In July, Minister Coonan announced proposed changes to the current cross-media ownership and foreign media ownership laws, launched as part of a media reform package. In response, on 9 August 2006 the Australian Competition and Consumer Commission (ACCC) published its views on protecting competition (and possibly diversity) in the context of anticipated mergers in rapidly developing media markets.
In legislation currently intended to come into effect in 2007, the government proposes to:
- amend existing restrictions on cross-media mergers in the Broadcasting Services Act 1992 to allow cross-media transactions to proceed, subject to diversity protections, to be administered by the Australian Communications and Media Authority (ACMA), ensuring a minimum of five commercial media groups in state capitals and four in regional areas
- remove the current media-specific and newspaper-specific foreign ownership laws
- give the ACCC responsibility for determining whether a media merger may proceed, based on competition principles.
Under this proposed new system, the ACCC will assess whether a media merger should proceed under section 50 of the Trade Practices Act (TPA) by applying general principles of merger review.
Section 50 of the TPA prohibits the acquisition of shares in or assets of a company if that acquisition would have the likely effect of substantially lessening competition in a market. In assessing a merger under this section, the ACCC will consider factors including: the level of import competition in a market; the height of barriers to entry; possibilities for substitution of products, the dynamic features of the market (including innovation and growth) and the ability of the merged company to substantially increase prices or profit margins.
Key elements of the guidance
- General principles of merger approval apply in accordance with the ACCC’s Merger Review Guidelines (which are currently under review). The key question is whether there is likely to be a substantial lessening of competition under any proposed media merger.
- It is not definitive, rather it is a ‘high level’ guidance only.
- Media mergers will be decided on a case-by-case basis once the ACCC has had the opportunity to comprehensively investigate a proposed merger and make market inquiries.
- There are three main categories of products: supply of advertising opportunities; supply of content to consumers and acquisition of content from content providers.
- The rate of technological change and the emergence of new forms of delivery of media products raise unique challenges for the ACCC when assessing any proposed media merger. In particular, traditional concepts of market and product definitions must be reassessed in the light of media convergence.
- While recognising the fast rate of technological change and the dynamism of the media industry, the ACCC emphasised that any assessment of what a market is likely to look like in the future must be based on ‘hard evidence, not hypothetical views.’
- The ACCC will take into account the different circumstances in rural and regional Australia compared with urban areas, noting that urban consumers have greater access to new media.
- The ACCC’s role is to protect competition rather than diversity. Diversity is primarily protected by the four/five rule and other protections in the Broadcasting Services Act. Nonetheless, the ACCC will consider the impact of media mergers on market concentration—which could also have an impact on continued diversity.
What will the ACCC consider when assessing a media merger?
Section 50 of the TPA is breached if a substantial lessening of competition in any relevant market results from a merger. In considering this question, the ACCC will conduct market analysis and consider:
- What are the relevant products?
- What is the geographic extent of the market?
- What functional levels of the vertical production chain are relevant for the merger under analysis?
- What is the relevant time frame for consideration of the competitive effects of the merger?
Media products raise unique questions when considering each of these areas.
What are the relevant products?
Traditionally, the ACCC has regarded the media from the perspective of the four principal traditional modes of delivery—free-to-air television, pay television, radio and print—with little overlap in either the delivery or content of these products. Of course media can now be delivered online or over wireless networks, such as via mobile phones.
The impact of technological change and new media forms on merger assessment
The ACCC has signalled that may no longer be appropriate to take the traditional ‘modes of delivery’ approach to analysing media mergers. Technological advances and new modes of delivering content mean that there is now a convergence between media products. For example, the new modes of delivery, such as the internet and 3G telephone technology, have enabled a product such as news content, to be consumed in different ways. According to the ACCC’s guidance, this convergence is likely to lead to competition between firms that have traditionally provided separate products. This shapes the way the ACCC will consider relevant market definitions in deciding whether to clear a proposed media merger.
The general principles are:
- It is impossible to predict exactly how technology will alter media markets in the short to medium-term. Therefore, media mergers should not be assessed based on hypotheticals but on hard evidence of technological trends, such as taken from overseas experience.
- The ACCC typically looks forward 2–3 years when assessing the impact of a merger—however, it will not engage in speculation in rapidly evolving markets.
- Technological change will have a different impact on competition in different markets.
- While some advertising markets may broaden over time to encompass both newspapers and internet (eg classified real estate advertising), most advertising products will remain distinct from other content that uses the same mode of delivery.
- Media merger analysis must be flexible to accommodate changing technology and competition.
What are the appropriate functional levels for assessing media mergers?
Media may also be delineated by product type. Three broad categories are likely to be relevant: the downstream supply of advertising opportunities to advertisers, the downstream supply of content to consumers, and the upstream acquisition of content from content providers. From the perspective of a media provider, the provision of these products is interdependent. The price of advertising depends on the number of consumers who access the media platform in question, and that in turn depends on the price and quality of the content provided on the media platform, ie the market is two-sided in nature.
The ACCC has indicated that technological convergence in modes of delivery is unlikely to affect the approach to market analysis of these three functional levels. While the ACCC notes the two-sided nature of downstream media markets (ie advertising and content delivery), it does not anticipate that this will have a significant impact on future informal merger clearance assessments. The guidance points out that if there is a competition problem in an advertising market, then it is not likely the ACCC will clear it, despite arguable benefits arising for consumers of content. Such arguments are only appropriate for authorisation applications—where mergers which give rise to a substantial lessening of competition can be cleared those mergers give rise to identifiable public benefits.
Content likely to become more important
The guidance notes ‘as the number of ways of conveying media content to consumers increases, it is likely that competition concerns relating to concentration among content providers will become more important and will be an increasingly strong focus of the ACCC when assessing mergers.’
The ACCC points out that it has been concerned about the potential for exclusive content acquisition (such as sport or other premium content) to inhibit competition in emerging modes of media, particularly those using new platforms, such as 3G mobile phones. The ACCC will continue to examine issues under section 47 of the TPA, which prohibits exclusive dealing giving rise to a substantial lessening of competition, but it notes that media mergers may also raise concerns in relation to the acquisition or delivery of content. Cross-platform content packaging will impact the assessment of cross-media mergers, since competition issues may be more likely to arise where these practices are common.
What if the ACCC clears the proposed media merger?
It is important to note that an informal clearance by the ACCC under section 50 does not mean that a media merger cannot be further challenged. Third parties, including other competitors in the market or consumer groups, can still challenge the merger as being anti-competitive.
ACCC is ready, willing and able
There is a potential that, as technology develops and modes of delivery of content expand, there will be many mergers that bring together media companies that have traditionally not competed with each other and that do not substantially lessen competition on the basis of the best evidence available at that time.
Overall, the guidance indicates that the ACCC is well prepared to assess future media mergers. Merging parties will need to consider the impact of their mergers on multiple market definitions. Applications for informal clearance will need to demonstrate that no substantial lessening of competition will arise, whether in horizontal mergers potentially affecting advertising markets, vertical mergers potentially affecting acquisition or supply of content. Parties will need to demonstrate the impact of their merger on competition across various platforms, and in different content markets.
The guidance demonstrates that the ACCC will apply the same rigorous assessment of competition to media mergers that it has done in other complex markets, and merging parties will need to be prepared to engage in depth and provide empirical evidence that their merger will not substantially lessen competition in any of the markets identified for the assessment of their merger.
The first cross-media mergers to be assessed under the new regime after its introduction in 2007 will be the test of the ACCC’s abilities and are likely to be subjected to close scrutiny, not only by the ACCC, but by the industry as a whole.
For the full text of the ACCC’s Media Merger Guidance, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.