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News Corp gets EC merger approval

December 22, 2010

by Colin Mann

As anticipated, the European Commission has approved under the EU Merger Regulation the proposed acquisition of BSkyB by News Corporation. The Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it. The Commission’s findings concern solely the competition aspects of the proposed transaction.

The EC confirms the findings are without prejudice to the ongoing investigation being carried out in the UK by regulator Ofcom as to whether the proposed transaction is compatible with the UK interest in media plurality, which is different from the Commission’s competition assessment. The UK remains free to decide whether or not to take appropriate measures to protect its legitimate interest in media plurality (as permitted under Article 21 of the EU Merger Regulation).
Commission Vice-President and Commissioner for Competition Joaquin Almunia said: “I am confident that this merger will not weaken competition in the UK. The effects on media plurality are a matter for the UK authorities.”

The EC noted that News Corp and BSkyB are mainly active in different markets in the UK and Ireland and compete with each other only to a limited extent, in the wholesale supply of basic pay-TV channels and in the supply of online and TV advertising space. It found that the proposed transaction would only lead to a small increment on BSkyB’s existing share of the market for the supply of basic pay-TV channels in the UK and Ireland. The parties also have a small combined market share in the market for online and TV advertising. Therefore, the transaction does not give rise to horizontal competition concerns.

Given that the merging companies are mainly active at different levels of the market, the Commission’s assessment focused on whether the proposed transaction could lead to possible anticompetitive effects arising from vertically linked or neighbouring activities in the audiovisual sector, in newspaper publishing, or in advertising.

In terms of the audiovisual sector, the Commission found that News Corp lacks sufficient market power in the market for the licensing of broadcasting rights for premium movies and that BSkyB’s competitors would retain several alternative suppliers with equally attractive content. While the market investigation revealed strong concerns over BSkyB’s exclusive deals for premium movies with all six Hollywood majors for the first pay-TV window, the transaction will do little to worsen this market situation that exists already today – and is currently under investigation by the UK Competition Commission following a recent decision by UK regulator Ofcom.

The Commission also investigated whether the proposed transaction would lead to a risk of exclusion from BSkyB’s pay-TV offering of competitors of News Corp in the licensing of premium film content and TV programmes and in the wholesale supply of basic pay-TV channels. The Commission found that News Corp’s premium movie content and TV programmes and basic pay-TV channels constitute a minimal part of Sky’s bouquet and that BSkyB would continue to have the incentive to acquire content from News Corp’s competitors to have the most attractive retail packages.

As the proposed transaction brings BSkyB into the same group as Sky Italia and Sky Deutschland, the Commission investigated if the new company would enjoy increased bargaining power vis-à-vis rights holders by purchasing premium content jointly for several territories, to the detriment of its pay-TV competitors. The Commission found that it was unlikely that the merged company would be able to impose upon content rights holders a change from current licensing practices (along national territories or language areas) towards simultaneous negotiations across several countries such as Germany, Austria, Italy, UK and Ireland.

In terms of the newspaper publishing sector, the Commission excluded that competition concerns would arise from the transaction, and was also satisfied that concerns regarding advertising would not arise.

In a statement, BSkyB said it noted that the European Commission had concluded its review of News Corporation’s proposal to acquire the shares in BSkyB that it does not already own and welcomed the European Commission’s decision to approve the proposal without a further Phase Two review. “BSkyB continues to co-operate with the UK regulatory process,” it confirmed.

UK Business Secretary Vince Cable asked Ofcom to carry out the media plurality review. However, he was stripped of power over the media sector the same day as the EC decision was announced, but remained in government, after he was taped “declaring war” on News Corp Chief Executive Rupert Murdoch.

Prime Minister David Cameron regarded Cable’s comments as “unacceptable and inappropriate,” his office said in a statement which reprimanded Cable and curtailed his influence.

The Department for Culture, Media and Sport, led by Conservative Jeremy Hunt, will take charge of media regulation including News Corp’s bid to take full control of BSkyB.

Now that Cable is no longer involved, the chances of the bid being blocked have been reduced. Hunt has in the past praised News Corp Murdoch’s role in developing Britain’s television news market.

Cable revealed to two undercover reporters from the Daily Telegraph that he had “declared war on Mr Murdoch and I think we are going to win,” adding that he had “blocked it using the powers that I have got and they are legal powers that I have got.”

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