Competition regulators are increasingly calling for new approaches to the regulation of digital markets for media, data and communication. Large players such as Facebook and Google have found themselves in the focus of attempts to develop new regulatory instruments, as authorities seek to curb what they see as a potential threat to competition through the widespread success of such platforms. What further developments can market participants expect?

Background

Digitalisation has led to new commercial practices and a redistribution of competitive forces in numerous markets, and competition authorities see the need to refine their regulatory instruments to cope with these developments. An accumulation of initiatives and procedures over the last five years shows that competition authorities are increasing their enforcement focus on internet-enabled services. Headline-making developments include:

  • the continuing clarification of the European Commission’s numerous Digital Single Market objectives;
  • its sector inquiry on e-commerce;
  • various antitrust procedures at national and supra-national level relating to the alleged dominance of Google in several markets, including a recent statement of objections from the European Commission alleging abuse of dominance in the Android operating system, and a decision expected from the Commission very soon on whether to issue antitrust charges against Google for abuse of the dominance of its search engine ;
  • the European Commission’s investigation on content distribution agreements between Hollywood studios and pay-TV providers;
  • and multi-national antitrust or merger control cases involving digital marketplaces and platforms.

Some competition authorities have already taken a proactive approach and developed a sophisticated analytical framework in their review of new forms of market disruption. For example, the German Federal Cartel Office recently set up a “Task Force for Internet Platforms” to give appropriate attention to what it sees as “the importance of the digital economy for all sectors of industry”. Other competition au-thorities, on the other hand, are falling back. There is also a growing concern that existing national or supra-national competition rules are inadequate to tackle possible competition-restricting issues deriving from new commercial practices, new forms of relationship between industry players, the re-allocation of market forces or the impact of new competitive factors such as Big Data.

There has been a redistribution of market power in the new digital media landscape

Digitalisation has had a particularly far-reaching impact on the media industry, and the application of competition law has become increasingly complex in media markets. At all levels of the value chain (principally content distribution, end-customer access and advertising technologies), traditional media have been confronted with a major overhaul of past practices. Legacy media players are now pursuing digitalization and diversification efforts to adapt to new business models and shifts in customer demand such as online news platforms or streaming of visual and audio media. This has been a difficult process for the industry. Traditional media groups were suddenly confronted with the market power of large technology groups such as Google, Apple, Facebook and Amazon, who seemingly overnight had become both competitors and, in many cases, business partners.

In many respects, the competitive cards have been re-shuffled in the media and entertainment industries. The existing toolkit for competition law analysis may appear difficult to apply to new or shifting business business models and practices. To name just a few examples:

  • In the music industry, Apple’s iTunes has substantially disrupted the way music is consumed and distributed. More recently, music streaming operators such as Spotify or Apple Music are also creating new challenges for both businesses (in particular record labels) and competition authorities alike.
  • The length of the iBooks investigations around the globe has shown that the analysis of the practices in question was anything but straightforward.
  • The interplay between online advertising and other forms of advertising (for example online video advertisement and television advertising) can play a significant role in the analysis of markets in merger control cases, as recent cases by German and other European competition authorities have shown.
  • Various national competition cases relating to Google News as well as the European Commission‘s Google Search investigation (relating to Google’s ranking of comparison shopping services competing with Google’s own service) also show that one of the key factors in effective competition is content exposure to the general public or, in other words, traffic redirection. Common features of digital media markets are fast and potentially disruptive innovation, impressive growth rates and the presence of a digital platform intermediary playing a central role in content and user matching. We expect competition authorities to give increasing weight in their analysis of markets to platform effects and the distinctive dynamics of digital markets.
  • Traditional news publishing companies now recognize that their content is increasingly consumed on or via third-party websites. In particular, social platforms constitute a key source of traffic. Newer business models such as Buzzfeed are predominantly dependent on social network referrals. Companies like Facebook and Twitter, with the launch of services such as Instant Articles or Notify, position themselves as key differentiators in traffic and content exposure redistribution.
  • In a previous Freshfields Digital article, we discussed how the relationship between over-the-top service providers (OTTs) – such as Netflix, WhatsApp, YouTube and Amazon – and telecom and cable operators as Internet Service Providers (ISPs) raises significant competition law questions.
  • The German Federal Cartel Office announced it is launching a dominance investigation into Facebook’s user data policies, while the French Competition authority is considering starting a sector investigation into personal data and competition, according to its President, Bruno Lasserre.

Antitrust considerations will play an increasing role in new media

We expect that antitrust considerations will play an increasing role in the relationship between traditional media or content providers and new digital media players.

The OTT media shift

The shift in media consumption to non-linear, on-demand models (in particular with the younger, millennial generation) increases the importance of digital platforms such as OTT models for content providers. A dual relationship is emerging, in which on-demand content platforms are simultaneously a vital business partner for traditional media and also greatest threat to them.

Abuse of dominance issues

Traditional broadcasting and media groups in Hollywood appear to be still searching for the right answer to this new business challenge. While they are licensing their content to large platforms such as Hulu and Netflix, they are also launching their own OTT services. Some are already considering withdrawing or reducing their subscription video-on-demand (SVOD) licensing volume to industry players such as Netflix. Google’s YouTube is also launching its own subscription model (YouTube Red) to become its own exclusive content provider, and Netflix is anticipating this mentality switch by internalizing content production. Numerous issues for competition law enforcement could emerge from this situation, in particular if either the the on-demand platform or the content provider enjoys a market position that may be dominant. Industry players with a dominant position may not have emerged yet. But the multiplication of digital media providers will inevitably lead to consolidation in new media (either vertical integration or horizontal consolidation), triggering potential antitrust concerns.

Antitrust review of commercial agreements

Antitrust compliance review of their commercial agreements is a further issue which industry participants are facing.. The new forms of online distribution add complexities to the antitrust analysis. In the new digital media context, a party to an agreement can be simultaneously a supplier, a content provider, a platform operator, joint selling partner and/or competitor. In Europe, both at national and European Commission level, the existing guidelines do not always provide sufficient insight into how competition authorities may review certain issues.

The European Commission’s Google Search decision is eagerly anticipated in that respect as it may answer important questions on source-of-traffic indispensability and self-preferencing. As is shown in e-commerce distribution agreements, EU guidelines on vertical restraints and block exemption regulations provide for general competition law principles but sometimes lack practicability. In that respect, it is interesting to note that some of the issues at stake in e-commerce distribution mirror issues faced by content licensing stakeholders. New guidance is still outstanding, so companies will need to carefully self-assess their new distribution models to ensure that potential restrictions are compliant under the applicable competition rules.

Does competition law need a complete overhaul to adapt to digital media?

The harshest legal critics argue that existing competition laws are not adequate to tackle the complexities of new digital media models. It is often argued that the current legal framework does not adequately reflect positive effects in relation to innovation and user experience, the competitive advantage represented by Big Data collection, or the complex and specific impact of digital platforms’ network effects. Some have gone so far as to demand sector-specific ex ante regulation that would in particular ensure third-party access to “essential” digital platforms.

Moderate views

In 2015, the German Monopolies Commission, one of the most influential expert committees on competition law in Germany, published a new special report entitled Competition policy: The challenge of digital markets. The report provides a comprehensive overview of the state of competition and competition law in the digital era, describing in detail the conflicting issues and uncertainties inherent in digital markets. Overall, the report comes to the reasonably conservative conclusion that the currently available competition law instruments are generally sufficient, but that they could be applied more efficiently, especially in abuse of dominance cases. Most of the theories of harm identified by the European Commission in non-digital cases (such as competitor foreclosure) are on this view applicable in the digital space.

To take one example. In recent merger control cases in the (traditional) cable / broadcasting industry, input (content) access has been clearly identified as a key competitive factor that must be an assessment priority. There is no objective reason why the analytical framework should be significantly different in the digital media world.

Most observers conclude that competition law should not be overhauled. Instead, they would argue, any major changes necessary should occur in other legal frameworks such as data protection laws or telecommunication regulation, that are better placed to re-balance market structures in order to restore a level playing field between new digital players and traditional media and entertainment businesses..

Potential changes in competition law

Various commentators do however argue that existing competition law guidance could be modernized (instead of being overhauled) to reflect better the impact of digital business models.. Even more importantly, some procedural instruments could be reinforced. Two common arguments:

  • Merger control thresholds could be adjusted to catch acquisitions of small high-tech or digital companies with relatively low turnover but high enterprise value on the basis of potentially disruptive data collection technologies;
  • New decision deadlines could be introduced for procedures that currently sometimes last up to five years and therefore allow potentially anti-competitive market practices to have an impact on the market (the so-called winner-takes-all or tipping effect).

We can expect further debate on whether the existing legal competition law framework can resolve access-related issues generated by digital platforms, or whether these will need to be dealt with through an ex ante regulation of platforms.

It remains to be seen if and how the European Commission and national authorities or legislators will reform the antitrust instruments at their disposal to address antitrust issues in digital media. The next year should, however, see an intensification in the level of decision-making that will provide industry players with more (and hopefully consistent) guidance on how to address the issues at stake.