The Australian Competition and Consumer Commission (ACCC) has released draft media merger guidelines (Draft Guidelines) to highlight particular issues relevant to the ACCC's assessment of media mergers under the Competition and Consumer Act 2010 (the Act). The Draft Guidelines are an update to the guidelines originally released in August 2006 (2006 Guidelines) and have been triggered by technological changes in the delivery and consumption of media impacting competition in media markets. A further impetus is the proposed change to Australia's media control and ownership rules in the Broadcasting Services Act 1992 (Media Reform Bill). These changes, if passed, will create the potential for new mergers and consolidation in the Australian media sector, in particular for traditional media platforms which were earlier restricted from such transactions. The ACCC is seeking comments on the Draft Guidelines, and intends to release the final version later this year after considering the feedback received. Comments are to be submitted to the ACCC by 14 October 2016.
Regulation of media sector
The media sector is regulated under the Broadcasting Services Act, and media diversity, in particular, is protected by the restrictions on control and cross-media mergers in the Broadcasting Services Act. In light of the rapid technological changes of the past ten years, and to support the viability of local and traditional media as they face increasing global competition in an ever changing digital landscape, the proposed Media Reform Bill seeks to remove restrictions that prevent one person or company controlling:
- commercial television broadcasting licences that collectively reach more than 75% of the Australian population (reach rule), and
- more than two of the three regulated forms of media (commercial radio, commercial TV and associated newspapers) in one commercial radio licence area (cross-media ownership rule).
Other rules to protect media diversity that will continue to apply are:
- '5/4' rule: at least five independent media voices in metropolitan commercial radio licence areas (mainland state capital cities) and at least four in regional commercial radio licence areas,
- `one-to-a-market' rule: a person must not control more than one commercial television licence in a licence area, and
- 'two-to-a-market' rule: a person must not control more than two commercial radio licences in one licence area.
The report of the ongoing senate inquiry on the proposed Media Reform Bill is due by 7 November 2016.
Role of ACCC
The ACCC considers the impact of media mergers on competition. The ACCC first published its Media Merger Guidelines in 2006 to explain the regulator's approach to assessing media mergers. The updated Draft Guidelines give guidance as to the likely issues the ACCC will focus on in the current technological and disruptive environment. This will be useful for merger parties when structuring a media transaction and to seek merger clearance from the ACCC.
The revised Draft Guidelines complement the ACCC's general Merger Guidelines and both guidelines should be referred to by the parties. This article only focuses on the factors set out in the Draft Guidelines.
The Draft Guidelines outline a general framework to define the market and the substitutes between the merger parties which are specific to each case. In addition, it identifies three markets that are likely to be effected by a media merger:
- supply of content to consumers, either directly or via an aggregator firm
- supply of advertising opportunities to advertisers
- acquisition of content from content providers
The ACCC will consider the following factors relevant in defining the market: operations of parties, types of content supplied (news, sport, entertainment) and geographic overlap. The Draft Guidelines also provide that convergence in different modes of delivery may result in different platforms (such as subscription TV and IPTV) competing more closely.
Potential Competition Issues
The Draft Guidelines highlight some of the key issues facing media mergers. These factors are not exhaustive and the relevance and weight of each factor will vary from merger to merger.
- Competition and media diversity: Diversity is referred to as the "range of media voices" available to consumers. A reduction in `choice' or `quality' of media product and services offered to consumers could lead to a reduction in diversity. Choice or quality could decrease as a result of market concentration leading to a reduction in the number of media outlets or types of content available to consumers post-merger.
- Impact of technological change: The Draft Guidelines recognise the significant role technology plays in competitive dynamics of media markets by influencing competition between traditional and new media platforms, increasing convergence, reducing or raising barriers to entry and/or producing vigorous and effective competitors. However, it expressly provides that the ACCC will consider current technology and credible evidence of likely changes in a one-two year range, and will not entertain speculation about future technology. It further recognises that markets that are characterised by rapid product innovation may be unstable such that any increased market power gained through a merger may be transitory, and also that not all technological changes are necessarily pro-competitive (e.g., network effects).
- Access to key content: Controlling access and/or having exclusive access to premium or compelling content can be a barrier to entry. While the ACCC recognises that assessing such control or exclusivity will depend on various factors such as:
- nature of premium or compelling content changing over time (depending on consumers viewing patterns), and
- technological advances facilitating new delivery modes
it is also suggesting that the benefits to incumbents of having exclusive access to premium content may continue to be a barrier to entry.
- Two-sided markets and network effects: Network effects of two-sided markets have been recognised as raising barriers to entry in past ACCC decisions and this theme continues in the Draft Guidelines. Network effects are present in a market if the value a user places on a product or service increases if there are more overall users of that product or service. The media sector is prone to network effects as there are different types of users of a media platform, i.e., the advertisers, content providers and consumers. An increase in any one group will likely lead to stronger usage from the other groups leading to strong network effects.
- Bundling and foreclosure: The Draft Guidelines indicate that the ACCC will closely examine any media merger that enables the merged entity to leverage its market power in one market to substantially lessen competition in another market. The removal in restrictions to cross-platform media mergers may provide the opportunity to bundle or tie products and services across multiple platforms and may foreclose the merged firm's rivals.
- Minority shareholdings: Acquisition of small shareholdings would also be reviewed by the ACCC if they result in control. While the Draft Guidelines refer to the Merger Guidelines for further details, some of the relevant factors stated in the Draft Guidelines include size and significance of shareholding and ability to appoint directors to the target's board.
The test to be applied is forward-looking and focuses on the nature of competition in the foreseeable future (generally one-to-two years). While the ACCC's primary focus will be on unilateral effects, where appropriate, it will also consider co-ordinated effects resulting from a media merger. The Draft Guidelines also feature a number of case studies from past media mergers to illustrate the ACCC's approach.
The ACCC's Draft Guidelines provide an important indication as to what issues are likely to be of relevance to the ACCC in a media merger review (particularly in the face of disruption and technological developments in the industry, and changing consumer behaviour), and therefore which transactions would get over the line and which are likely to trip over.
The ACCC's consultation process gives interested parties an opportunity to make submissions as to what they consider to be important or alternatively, less significant factors affecting competitive dynamics of media markets. This is an opportunity to inform and supplement ACCC's current thinking.
The period to provide feedback on the Draft Guidelines closes on Friday, 14 October 2016. If you need any assistance to make a submission, please get in touch.