In the decade since the ACCC last updated its Media Merger Guidelines,1 the competitive landscape in media has unimaginably transformed. Technology has enabled new ways of delivering content and has also facilitated the emergence of new types of content. These changes call into question the continuing relevance of prior analytic frameworks for competition analysis in media mergers.
In this context, the ACCC’s release last Friday of the draft Media Merger Guidelines (Draft Media Merger Guidelines), is timely.2 As the ACCC recognised, this is because of the “significant changes taking place in the media environment and the potential impact of these on competition and the mergers considered by the ACCC”. The ACCC has observed that these changes arise:
- from the impact of new technology, affecting the way media is delivered and consumed and the nature of competition in media markets; and
- potentially, from the Australian Government’s proposed removal of two of the five restrictions within Australia’s media control and ownership rules under the Broadcast Services Act 1992 (Cth), namely, the “reach rule”3 and the “2 out of 3 rule”,4 creating the potential for new mergers.
The theme of technological change and convergence and its relevance to regulatory frameworks has been apparent in the ACCC’s consideration of the media sector prior to the release of the Draft Media Merger Guidelines. Indeed, the ACCC noted the structural changes in the media industry and changes to consumers’ viewing patterns in its March 2016 Public Competition Assessment regarding its decision in October 2015 not to oppose the FOXTEL – Ten transactions.
Technology, and technological convergence, is continuing to drive change
Mr Rod Sims also drew attention to this theme in his November 2015 speech, “Promoting innovation through competition”, when he observed:6
“Regulation that relies on particular platforms will always run the risk of being obsolete as technology and consumer preferences change”.
Mr Sims also noted:
“… with the rapid technological convergence in the media industry… policy makers and regulators should aim for a neutral treatment of different technologies. In this regard, this seems to require a shift away from regulation based on delivery platforms”.
More generally, the Draft Media Merger Guidelines are being released in a context where technological changes are resulting in greater emphasis on technological neutrality in regulation across industries. For example, the recommendations of the Financial System Inquiry’s Final Report (in December 2014) included that the Government work with the financial sector to identify and amend priority areas of regulation with respect to technology neutrality, as well as embedding the principles in the development processes for future regulation (see our client update on this topic here).
What do the Draft Media Merger Guidelines tell us?
As with all merger analysis, the ACCC applies a forward looking analysis to consider whether a merger is likely to substantially lessen competition, comparing the competitive landscape if the media merger proceeds, against the landscape if it does not. While the ACCC acknowledges that it will take into account the changing nature of technology and its competitive impacts, it observes that it “will not base its merger analysis on predictions or speculation about hypothetical technological changes outside the usual time frame for consideration”, generally 1 – 2 years.
Given the rapid pace of technological evolution, this view may be difficult to apply in practice – one person’s speculation is another’s realised innovation. (Ten years ago, who would have thought that Google and Facebook would become close competitors?)
Markets of interest
The Draft Media Merger Guidelines observe that media outlets typically generate revenue from advertising and / or subscription fees, and, on that basis, identify three activities that are likely to form the basis for the ACCC’s consideration of relevant markets:
- the supply of content to consumers, directly or via an aggregator;
- the supply of advertising opportunities to advertisers; and
- the asquisition of content from content providers.
The Draft Media Merger Guidelines also indicate that the ACCC will consider the extent of substitution between the parties, which may involve a consideration of the mode of delivery, and potentially also the type of content supplied.
Types of mergers that may harm competition
The Draft Media Merger Guidelines observe that the ACCC’s primary focus will be the likely unilateral effects on competition, though it may also need to consider the likelihood of coordinated effects arising from a media merger. The competition factors identified are not unique to media-related mergers, though examples from the media industry are suggested by way of illustration. (For example, the ACCC suggests that one potential outcome of the exercise of market power could be a significant and sustained reduction in service which, in the media context, could be a reduction in the quality or variety of the service or content, or an increase in the number or length of advertisements.)
Possible issues that may arise in the competition assessment of media mergers
The Draft Media Merger Guidelines set out how the ACCC intends to consider six issues that it has identified as potentially arising in media merger assessments, summarised below.
The ACCC is seeking comments on the Draft Media Merger Guidelines by Friday 14 October 2016. Submissions can be lodged here. We will continue to monitor developments and provide further updates – please let us know if you would like any more specific information.
3The "reach rule” refers to the restriction preventing one person (or company) controlling commercial television broadcasting licenses that collectively reach more than 75 per cent of the Australian population.
4The "2 out of 3 rule” refers to the restriction preventing one person (or company) controlling more than two of the three regulated media platforms (a commercial radio broadcasting licence, a commercial television broadcasting licence or an “associated newspaper”) in any commercial licence area.
5See in particular paragraphs 38 – 40, ACCC, Public Competition Assessment, Foxtel Management Pty Ltd and Ten Network Holdings Ltd – proposed acquisitions, 2 March 2016. Accessible online at http://registers.accc.gov.au/content/trimFile.phtml?trimFileTitle=MER16+1918.pdf&trimFileFromItemId=1190276&trimFileName=MER16+1918.pdf.
6See “Promoting innovation through competition”, RBB Economics Conference, 5 November 2015. Accessible online at https://www.accc.gov.au/speech/promoting-innovation-through-competition.
7These three rules are as follows: (1) the “5/4 rule”, which refers to the restriction that at least 5 independent media voices must be present in a metropolitan commercial radio licence areas (the mainland state capital cities), and at least 4 in regional commercial radio licence areas; (2) the “one to a market rule”, which refers to the restriction that a person (in their own right, or as a director of one or more companies) must not be able to exercise control of more than one commercial television broadcasting licence in that licence area; and (3) the “two to a market rule”, which refers to the restriction that a person (in their own right, or as a director of one or more companies) must not be able to exercise control of more than two commercial radio broadcasting licences in the same licence area.
*The authors acknowledge the assistance of Tina Sun in the preparation of this article.