration

in the TV broadcasting and distribution segment is required in a diverse country like India?

Research Methodology

Research Methodology in this project is doctrinal and secondary sources of information like

articles, websites, case laws etc. are relied upon.

Scope and Limitations

The research paper suffers from certain restrictions and limitations like paucity of time and also

the limited space in which the researcher has restricted his research work. However, the

researcher has ensured that only standard materials are being resorted to while carrying on her

research.

Mode of Citation

The researcher has followed a uniform mode of citation throughout the course of this research

paper.

5

CHAPTER-1: INTRODUCTION

Vertical integration in the entertainment and media industry refers to the ownership and

control of two important entities – the broadcaster which provides broadcasting/content services

and the distributor which provides access to said content to the consumers. The recent trend

shows that many TV distribution platforms and broadcasting companies are venturing into each

other’s domain, for example: broadcasting companies owning Cable, DTH, HITS and IPTV etc.

and distribution platforms venturing into broadcasting sector. Therefore, the field has not

remained pure but is transforming into a hybrid one and more consumer satisfaction oriented.

Vertical integration has substantial benefits for the companies as well as the consumers.

With companies entering into vertical mergers, the efficiency between the upstream and

downstream activities increases and there is enhanced coordination between the two markets.

Such gains directly transform into major cost savings for both the companies. This allows the

same products and services to be provided to the consumer at a lower price with improved

quality. It also helps in enhancing competition in the relevant market for better quality and lower

pricing of the products and services. However, in certain circumstances vertical mergers may

enable enterprises to create entry barriers for the new players, foreclose competitors and in turn,

affect consumer choices. It may also deter investment and innovations on the part of the

vertically merged enterprises. Therefore, it is necessary to weigh the welfare effects of vertical

integration with the various anti-competitive effects in the entertainment and media industry in

India.

This report deals with the detailed analysis of the pro and anti-competitive effects of

vertical integration in the TV broadcasting and distribution segment of the entertainment and

media industry. The report also examines the need (if any) to place restrictions on such vertical

integration. The recommendations of TRAI in this matter are critically analyzed and tested with

the prevailing regulations and restrictions in foreign countries like United States, European

Union and Canada. The relevance, importance and effectiveness of the existing provisions of

Indian Competition Law and the role of Competition Commission of India, a body established

under the Indian Competition Act, 2002 to check and prevent anti-competitive practices having

appreciable adverse effect on competition, are also discussed.

6

CHAPTER -2: INDIAN TELEVISION BROADCASTING AND DISTRIBUTION

SECTOR- A SNAPSHOT

Broadly speaking, the Entertainment and Media industry is divided into four segments

i.e. TV, Print, Radio and other media like Internet Access, Film, Music, etc. According to PwC-

Global Entertainment and Media Outlook: 2012–2016, in the year 2011, the global E&M market

size was US $1.6 trillion. Presently, India is ranked as the 14th

largest E&M market in the world

and is expected to more than double its revenue by 2016. Furthermore, on the basis of the World

Bank estimates, the average annual spend (per capita) on E&M in India in 2011 is estimated to

be US $6.6. On the other hand, the expenditure on the E&M industry by the consumers as a

percentage of per capita GDP is 0.4% in India, which is similar to that in emerging markets such

as China, Russia and Brazil1. Such consumer spend contributes a major share in the total industry

revenue and has been increasing at a fast pace over the last few years. According to various

industry reports, the key consumer spend segments are TV subscription (58%), films (19%) and

print (17%)2.

Out of the four broad media segments, TV dominates the E&M industry as the most

preferred choice of entertainment of the end-consumers. TV plays a major role in the flow of

information and is equipped with the power to influence people, their beliefs and their opinions

and it being a visual medium, its impact transcends the social and educational background of its

viewers, more so, in a diverse country like India3. As far as TV channels are concerned, MIB on

20.12.2012, permitted 848 TV channels out of which 31 channels have only uplinking

permission and so are not available for viewing in India and out of the remaining 817 channels,

around 650 TV channels are operational and available for viewing in India4. Thus, the reach of

the TV media in the total population of the country is significant.

In the Indian cable TV market, there are four players on the supply side, namely,

broadcasters, aggregators, MSOs and LCOs. The broadcasters own the TV content themselves or

source them from the third party which is received and viewed by the end-consumers. They

1TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 1, pg 9.

2Ibid.

3Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011] 8.

4TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013)10.

7

transmit or uplink the content signals to the satellite from where they are further downlinked by

the distributors of such TV content. The aggregator acts like a distribution agent of TV channels

for one or more broadcasters and provides bundling services and even negotiates the subscription

revenue on behalf of the broadcasters. Furthermore, in the supply chain, the MSO downlinks the

broadcaster’s signals, decrypt the encrypted channels (if any) and provides bundled signals

(multiple channels) to the LCOs. The LCO receives such bundled feed and re-transmits them to

the subscribers in his area of operation via cable network.

Similarly, TV programming distribution market of India consists of five main platforms,

namely, Terrestrial TV, digital cable, DTH, HITS and IPTV. Terrestrial TV is available to the

consumers without charging them any subscription fee. IPTV is a very new TV viewing platform

in India and is also not available throughout the country. On the other hand, HITS is just starting

its operation as a distribution platform. Thus, in the current scenario in India, the two most

popular and preferred modes of TV viewing are the digital cable and the DTH. With the advent

of digitization, the subscriber base of DTH platform is increasing owing to its better picture and

sound quality, flexible programming, modern technology and method of access.

Reference: TRAI Consultation paper No.: 5/2013 – Monopoly/Market Dominance in Cable TV services

8

Weblink:

http://trai.gov.in/WriteReaddata/ConsultationPaper/Document/C_Paper_Cable_monopoly__3rd%20Ju

neFINAL.pdf

The total revenue of the Indian TV industry in 2011 was estimated at Rs.34,000 Cr, a

year-over-year increase of 15.7% from 2010 to 2011 and this increase is driven equally by

growth in advertising and subscription revenue, mainly due to the increase in number of TV

channels5. TV subscription fee (an amount collected from pay TV channels) is collected either

by the LCOs or the DTH players depending on the type of pay TV connection the end user has

subscribed to and the amount collected is shared between MSOs, the broadcaster and the LCO

whereas in case of DTH, the amount is shared between the broadcaster and the DTH player6.

According to the available statistics, presently in India, there are about 828 TV channels

at the broadcasting side and 7 DTH operators, 6000 MSOs and 60,000 LCOs at the distribution

platform and few IPTVs. Each year, numerous players are entering at each level of the

broadcasting value chain. For instance, in the last two years 2011 and 2012 about 240 private

satellite TV channels were given uplinking/downlinking permission by MIB to enter in to

broadcasting industry7. In such a fragmented and diverse TV broadcasting and distribution sector

in India, the competition is increasing day by day. Therefore, to have an edge over such

competitive market, to increase market power and to maximize profit, the practice of vertical

integration between the supply and distribution side of the TV segment is rampant further giving

rise to both the pro and anti-competitive effects in the said segment which are discussed below in

detail.

5Ibid.

6Deloitte, ‘Media & Entertainment in India Digital Road Ahead’ [September, 2011] 11.

7Confederation of Indian Industry, CII’s Response to TRAI’s Consultation Paper (No. 01/2013) on the issues

relating to Cross Media Ownership (2013) 2.

http://trai.gov.in/WriteReaddata/ConsultationPaper/Document/C_Paper_Cable_monopoly__3rd%20JuneFINAL.pdf

http://trai.gov.in/WriteReaddata/ConsultationPaper/Document/C_Paper_Cable_monopoly__3rd%20JuneFINAL.pdf

9

CHAPTER-3: BENEFITS AND COMPETITION CONCERNS ASSOCIATED WITH

VERTICAL INTEGRATION

BENEFITS OF VERTICAL INTEGRATION

Generally, vertical integration is motivated by a desire to reduce costs, rather than

increase the prices of parties’ products8. It has been noticed that vertical integration allows the

parties to achieve greater productivity i.e. supply same quantity of products and services at lower

price or increase output at the same price. Specifically, for the broadcasting sector, there is

empirical evidence to prove that vertical integration in the broadcasting industry results in an

increase in quality of service and reduction in cost9. Greater efficiency is achieved mainly

through enhanced coordination which is made possible by the vertical integration which further

allows for the following benefits:

1. Production efficiencies and cost savings – A number of different production efficiencies

and cost savings can arise either from economies of scope or the enhanced coordination

possible from a vertical merger10

. Economies of scope signify cost savings and amount to

a combination of the upstream and downstream production activities to produce a

streamlined result. They arise when overhead, marketing, R&D, sales or other costs can

be shared for two or more related products, or when any other efficiency gains can be

reaped from the joint production and sale of related or unrelated products11

. Economies of

scope are common in the media industry since the nature of media content allows the

reformatting and repackaging of one product for several markets and whenever

economies of scope are present, vertical integration will be an economically efficient

strategy because the total cost of the diversified firm is bound to be lower than for a

group of single product firms producing the same output (Moschandreas, 1994, p. 155)12

.

Thus, the result of efficient production and cost savings is lower prices for the consumers

8Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s

Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 20. 9Ibid 22.

10Jeffrey Church, 'The Competitive Effects of Vertical Integration: Content and New Distribution Platforms in

Canada ' [27 April, 2011] 30. 11

Fiona Röder, ‘Strategic Benefits and Risks of Vertical Integration in International Media Conglomerates and Their

Effect on Firm Performance’ (DEco thesis, University of St. Gallen 2007) 89. 12

Ibid.

10

which will attract more business to the integrated firms. For example, the transportation

cost of TV material from the broadcaster to the distributor significantly decreases for a

vertically integrated entity.

2. Economies of scale – This exists in an industry where marginal costs are lower than

average costs and economies of scale are especially significant in the media industry

because of the public good attributes of the media products13

. For media firms, marginal

costs are the costs of supplying a product or service to one extra consumer and average

costs are the total costs involved in providing the product or service, divided by its

audience14

. With the increase in number of audience, the average costs to the firm of

supplying that product decreases which in turn expands the output which further leads to

the enjoyment of economies of scale and higher profits. Also, it will lead to more and

more investments and innovations on the part of the vertically integrated entity

benefitting the end-consumers and media industry as a whole.

3. Internalization of vertical externalities – Externalities arise when the actions of one entity

directly affect the welfare of another entity15

. The enhanced coordination enabled by a

vertical merger can create efficiencies from; (i) the alignment of incentives within the

vertical structure of supply; and (ii) the prevention of free-riding. Investments and

conduct by upstream and downstream firms that harm or benefit the other will cause

incentive problems if there is vertical separation, but will be internalized if there is

vertical integration. For instance, the issue of quality assurance for the distributor and the

consumer becomes internalized with vertical integration as quality checks can be

conducted in the presence of both the distributor and the broadcaster.

4. Pricing efficiency – Vertical integration can result in elimination of the concept of

‘double marginalization’ i.e. when a downstream firm marks up over their marginal cost,

13

Ibid. 14

Ibid. 15

Federation of Indian Chambers of Commerce and Industry, Comments on Telecom Regulatory Authority of India’s

Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 20.

11

which because of market power upstream exceeds the marginal cost of the upstream

producer leading to a markup over a markup or double marginalization16

. A vertical

integration will lead to an elimination of the wholesale market transaction (one of the

markups) and will reduce the marginal cost downstream17

. It helps in increasing the

profits and lowering the price downstream.

5. Hold up problem - This involves opportunistic behavior by a buyer (lower price) or seller

(higher price) who attempt to renegotiate the terms of trade after investment in the

asset18

. The investment needed to create or acquire original TV content exposes

broadcasters to the possibility of being held up and the broadcasters will only invest in

the content that will enable them to recover both the fixed content acquisition costs as

well as the marginal costs of distribution19

. Once the first-copy costs are sunk, however,

it is possible for broadcast stations to hold out in an attempt to avoid having to contribute

to fixed costs20

. Similarly, cable content aggregators will not invest in content unless it is

likely that they will be able to recover both the fixed costs associated with creating the

programming as well as the marginal costs of distribution21

. Once the first-copy costs are

sunk, however, it is possible for the cable operators to hold out ex-post in an attempt to

drive price down to marginal cost22

. Though the contractual devices can be used to guard

against such opportunistic behavior, but it may be costly to negotiate such contracts.

Thus, in circumstances involving relatively high level of risk and the costs of negotiation

it is prudent and more efficient for the firms to use vertical integration to protect

themselves against such opportunistic behavior.

16

Ibid 22. 17

Ibid 22. 18

Ibid 21. 19



Ibid. 21

Ibid 100. 22

Ibid.

12

COMPETITION CONCERNS OF VERTICAL INTEGRATION

A broadcaster basically faces competition at three different levels namely, (i) at the

content level to produce or procure TV content from third parties; (ii) access to distribution

network i.e. MSO, DTH, HITS and IPTV etc.; and (iii) viewership i.e. number of TV channels

and duration of content viewed by end consumers. For distribution companies as well, there

exists serious competition to provide popular TV channels at reasonable subscription rates. They

have to provide low carriage fee to the broadcasters and promise a robust distribution system and

infrastructure that can perform seamlessly. Distributors also need to compete with companies

operating on the same technology platform and also across different technology platforms. In the

current scenario, the competition for broadcasters and distributors in the respective fields has

grown to the level of trying to squeeze water out of a dry towel. To gain an edge and maximize

their profits in the highly competitive market, many broadcasting and distribution companies

enter into vertical integration which may have several ill effects on the competition and end user

satisfaction. Some of them are:

1. Non-provision of TV channels – It is also known as input foreclosure. In this scenario, the

vertically integrated broadcaster may foreclose, i.e. deny access, to the competing

distributors by refusing to provide its TV channel content. This will force the consumers

to move towards those distributors in the downstream market who have a programming

variety advantage gained by vertical integration with the broadcaster which in turn

increases its market power. The competing distributors thus lose market share and also

the consumers get affected because of lack of distributor choices. Therefore, the

competition in the market is effectively reduced for integrated entity.

2. Non-carriage of TV channels – This is also called as customer foreclosure. The vertically

integrated distributor - broadcaster may foreclose competition or raise entry barriers for

other competing broadcasters. As a result of reduction in the viewership of the competing

broadcasters, significant losses occur and the consumers subscribed to the vertically

integrated broadcaster - distributors are denied access to the channels of the competing

broadcasters.

13

3. Selective boycotts and disconnections – A vertically integrated distributor may abuse its

increased market power by arbitrarily disconnecting its channels from the LCOs23

.

Similarly, the vertically integrated broadcaster – distributor may also selectively boycott

the channels of a rival broadcaster. Such arbitrary exercise of increased market power

may result in loss of business to the LCOs and disruption of services to the consumers for

an unspecified amount of time and creates entry barriers for the new players entering into

the broadcasting market.

4. Carriage and placement fee – The vertically integrated distributor – broadcaster may

charge rival broadcasters discriminatory placement and carriage fees and also may

arbitrarily change such fee which would in turn raise the cost of business for such rival

broadcaster24

. In worst scenarios, this may lead the rival broadcasters to bankruptcy and a

complete monopoly in the market.

5. Consumer harm – Vertically integrated distributor – broadcaster may abuse its market

power by restricting the choice of channels for the consumers by tying in unwanted

channels with popular offerings. Such a lack of a-la-carte choices for the consumers may

result in higher cost to the consumers/subscribers.

CRITICAL ANALYSIS OF THE COMPETITION CONCERNS

a) Input foreclosure is not a potential harm/risk arising out of vertical integration of a TV

broadcaster and a distributor. If a broadcaster exclusively deals with a distributor, the

broadcaster itself is at loss of viewership because at the present scenario with number of

distribution platforms available, supplying channels to a single or a limited number of

distributors will hamper the number of people who watch the broadcaster’s channels no

matter how popular they are. With so many players operating in the broadcasting sector,

it is impractical for a particular broadcaster to be in a dominant position. Hence, no

23

Star India Private limited, TRAI’S Consultation Paper On Issues Relating To Media Ownership – 01/2013 (2013)

83. 24

Ibid 86.

14

question of abuse of such position arises. Thus, the ‘must provide’ obligation on a

broadcaster imposed by TRAI is not required in the current scenario.

b) Customer foreclosure is not a competition concern in the broadcasting sector. The

obligation cast on licensee distributors by TRAI to provide access to at least 500 TV

channels on a non-discriminatory basis is physically not possible. It may choke a

distributor because of technical limitations and capacity restraints to not being able to

carry all the channels25

. Secondly, a distributor will not deny access to a broadcaster

because it will not attract consumers unless it provides good quantity and quality of

channels. Also such a provision has been set aside by TDSAT by its order on 19th

October 2012. Thus, the ‘must carry’ rule recommended by TRAI is not necessary to be

implemented.

c) Arbitrary boycotts and disconnections prove to be harmful for the vertically integrated

entity. A distributor will lose its viewership if it arbitrarily boycotts TV channels of rival

broadcasters as the end-consumers will tend towards those distributors who carry good

quantity and quality of channels.

d) An increase in carriage and placement fee of rival broadcasters would ultimately harm

the viewership of the vertically integrated broadcaster- distributor. With the emergence

of number of players at each level of the value chain, it becomes very difficult for a

vertically integrated entity to completely oust a rival broadcaster from the competition by

increasing the carriage fee. Also, the CCI is well equipped to investigate and ensure that

no such anti-competitive activities occur in the market.

e) Increasing competition in the TV broadcasting sector has ensured good quality services

at reasonable prices. To connect with the consumers in the very competitive market of

TV broadcasting, the firms have to ensure that the quality of the services they provide is

second to none. With massive emergence of new media platforms and technologies, the

25

Tata Sky Limited v Zee Turner Limited [2007] (TDSAT).

15

consumers are getting many choices to consume the same TV content on their computers

and mobile phones. Thus, people are still able to enjoy TV content at low prices.

f) No barriers to entry for new players in the broadcasting industry. According to various

industry reports, the number of TV channels has increased to 828 in 2013 from 623 in

2012. Thus, it is evident that the vertically integrated entity doesn’t foreclose any

independent rival from accessing the viewers. Had there been any such foreclosure by a

vertically integrated entity, it wouldn’t have been possible for the new channels like

Colors to enter the Hindi GEC genre and garner good amount of audience and compete

with channels owned by a vertically integrated entity like Zee.

CHAPTER-4: PRESENT REGULATORY FRAMEWORK IN INDIA

This sub-chapter discusses the existing law i.e. The Competition Act, 2002 and various

guidelines, regulations and recommendations given by the Government of India which regulate

vertical integration between the TV broadcasting and the distribution lines and ensure that such

vertical integration doesn’t have any adverse effect on competition within India. They are as

follows:

1. REGULATION OF VERTICAL INTEGRATION UNDER THE COMEPTITION

ACT, 2002

The Preamble of the Competition Act, 2002 ((hereinafter referred as “the Act”) states that

the Act has been enacted with an object to establish a commission to prevent practices

having adverse effect on competition, to promote and sustain competition in the markets,

to protect the interests of consumers and to ensure freedom of trade carried on by other

participants in markets. The Act aims at bringing viewpoint plurality at all levels

including TV broadcasting and distribution industry26

.

26

Times Internet Limited, Written Comments of Times Internet Limited To Consultation Paper On Issues Relating to

Media Ownership Paper No 1/2013 Issued By TRAI On 15.02.2013 (2013).

16

The Act prohibits anti-competitive agreements27

; an abuse of dominant position28

; and

regulates combinations29

by way of acquisition, merger or amalgamation. The

Competition Commission has been established under the Act in order to ensure that there

is adequate competition in the market and all the industries are developed

simultaneously30

. The Act empowers the CCI to prevent anti-competitive agreements and

abuse of dominant position (on an ex-post basis) and regulate combinations (on an ex-

ante basis) and also sets out in detail the process to be followed and the factors to be

considered by the CCI while carrying out ex-ante analysis of combinations and ex-post

investigation of cartel (horizontal agreement) and abuse of dominance matters31

. The

CCI, on the basis of information (complaint) filed before it or a reference made to it by

the Government or a statutory authority like TRAI, can inquire into any competition

related matter. There is a Combination Division which assists the CCI by conducting an

inquiry into combinations. There is also a provision in the Act providing for a mandatory

notification to the Competition Commission of India in the case of combinations.

Furthermore, the Director General, head of the investigation department, assists the CCI

in carrying out its work. The Commission has already undertaken certain investigations

with respect to the competition concerns involved in the vertical integration in the TV

broadcasting and distribution sector and has also given its valuable observations and

findings.

An anti-competitive agreement, whether horizontal or vertical, is prohibited if it causes

or is likely to cause an appreciable adverse effect on the competition within India.

Section 3(4) of the Act specifically prohibits enterprises from entering into vertical

arrangements such as exclusive distribution/supply agreements, tying, refusal to deal and

resale price maintenance32

.

27

The Competition Act 2002 s 3. 28

The Competition Act 2002 s 4. 29

The Competition Act 2002 s 5&6. 30

Times Internet Limited, Written Comments of Times Internet Limited To Consultation Paper On Issues Relating to

Media Ownership Paper No 1/2013 Issued By TRAI On 15.02.2013 (2013). 31


Consultation Paper on Issues relating to Media Ownership (25 April, 2013) 29. 32


79.

17

Similarly, abuse of dominant position by the enterprises is prohibited under Section 4 of

the Act by: (a) imposing unfair/discriminatory conditions or price in the purchase or sale

of good or services; (b) denying market access; (c) limiting or restricting provision of

goods or services; (d) limiting or restricting scientific development; (e) using dominant

position on relevant market to enter into or protect another relevant market; and (f)

entering into contracts with extraneous conditions33

.

In the TV broadcasting sector, an ‘Exclusive Distribution Agreement’ wherein the

arrangement restricts the supply of any channel through a competing distributor or a

‘Refusal to Deal’ wherein a vertically integrated broadcaster-distributor refuses to supply

channels to a rival distributor will attract the scrutiny of CCI under section 3(4) of the

Act34

. In addition to the above, in the event that the vertically integrated broadcaster-

distributor is a dominant entity as understood under Section 4 of the Act, its attempt to:

a) Limit or restrict the supply of TV content to a downstream distributor or refusing

access to its TV content to the downstream distributor35

; or

b) Imposing unfair or discriminatory price or condition in supply of TV content36

may be prohibited as an abuse of dominance under Section 4 of the Act.

Similarly, in the TV distribution sector, ‘Exclusive Supply Agreement’ which restricts

the distribution arm of the vertically integrated distributor-broadcaster from dealing in or

distributing the TV content of a rival broadcaster; or ‘Refusal to Deal’ wherein the

distribution arm of the vertically integrated distributor-broadcaster is prohibited from

carrying the TV content of the rival broadcaster may be prohibited under section 3(4) of

the Act37

. In addition to the above, in the event that the vertically integrated distributor-

33

Ibid 80. 34

Ibid 81. 35

Ibid 80. 36

Ibid. 37

Ibid 83.

18

broadcaster is a dominant entity as understood under Section 4 of the Act, its attempt not

to carry the TV content of its rival broadcasters may also be prohibited as:

a) A limit or restriction on the provision of distribution services by refusing to carry the

channels of a competing broadcaster38

; or

b) A practice which leads to ‘a denial of market access’ to the rival broadcaster by

refusing to carry the channels of a competing broadcaster39

.

The practice of selectively boycotting the channels of rival broadcasters followed by a

vertically integrated distributor having increased market power can be treated as ‘refusal

to deal’ under Section 3(4) of the Act and may be subjected to the scrutiny of CCI if it

causes or is likely to cause an appreciable adverse effect on competition within India.

Such a practice may also be prohibited as an abuse of dominance under Section 4 of the

Act if it restricts the provision of distribution services to the broadcaster or denies it

access to the market.

Also, if a vertically integrated distributor-broadcaster charges the rival broadcasters

discriminatory placement and carriage fees or arbitrarily change its carriage fees thus,

increasing the cost of business for such rival broadcasters, such a practice may be

prohibited as abuse of dominant position under section 4 being in the nature of unfair or

discriminatory condition in sale of services.

Combinations like mergers, acquisitions, and amalgamations are entered into by the

enterprises in anticipation of financial gains which may result in pro or anti-competitive

effects. The combinations which exceed the financial threshold laid down under section 5

of the Act and are not exempted by the CCI’s Combination Regulations or notifications

issued by the Government are regulated by CCI. The process involves determination of

the likely competitive effects of such a combination on the relevant market which is

defined under section 2(r) of the Act as the market determined by the relevant product

market or relevant geographic market or with reference to both the markets. According to

38

Ibid. 39

Ibid.

19

section 6(2) of the Act, parties to the transaction are required to notify within 30 days

from a) the date of signing the binding documents in case of acquisitions; or b) the date

of board approval of the enterprises involved in the merger or amalgamation. The Act

also prescribes various factors which CCI will have regard to while determining the

relevant product market and the relevant geographic market under section 19(7) and (6)

respectively. Some of the factors to be considered while determining relevant product

market include - physical characteristics or end-use of goods; price of goods and services;

consumer preference; exclusion of in-house production; existence of specialized

producers; classification of industrial products whereas while determining a relevant

geographic market, factors like regulatory trade barriers; local specification requirements;

national procurement policies; adequate distribution facilities; transport costs; language,

etc. are to be taken into consideration.

After defining the relevant market, the CCI is required to consider all or any of the

factors listed under section 20(4) while determining the competitive effect of the said

transaction on the relevant market40

. Some of the factors include- actual and potential

level of competition through imports in the market; extent of barriers to entry into the

market; level of concentration in the market; degree of countervailing power in the

market; extent of effective competition likely to sustain in a market; extent to which

substitutes are available or are likely to be available in the market; nature and extent of

vertical integration in the market; nature and extent of innovation etc.

Last but not the least, in order to ensure an efficient regulation of vertical integration in

the TV broadcasting sector, the Act by virtue of Section 21 and 21A enables and

encourages mutual consultation between the CCI and the statutory authorities (including

TRAI). Also, the Competition Amendment Bill, 2012 under Section 21A of the Bill,

proposes to make it mandatory that such mutual consultation should be undertaken where

a competition issue arises, and after obtaining the views of the CCI / statutory authority,

pass a reasoned order in the case.

40



20

2. GUIDELINES AND REGULATIONS

GUIDELINES FOR “DTH” BROADCASTING SERVICE IN INDIA DATED

15th

MARCH, 2001 ISSUED BY MIB

In the Guidelines for Obtaining License for providing DTH Broadcasting Service in

India, restrictions have been prescribed which restrict the stake that can be held by a

broadcasting and/or cable network company in the company owning the DTH

platform and vice versa41

. The restriction states as under:

“1(4) The Licensee shall not allow Broadcasting Companies and/or Cable Network

Companies to collectively hold or own more than 20% of the total paid up equity in

its company at any time during the license period42

. The Licensee shall submit the

equity distribution of the Company in the prescribed proforma (Table I and II of

Form-A) once within one month of start of every financial year. The Government will

also be able to call for details of equity holding of Licensee Company at such times as

considered necessary43

.”

“1(5) The Licensee Company not to hold or own more than 20% equity share in a

broadcasting and/or Cable Network Company44

. The Licensee shall submit the details

of investment made by the Licensee Company every year once within one month of

start of that financial year. The Government will also be able to call for details of

investment made by the Licensee Company in the equity of other companies at such

times as considered necessary45

.”

The guidelines do not prescribe any restrictions on the number of licenses.

41

TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 2, pg 18. 42

Ibid. 43

Ibid 74. 44

Ibid 18. 45

Ibid 74.

21

GUIDELINES FOR PROVIDING “HITS” BROADCASTING SERVICES IN

INDIA DATED 26TH

NOVEMBER, 2009

In the Guidelines for providing HITS Broadcasting Services in India dated

26.11.2009, the following provision have been prescribed which restrict the stake that

can be held by a Broadcasting and/or DTH Licensee Company in a company

providing HITS based broadcasting services in India46

:

“1(6) Broadcasting Companies and/or DTH Licensee Companies will not be allowed

to collectively hold or own more than 20% of the total paid up equity in the company

(getting license for HITS operation) at any time during the permission period.

Simultaneously, the HITS permission holder should not hold or own more than 20%

equity share in a Broadcasting company and/or DTH Licensee Company. Further, any

entity or person holding more than 20% equity in a HITS permission holder company

shall not hold more than 20% equity in any other Broadcasting Companies and/or

DTH Licensee Company and vice-versa. This restriction, however, will not apply to

financial institutional investors. However, there would not be any restriction on

equity holdings between a HITS permission holder company and a MSO/cable

operator company47

.”

Also, no restrictions on the total number of HITS permissions have been prescribed in

the said Guidelines and the permissions will be issued to a company which fulfills the

eligibility criteria & necessary terms and conditions prescribed thereunder.

THE TELECOMMUNICATION (BROADCASTING AND CABLE

SERVICES) INTERCONNECTION (SIXTH AMENDMENT)

REGULATIONS, 2010 ISSUED BY TRAI

The Regulation 3(1) restricts broadcasters from entering into exclusive arrangements

with distributors that prevent other distributors from obtaining TV channels for

distribution48

and Regulation 3(2) impose a ‘must provide’ rule on every broadcaster.

46

Ibid 19. 47

Ibid. 48


80.

22

The said rule provides that every broadcaster shall provide on request, signals of its

TV channels on non-discriminatory terms to all distributors of TV channels, which

may include, but will not be limited to a cable operator, DTH operator, MSO, HITS

operator. HITS operators and MSOs shall also on request re-transmit signals received

from a broadcaster, on a non-discriminatory basis to cable operators49

. This ‘must

provide’ rule will definitely solve the competition concern related to input

foreclosure.

THE TELECOMMUNICATION (BROADCASTING AND CABLE

SERVICES) INTERCONNECTION (DIGITAL ADDRESSABLE CABLE

TELEVISION SYSTEMS) (FIRST AMENDMENT) REGULATIONS, 2012

ISSUED BY TRAI

The Regulation 3(2) and 3(8) of the said Regulation impose a ‘must carry’ rule on the

MSOs by providing that the MSOs with subscribers over 25000 must carry 500

channels from January 1, 2013 whereas the MSOs with less than 25000 subscribers

have to carry 500 channels starting April 1, 201350

. The ‘must provide’ rule can be

enforced on the broadcasters only by the MSOs which fulfill the said carriage

requirement. Only MSOs carrying 500 channels can enforce the ‘must provide’ clause

on broadcasters.

However, the requirement of carrying capacity of 500 channels has been set aside by

an order given by TDSAT on 19th

October, 2012.

Also, Regulation 3(10) provides that every MSO shall, within sixty days of receipt of

request from the broadcaster or its authorized agent or intermediary, provide on non-

discriminatory basis, access to its network or convey the reasons for rejection of

request if the access is denied to such broadcaster provided that nothing contained in

this sub-regulation shall apply in case of a broadcaster who has failed to pay the

carriage fee as per the agreement and continues to be in default. The said sub-

regulation further provides that an imposition of unreasonable terms and conditions

49

TRAI, Recommendations on MEDIA OWNERSHIP (25 February, 2009) 11. 50


82.

23

for providing access to the cable TV network shall amount to the denial of request for

such access. Furthermore, by virtue of the first amendment made to the regulations of

2012, sub regulation 3(11A) has been inserted which provides that no MSO shall

demand from a broadcaster any placement fee.

However, it is worth noting that the provision of ‘must carry’ has not been prescribed

for the non-addressable Cable TV systems (analog cable TV systems) and DTH

platforms because of capacity constraints in these distribution platforms51

. It is

evident that the ‘must carry’ rule has the effect of eliminating the problem of

customer foreclosure.

Furthermore, Regulation 3(4) prohibits any broadcaster, MSO or HITS operator from

disconnecting the TV channel signals to a distributor of TV channels except by giving

three weeks’ notice to the distributor for the proposed action along with the reasons

stated therein. The MSO, broadcaster or HITS operator is also required to publish

such action in the prescribed manner. Such regulation eliminates any possibility of

abuse of increased market power of a vertically integrated MSO or any other

distributor by arbitrarily disconnecting its channels to LCOs.

Also, Regulation 5(5) of the said regulations lays down that no broadcaster can

compel any MSO to include its channels or bouquet of channels in any package or

scheme offered by the MSO to its subscribers and thus, the MSO has the freedom to

package its channels according to consumer demand and provide them to its

subscribers52

.

Lastly, Regulation 3(12) of the said regulations lays down that the carriage fee

charged by a distributor must be uniform for all broadcasters which in turn ensures

that the carriage fee paid by broadcasters is non-discriminatory and not subject to

arbitrary changes53

. If the vertically integrated distributor-broadcaster is a dominant

51

TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 6, pg 72. 52


85. 53

Ibid 86.

24

enterprise, then, such a practice may be prohibited under section 4 of the Act as an

unfair or discriminatory condition in sale of services.

THE TELECOMMUNICATION (BROADCASTING AND CABLE)

SERVICES (FOURTH) (ADDRESSABLE SYSTEMS) TARIFF (FIRST

AMENDMENT) ORDER, 2012 ISSUED BY TRAI

TRAI regulations fully protect the consumer’s choice and ability to select the

channels he/she wishes to watch by virtue of clause 5 of the 2012 Tariff Order which

mandates that each MSO/DTH/IPTV/HITS operator providing broadcasting services

to its subscribers using an addressable system must offer all channels to consumers on

a-la-carte basis.

Furthermore, the 2012 Tariff Order also lays down a regulatory framework for the

pricing of a-la-carte channels vis-à-vis the pricing of the same channel in a

bouquet54

by providing that the sum of the a-la-carte rates of channels, forming part of

a bouquet, shall not be one and a half times the rate of the bouquet of which such

channels are a part; and the a-la-carte rate of any channel shall not exceed three times

the average channel rate of the bouquet of which such channels are a part55

. These

conditions regulating the price ensure that the consumer’s choice of TV channels is

not illusory and the distributor does not have to carry pre-fixed bouquets but has the

choice of carrying channels on a-la-carte basis56

. In the digitized areas, TRAI protects

the consumers’ interest by regulating the pricing of TV channels at the wholesale

level. According to TRAI, there exists adequate competition at the retail level, thus,

the authority has left the pricing of TV channels to be determined by the market

forces at such level.

Further, a bundling arrangement or a lack of a-la-carte choices which causes or is

likely to cause an appreciable adverse effect on the competition in India may be

prohibited by the CCI as a ‘tie-in arrangement’ under Section 3(4) of the Act57

. If the

54

Ibid 85. 55

Ibid. 56

Ibid. 57

Ibid.

25

vertically integrated broadcaster-distributor is a dominant enterprise, the sale of

channels as part of a pre-fixed bouquet may also be prohibited under Section 4 of the

Act.

3. TRAI RECOMMENDATIONS

A. In the Recommendations of TRAI (the Authority) on “Media Ownership” dated

25th

February, 2009, the Authority made the following recommendations to the

Government with respect to the vertical integration in the TV broadcasting and

distribution sector:

a) The broadcaster should not have ‘control’ in the distribution and vice-versa.

b) The definition of ‘control given by the Authority is any entity which has been

permitted/ licensed for television broadcasting or has more than 20% equity in a

broadcasting company shall not have more than 20% equity in any Distributor

(MSO/Cable operator, DTH operator, HITS operator, Mobile TV service

provider) and vice-versa.

c) The existing broadcasters who may have control in distribution sector and entities

in the distribution sector who may have similar control over broadcasting should

be given sufficient time of three years for restructuring.

The Authority also recommended that for the purpose of putting in place effective

safeguards to prevent vertical integration between the broadcasting sector and its

distribution platforms the word ‘entity’ be given a broad meaning so as to include

any person including an individual, a group of persons, a public or private body

corporate, a firm, a trust, or any other organization or body and also to include

inter-connected undertakings defined under section 2(g) of the Monopolies and

Restrictive Trade Practices Act, 196958

.

B. On February 15th

, 2013, in the Consultation Paper on “Issues relating to Media

Ownership”, TRAI has made the following recommendations to the Government

58

TRAI, Consultation Paper on Issues relating to Media Ownership (CP No 01, 15 February, 2013) ch 2, pg 24.

26

with respect to the vertical integration in the TV broadcasting and distribution

sector:

a) Every broadcaster must provide on request signals of its TV channels on a non-

discriminatory basis to all distributors of TV channels including cable networks,

DTH, HITS.

b) No exclusive contracts are permitted between broadcasters and distributors of TV

channels.

c) The broadcasters are not to insist on guaranteed, minimum subscription amounts

from distributors of TV channels.

CHAPTER-5: INTERNATIONAL SCENARIO

Even though vertical mergers/integration seldom create harm to competitors and

consumers, competition authorities in many countries/jurisdictions including the EU59

and the

US have identified possible ways in which vertical integration may have an appreciable adverse

effect on competition i.e. through:

a) Input or customer foreclosure, and

b) Coordinated effects

The EC Guidelines on the assessment of non-horizontal mergers under the Council

Regulation on the control of concentrations between undertakings prescribe a three step process

for the assessment of vertical mergers60

.

a) First, whether the merged entity would have, post-merger, the ability to substantially

foreclose access to inputs? This step involves the assessment of whether the merged firm

59

Commission Notice 2008/C 265/07 of 18 October 2008 laying down the Guidelines on the assessment of non-

horizontal mergers under the council regulation on the control of concentrations between undertakings [2008] OJ

C265/6. 60

Commission Directive October 2010 laying down the Guidelines on the assessment of non-horizontal mergers

under the council regulation on the control of concentrations between undertakings [2010] OJ.

27

has significant market power in either of the two markets such that it can induce

foreclosure61

.

b) Second, whether it would have the incentive to do so? This step evaluates whether a

foreclosure strategy would be profitable considering only the static responses of rivals

and consumers62

.

c) Third, whether a foreclosure strategy would have a significant detrimental effect on

competition downstream? This step is the most important as this determines the overall

impact on competition. This step entails the assessment of the potential dynamic

responses of the competitor firms. Factors such as buyer power, likelihood of entry and

the impact of efficiencies are examined to determine the long run impact of the merger on

competition. Merely proving the existence of harm to competitors is not sufficient to deter

a merger. Instead, it needs to be shown that there will be harm to competition. This can

take the form of increased prices, reduced quality or reduced choices that are available

to consumers63

.

The US Department of Justice, Merger Guidelines articulated following theories of harm

to competition and consumer welfare from vertical integration:

a) Raising rivals’ costs and two level entry64

;

b) Facilitating collusion by making it easier to monitor prices or by eliminating a disruptive

buyer65

.

The guidelines issued by the US Department of Justice (US guidelines) do not contain a

step by step analysis like the EU but they reflect the same approach66

. However, these guidelines

mention various factors including market concentration, conditions of entry, advantages

possessed by the merger in comparison to other firms, etc. which the agency will consider for the

61

The guidelines state that a non-horizontal merger is unlikely to be anti-competitive if the merged firm has market

share of less than 30 per cent in each market and post-merger HHI is below 2000. However, it cannot be presumed

that a non-horizontal merger that exceeds this threshold will necessarily give rise to competitive concerns. 62



Ibid. 64

Ibid 24. 65

Ibid. 66

U.S. Department of Justice Merger Guidelines, 'Non-Horizontal Merger Guidelines' (justice.gov, 1992)

<http://www.justice.gov/atr/public/guidelines/2614.htm> accessed 18 july 2013

28

assessment of vertical mergers. In addition, the US guidelines list three conditions that are

necessary, but not sufficient, for vertical mergers to result in competition concerns:

a) First, the degree of vertical integration between the two markets must be so extensive that

entrants to one market (the "primary market") also would have to enter the other market

(the "secondary market") simultaneously.

b) Second, the requirement of entry at the secondary level must make entry at the primary

level significantly more difficult and less likely to occur.

c) Finally, the structure and other characteristics of the primary market must be otherwise

so conducive to non-competitive performance that the increased difficulty of entry is

likely to affect its performance67

.

It is evident from the above stated guidelines that the competition authorities in both the

jurisdictions (the EU and the US) follow a rule of reason approach which is effects based for the

assessment of vertical mergers and not per se or a form based approach. There is consensus

among competition authorities that vertical mergers are less likely to raise competition concerns

than horizontal mergers68

.

Also, both the countries lay emphasis on the consideration of efficiencies arising out of

the vertical integration like removal of double marginalization, expansion in output, better

coordination between the integrated entities etc.69

. The authorities are of the view that restricting

vertical integration will deny the end-consumers these potential advantages. Thus, per se

restrictions are not desirable. In a recent study undertaken by the Organization for Economic

Cooperation and Development on 19th

February, 2013 on “Competition Issues in TV and

Broadcasting”, it was found that the prohibitions or restrictions on vertical mergers in TV

broadcasting and distribution sector have been rare. It was also found that the major concern of

the competition authorities in EU and US in relation to the vertical media mergers is to ensure an

access to the content to the new entrants in the relevant market. Vertical foreclosure is also one

of their concerns in respect of which the authorities have imposed commitments to allay such

competition risks and have also prescribed certain structural modifications.

67

Ibid. 68

Ibid. 69

Commission Directive October 2010 laying down the Guidelines on the assessment of non-horizontal mergers

under the council regulation on the control of concentrations between undertakings [2010] OJ, paras 54-57.

29

CHAPTER-6: MEDIA CASE ANALYSIS (FOREIGN AND INDIAN CASES)

Time Warner/Turner Broadcasting System Merger – US Case Study

In 1996, Time Warner merged with Turner Broadcasting Systems (TBS).

Telecommunication Inc. (TCI) was a major stakeholder in TBS with 21% interest. The deal was

that TCI would trade its interest in TBS for the third largest stake in Time Warner of 9%. The

rationale behind the Time Warner and TBS merger was to increase the breadth of vertically

integrated content and distribution operations in video programming70

. Time Warner’s cable

network now included CNN, TBS, TNT, HBO, the Cartoon Network, Cinemax, the WB network

and a 50% interest in Comedy Central. Time Warner thus became the second largest cable

system operator after AT&T (who bought TCI, thus Time Warner was effectively second to TCI

in the market). The concerns raised by the Federal Trade Commission (FTC) were:

a) Time Warner could unilaterally raise prices for its own programming, as well as for

programming offered by TBS71

.

b) Given TCI’s ownership interest in Time Warner and its complementary long-term

contractual obligations to carry Turner programming, the deal could undermine the

incentives of TCI, the nation’s number one cable operator, to run better or less expensive

programming competitive with that offered by Time Warner, thereby augmenting Time

Warner’s programming market power even further72

.

c) It could lead to higher cable service prices for consumers, and reduce the programming

choices available to them and that the acquisition could block future entry into all-news

networks73

As a remedy for this case, the consent decree prohibited Time Warner from

discriminating against providers of programming services in its cable operations and competing

multi-channel distribution services in its programming service business74

.

70





Ibid. 73

Ibid 39. 74

Ibid.

30

Such situation is less likely to arise in the fragmented media industry of India where the

media broadcasting and distribution industry is regulated by TRAI regulations and they explicitly

mandate “non-discriminatory treatment” and “non-exclusivity” on the broadcasters similar to

what FTC said in the above mentioned remedy for the Time Warner – TBC merger. Also, TRAI

regulations provide for bouquet and a-la-carte pricing of TV channels both at whole sale and

retail levels. Otherwise, exclusivity would ultimately harm the viewership of the upstream player

and would also affect its subscription and advertisement revenues. Therefore, exclusivity is

commercially unviable in the Indian scenario.

Merger between Newscorp and Telepiù – EU Case Study

On 16 October 2002, the European Commission received notification according to which

The News Corporation Limited, Australia (Newscorp) would acquire control of the whole of the

Italian pay-TVs Telepiù Spa and Stream Spa by way of purchase of shares. Telepiù and Stream

would then merge their activities in a combined satellite pay-TV platform. Telecom Italia, the

Italian telecom incumbent, would hold a minority stake (maximum19.9%) in the new combined

pay-TV platform.

The deal creates a quasi-monopoly in the pay-TV market. With a market share of more

than two third of the Italian pay-TV market, Telepiù is already in a dominant position and the

merger with Stream will strengthen this position75

.

Telepiú and Stream (which entered the Italian market respectively in 1991 and 1996)

have never been profitable. Indeed programming costs, stemming mainly from the acquisition of

'premium' content films and sports rights always exceeded revenues. Moreover, the strong

presence of 12 national free-to-air broadcasters in Italy mainly the state-owned RAI channels and

the Mediaset companies and of an array of local broadcasters has had an impact on the rate of

penetration of pay-TV, and therefore on its profitability76

.

75

Commission clears merger between Stream and Telepiù subject to conditions' (europa.eu , 2003)

<http://europa.eu/rapid/search-result.htm?query=45> accessed 18 july 2013. 76

Ibid.

31

In the European Commission's view, the challenge was, therefore, to impose sufficient

and adequate conditions upon the merged satellite pay-TV platform to ensure that the market

remains open. The Commission cleared the proposed acquisition by Australian media group

Newscorp of Italian pay-TV company Telepiù from Vivendi Universal holding the view that

such merger, subject to appropriate conditions ensuring access to content via a reduction in the

duration of exclusivity agreements with premium content providers and establishment of

sublicensing scheme through a wholesale offer; and access to infrastructure i.e. access to the

satellite platform for pay-TV distribution as well as to the technical services associated with pay-

TV77

, will not be anti-competitive in the market.

Such situation is less likely to arise in the fragmented media industry in India. The media

broadcasting and distribution industry is regulated by TRAI regulations and they explicitly

mandate “non-discriminatory treatment” and “non-exclusivity” on the broadcasters similar to

what European Commission said in the above mentioned remedy for the Newscorp and Telepiù

merger. Also, TRAI regulations provide for bouquet and a-la-carte pricing of TV channels both

at whole sale and retail levels. Otherwise, exclusivity would ultimately harm the viewership of

the upstream player and would also affect its subscription and advertisement revenues.

Therefore, exclusivity is commercially unviable in the Indian scenario.

Acquisition by UTV Global Broadcasting Limited of 26% equity shareholding in IC Media

Distribution Services Private Limited- Indian case study (CCI order passed on 19th

February, 2013).

IC Media is a wholly-owned subsidiary of IndiaCast Media Distribution Pvt. Ltd, which

is into the business of aggregation of TV channels broadcast by TV18 Broadcast, Viacom18

Media and certain other broadcasters. On the other hand, TV18 is a subsidiary of Network18

Media and Investments Ltd. Network18 also holds a 50% stake in Viacom18. UTV Global

Broadcasting had filed a notice seeking approval for the 26% stake buy in IC Media with the

regulator on 24th

January, 2013. It was stated in the notice that the Disney Group and the

77



32

IndiaCast Group shall grant exclusive license to IC to distribute their TV channels. It was also

stated in the notice that post-combination, UTV Global Broadcasting and IndiaCast would cease

their aggregation business in India as they now propose to carry out the business of providing the

service of aggregation in India through IC (Media) by way of the proposed combination. UTV

Global Broadcasting is engaged in the business of aggregation and sub-licensing of pay TV

channels for its two subsidiaries—UTV Entertainment Television Ltd and Genex Entertainment

Ltd. UTV Global Broadcasting is an indirect subsidiary of Walt Disney group that broadcasts

nine TV channels in India.

CCI observed that the proposed combination relates to the supply of TV channels in

India. The broadcasting sector in India is regulated by the TRAI, which has framed various

regulations which make it obligatory for a broadcaster to provide signals of its TV channels

on a non-discriminatory basis to every DTH operator/MSO and not to enter into exclusive

agreements with any MSO/distributor that prevents others from obtaining such TV channels

for distribution. The CCI also observed that the market for providing the service of aggregation

is competitive with a number of players operating therein. Considering the facts on record and

the details provided in the notice and after assessing the proposed combination by considering

the relevant factors mentioned in sub-section (4) of Section 20 of the Act, CCI approved the

combination by holding that it is not likely to have an appreciable adverse effect on competition

in India.

News Corporation Ltd. acquisition of ESS through StarTV ATC – Indian Case Study (CCI

order passed on 20th

September, 2012)

The Rupert Murdoch-owned News Corp (NWS) had announced plans to buy out the

remaining 50 per cent stake in ESPN Star Sports (ESS) from ESPN in India. The ESS was partly

owned by EGP company and Yarraton Ltd. EGP is an indirectly owned subsidiary of Walt

Disney Group, whereas Yarraton is under the control of NWS. A combination was proposed

where StarTV ATC, a subsidiary of NWS, would buy the 50% interest of EGP in ESS and the

proposed acquisition would result in a change in the ownership of the ESS India subsidiaries,

which would be owned by NWS once the transaction is complete. StarTV ATC acts as a

33

broadcaster, aggregator and distributor for all Star channels in India as well as an aggregator for

the channels of NWS subsidiaries. Thus by gaining 100% interest in ESS, NWS enters into a

vertical merger and controls the broadcasting, aggregation and distribution of ESS in India.

The CCI observed that though the proposed combination results in transfer of joint

control to sole control of NWS over ESS, it would not result in elimination of any competitor

from the market as NWS and ESPN, the joint venture partners are not competing with each other

in the market for broadcasting of sports channels in India. Also, considering the presence of

other sports channels in India, such as DD Sports, TEN Action Plus, Ten Sports, Ten Cricket,

Ten Golf, Sony Six, Neo Sports Plus, Neo Prime etc. the proposed combination is not likely to

give rise to any adverse competition concern in India. ESPN can again consider an entry into the

Indian market, after completion of the non-compete period specified in the agreements.

Therefore, the acquisition was given a green signal by CCI without subject to any further

conditions.

The two Indian cases, clearly rule out the TRAI recommendation imposing a cap of 20%

equity shareholding which a TV broadcasting company can have in a TV channel distribution

company and vice versa. In both the Indian cases discussed above, CCI applied a ‘rule of reason’

approach. CCI very aptly held that in a highly competitive Indian TV broadcasting and

distribution industry, with so many players entering into the market at each level of the value

chain, an equity based approach for assessing the anti-competitive effect of the combination

resulting from vertical integration is totally obsolete.

CHAPTER-7: CONCLUSION

The object of this report was to bring forth the benefits and harmful effects of vertical

integration in the TV broadcasting and distribution sector in a neutral light and then critically

analyze each one of them. As per the available statistics, India is currently ranked as the 14th

largest E&M industry in the world and is expected to more than double its revenue by 2016. The

TV channels are increasing day by day and are mostly distributed using cable and terrestrial

network. With the coming up of digitization, the distribution platforms like DTH and HITS are

gaining popularity very quickly. With vertical integration between the broadcaster and

34

distributor, the competition gets benefitted because of many reasons. Firstly, the coordination

between the broadcaster and distributor improves. This helps in providing greater efficiencies

and cost savings. Secondly, the efficiency improvements allow for economies of scale and scope

to be created which in turn result in higher profits. With higher profits comes more investment

and innovations. Lastly, the quality of the service also improves and the consumers get better

services at lower prices.

In certain circumstances, vertical integration may give rise to competition concerns that

may not be ignored because of the numerous benefits. Some of the concerns are: input and

customer foreclosure, arbitrary boycotts and disconnections, arbitrary increase in carriage and

placement fee and entry barriers for new players. These concerns are legitimate in many other

countries like the US and EU because the market is governed by only two to three major players

who have 75% - 80% of the market share. On the other hand, the Indian media market is

fragmented with many players entering the fray every year. Had there been a barrier to entry for

the new players in the Indian market, such rapid increase in number of channels and customer

viewership would not be present. Therefore, the competition concerns mentioned do not have

much relevance and therefore, any blanket ban to counter these concerns should not be applied.

Furthermore, the existing provisions of the Competition Act, 2002 and the powers assigned to

the CCI are comprehensive enough to deal with such competition concerns whenever they arise.

Also, if an unforeseen circumstance occurs, then the CCI can employ the ‘rule of reason’

approach i.e. case by case analysis to come to a conclusion rather than holding any transaction

‘per se’ anti-competitive. The CCI may also hold mutual consultations with statutory authorities

like TRAI to deal and handle such issues.

However, the TRAI recommendations of ‘must carry’, ‘must provide’ and ‘non-

exclusivity’ do not hold good in the Indian scenario with so many existing players and so many

players adding to the list every year. ‘Must provide’ obligation on the broadcaster is not required

because if a broadcaster exclusively deals with a distributor, the broadcaster itself is at loss of

viewership as in the present scenario with number of distribution platforms available, supplying

channels to a single or a limited number of distributors will hamper the number of people who

watch the broadcaster’s channels no matter how popular they are. Similarly, ‘must carry’ rule

recommended by TRAI for the distributors need not be applied as it is obvious that a distributor

35

will not deny access to a broadcaster because it will not be able to attract consumers unless it

provides good quantity and quality of channels. Lastly, the TRAI recommendation of 20% equity

share holding cap is also not called for in such fragmented and diverse Indian broadcasting

industry as is evident from the CCI orders passed in the UGBL acquisition in IC Media

Distribution Services Pvt. Ltd. and NWS acquisition of ESS through StarTV ATC

36

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Zee, Response of Zee Network to TRAI Consultation Paper No 01/2013 On Issues relating to

Media Ownership (2013)

TRAI, Consultation Paper on Monopoly/Market dominance in Cable TV services (3 June, 2013)

Entertainment Network India Limited, Consultation paper on Issues related to Media Ownership

ENIL counter comments (2013)

37

GUIDELINES AND REGULATIONS REFERRED

Guidelines For “DTH” Broadcasting Service In India Dated 15th

March, 2001

Guidelines For Providing “HITS” Broadcasting Services In India Dated 26th

November, 2009

The Telecommunication (Broadcasting and Cable Services) Interconnection (Sixth Amendment)

Regulations, 2010

The Telecommunication (Broadcasting and Cable Services) Interconnection (Digital Addressable

Cable Television Systems) (First Amendment) (First Amendment) Regulations, 2012

The Telecommunication (Broadcasting and Cable Services) (Fourth) (Addressable Systems)

Tariff (First Amendment) Order, 2012

The EC Guidelines on the assessment of non-horizontal mergers under the Council Regulation

on the control of concentrations between undertakings, October 2010

The U.S. Department of Justice Non-Horizontal Merger Guidelines, 2 April, 1992

WEBLIOGRAPHY

U.S. Department of Justice Merger Guidelines, 'Non-Horizontal Merger Guidelines' (justice.gov, 1992)

<http://www.justice.gov/atr/public/guidelines/2614.htm> accessed 18 July 2013

Commission clears merger between Stream and Telepiù subject to conditions' (europa.eu , 2003)

<http://europa.eu/rapid/search-result.htm?query=45> accessed 18 July 2013.

Competition, regulation in TV channels distribution (thehindubusinessline.in, 2004)

<http://www.thehindubusinessline.in/2004/11/06/stories/2004110600020800.htm> accessed 18

July 2013

GUIDELINES FOR DTH BROADCASTING SERVICE IN INDIA (indiantelevision.com,

2013) <http://www.indiantelevision.com/dth/dth11.htm> accessed 15 July 2013

38

APPENDIX A: ABBREVIATIONS

TV - Television

HITS - Head-end in the Sky

DTH - Direct–to-Home

IPTV - Internet Protocol Television

TRAI - Telecom Regulatory Authority of India (the Authority)

CCI - Competition Commission of India

E&M - Entertainment and Media

MIB - Ministry of Information and Broadcasting

R&D - Research and Development

LCO - Local Cable Operator

MSO - Multi -System Operator

TDSAT - Telecom Disputes Settlement and Appellate Tribunal

GEC - General Entertainment Channel

Pg- Page

Cr- Crore

Ch- Chapter

CP- Consultation Paper

OJ- Official Journal of the European Union

vertical integration in tv broadcasting and distribution sector in india a competition audit

Business

broadcasting companies

broadcasting sector

vertical integrationin

vertical integrationbetween

vertical integration9

competition concernsassociated

competition loss

competition audit