The ACCC's draft Media Merger Guidelines give important clues to the types of transactions with the greatest chance of successfully completing without regulatory challenge.
With the imminent reintroduction of the Turnbull Government's media ownership reform package, planning for potential restructuring and rescaling of traditional media platforms is likely to be well underway within the industry. While opportunities beckon, the ACCC will play a role as gatekeeper for any transactions in this new regulatory playing field. Significant clues to the ACCC's likely approach to new media transactions lie in the new draft Media Merger Guidelines, released on 26 August 2016.
Media reform back on the agenda
As has been widely reported in the media itself, the Turnbull Government is expected to reintroduce its media ownership reform package to Parliament this week, with Minister Mitch Fifield commenting on Monday that "[o]ur media laws need urgent reform to secure the future for Australia's media industry".
The original Broadcasting Legislation Amendment (Media Reform) Bill 2016 introduced to Parliament on 1 March 2016 proposed repealing:
- the "2 out of 3" rule, which currently prohibits a person from exercising control over more than two out of three types of media operations (a commercial television broadcasting licence; a commercial radio broadcasting licence; and an "associated newspaper"); and
- the "75% audience" rule, which currently prohibits a person from exercising control of commercial television broadcasting licences whose aggregate licence area population exceeds 75% of the Australian population.
This package of changes to Australia's media ownership laws potentially opens the doors for traditional media platform owners to pursue a range of previously restricted transactions. The reforms have therefore been broadly welcomed by the media sector as a way for existing operators to restructure and rescale their businesses to respond to competition from new forms of media.
Continuing role of the ACCC
While the reforms will most certainly open the doors to new opportunities, transactions in the media sector will remain subject to Australia's merger laws under section 50 of the Competition and Consumer Act (CCA), and its key question of whether they may cause a substantial loss of competition in a media-related market. For that reason, most deals are likely to continue to be closely scrutinised by Australia's competition regulator.
The question, therefore, is how the ACCC is likely to view the new wave of media transactions which may emerge following the passing of any media ownership reform legislation, and what factors are likely to sway its decision to intervene or not in any given transaction.
What the ACCC will be looking at in media mergers
As with all mergers, the ACCC reviews media mergers against the criteria set out in section 50 of the CCA to determine whether, in its view, the transaction is likely to substantially lessen competition in one or more relevant markets (SLC test).
However, the ACCC acknowledges that there are some peculiarities with mergers in the media sector, particularly given the rapidly evolving technological developments and digital disruption, and so it is updating its existing Media Merger Guidelines to help the industry in assessing which transactions are most likely to draw the ACCC's close attention.
The ACCC's approach in this sector has been evolving in response to the changing media mix. For example, in October 2012, it opposed Seven's proposed acquisition of Consolidated Media Holdings on the basis that it would lead to Seven having substantial interests in both a major free to air network and Foxtel (including an interest in the company which acquires rights to sports content for Foxtel). The ACCC thought this transaction would result in a substantial lessening of competition in the market for free to air television services by putting Seven Network in a position of advantage over other free to air networks in relation to joint bids and other commercial arrangements with Fox Sports for the acquisition of sports rights.
Fast forward three years to October 2015, and the ACCC was considering certain Foxtel/Ten transactions within the context of the existing media ownership regime. It closely analysed the impact of these transactions on the supply and acquisition of sports content, premium non-sport content and advertising services. Ultimately, the ACCC decided not to oppose the transactions on the basis that Foxtel and Ten would continue to face competition from the remaining free-to-air networks and, significantly, from streaming services which the ACCC considered were also likely to become increasingly important to the sale of sports rights in particular.
With a focus on the impact of new technology as the main driver for updating its guidelines, the ACCC has identified in its Draft Guidelines the following six key issues for its competition assessment of media mergers:
- Competition and media diversity: The Draft Guidelines define "diversity" in a media context as the "range of media 'voices' available to consumers". If the "2 out of 3 rule" and "75% audience rule" are repealed, the ACCC will consider the impact of proposed transactions on the level of concentration in the market, on the level of choice between types of content for consumers, and whether it might lead to a reduction in the quality of the content.
- Impact of technological change and future developments: The Draft Guidelines suggest that changes in technology over the 10 years since the last iteration of the ACCC's media merger guidelines, in particular the rise of social media, have led to significant changes in how media content and advertisements are consumed and supplied. However, the Draft Guidelines explicitly state that the ACCC will consider only current technological changes and the impact on the market within the next 1-2 years. Little weight will be given to speculation about future technological developments.
- Access to key content: The Draft Guidelines suggest that, in the past, the ACCC has found that the difficulty of obtaining supply of premium, compelling or key content has acted as a barrier to entry. Although what is considered premium or compelling content changes over time, the ACCC considers this includes live sport content, reality TV shows and news. The Draft Guidelines state that, although technological advances do facilitate a range of new delivery modes to provide premium content, concerns may still arise if the merger significantly increases the holding of exclusive content by a small group of players.
- Two-sided markets and network effects: A two-sided market is one platform that brings together two distinct groups of users. It often arises in the context of services which generate revenue through advertising, for example social networking sites. The Draft Guidelines explain that, in a market in which network effects are important, established suppliers may enjoy a first mover advantage, with a dominant position in the market raising barriers to entry.
- 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. For example, cross-platform mergers may provide the merged entity with the opportunity to bundle or tie the supply of products and services across multiple platforms, and in this way raise barriers to entry.
- Minority shareholdings: The Draft Guidelines suggest that the ACCC will approach its competition assessment of mergers involving the acquisition by one party of a controlling interest in another, in the same way it would approach any other merger, as the minority shareholding may give rise to a contravention of section 50 of the CCA.
Making your views known on media merger guidelines
Although new opportunities for media mergers will inevitably flow from the passing of the media law reform package proposed by the Government, mergers in the media sector will remain subject to ACCC scrutiny and, ultimately, the SLC test under section 50 of the CCA. It is important for media players to keep in mind the potential for ACCC hurdles to be jumped, in planning for new transactions following the passing of any media ownership reforms.
In this regard, the ACCC's Draft Guidelines provide some important clues as to what issues will be of greatest relevance to the ACCC and therefore which transactions will have the greatest chance of successfully completing without regulatory challenge. The ACCC's consultation process also gives interested parties an opportunity to make submissions as to what they consider to be important factors affecting the competitive dynamics of media markets. The period for feedback on the Draft Guidelines closes on Friday 14 October 2016, with the ACCC intending to release a final version later this year.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.