On February 4, 2009, the UK Competition Commission (CC) announced its decision to block the proposed video on demand (VOD) joint venture (Project Kangaroo) between the BBC, Channel 4 Television Corporation, and ITV plc.
The Project Kangaroo JV was intended to combine the retail activities of BBC Worldwide (BBCW), Channel 4, and ITV, creating a common, single platform website of UK television content accessible on demand to consumers using broadband. It was also aimed to bring together the parties' wholesale activities, consisting of syndicating the content rights to third parties that offer VOD services.
The CC concluded that the JV would be likely to lead to a loss of rivalry between the parties, amounting to a substantial lessening of competition in the supply of UK television VOD content at both the wholesale and retail levels.
In the market for the wholesale supply of VOD content rights, the parties were found to have greater bargaining strength than the VOD retailers to whom they supply content. First, the parties have a substantial share of VOD content, particularly of UK television archive VOD content. Secondly, third party producers are able to offer only a small portion of VOD content available from the parties since the ability to acquire VOD rights is often closely associated with holding or acquiring linear TV rights and the relevant linear broadcasters of that content are in an advantageous position when negotiating for VOD rights. Thirdly, in order to compete with the JV, a VOD retailer would need to have access to a wide range of catch-up and archive UK content. The CC found that the JV is unlikely to have the incentive to enter into future syndication deals that might undermine its own retail operation. The CC considered that any syndication deals entered into by the JV, or ITV and Channel 4, are unlikely to be on terms favorable to VOD retailers.
At the retail level, the parties are, or would in the future be, each other's closest competitors for a wide range of content supplied on a VOD basis. The CC considered that third party VOD retailers would not act as an effective competitive constraint. This loss of rivalry between the parties would enable them to offer less attractive terms to customers, resulting in viewers paying higher prices for some content, paying for a higher proportion of content, and/or receiving lower quality or less innovative offers. The CC considered a range of possible remedies. These included:
- Access remedies alone, which would require the JV and/ or the parties to offer access to VOD content to third parties (including retailers of VOD services) on, for example, a fair, reasonable and non-discriminatory basis;
- Material modification to the terms of the JV, for example, by adjusting the scope of activities of the JV or the terms of exclusivity between the JV and its parents;
- Restriction of the JV's ability to wholesale both catch-up and archive content whilst preserving separate retail selling points under a so-called "farmers' market";
- Other types of remedy, such as restrictions on cross-promotion, restrictions on participation in the JV, and modifying the JV's terms of trade.
The CC considered that such remedies could not be comprehensive and would carry a risk of market distortion. The CC considered that, to be effective, an access remedy would need to specify a number of different aspects, such as content and standard of picture quality, all of which would need to be highly specific in order to avoid risks of circumvention. This, however, was not considered appropriate in a market subject to rapid and significant change.
The CC considered that its role was "to examine a specific proposal for a particular new and developing market". The CC considered that any customer benefits that the JV might bring about could equally be achieved through projects less harmful to competition and that such alternative projects are more likely to develop as a result of the prohibition of the JV. It therefore concluded that outright prohibition of the JV would be the only effective and proportionate remedy to the substantial lessening of competition and adverse effects identified.
It had been widely expected that Kangaroo would be approved with modifications imposed by the CC to ensure that BBC, ITV, and Channel 4 programmes were available elsewhere. The parties may still decide to seek other forms of cooperation such as technology sharing or collaboration with overseas providers.
The CC's final report is available on the CC's website.