Through its assessment of a significant number of transactions over the years, the CCI has developed significant jurisprudence pertaining to combinations in the media, entertainment and broadcasting sector and has conducted a holistic evaluation while approving such combinations. This newsletter provides a brief overview of the key parameters that the CCI has considered in its assessment of such combinations.

The Competition Commission of India (CCI) has gained significant expertise in assessing complex mergers and acquisitions (M&A) since the merger control provisions of the Competition Act, 2002 (Act) were enforced in 2011. The substantive test to evaluate mergers in India is to determine if there is any 'appreciable adverse effect on competition' (AAEC) in the relevant market. Since 2011, the CCI has reviewed approximately 7 merger notifications pertaining to media, entertainment and broadcasting and has demonstrated its ability to understand the nuances of the sector, thereby enhancing its sector specific knowledge. An analysis of CCI's decisions to date indicate its holistic approach and its willingness to conduct a case-to-case assessment based on the facts peculiar to the combination.

CCI's Assessment in the Media, Entertainment and Broadcasting Sector

The CCI has employed the following parameters in its assessment of such combinations:

(a)  Significant presence of competitors: The CCI has taken cognizance of the fact that in most markets, there are a significant number of competitors who would continue to pose competitive constraints on transacting parties even post a proposed combination and consequently mitigating any adverse competition law concerns.

For example, in 2017, the CCI unconditionally approved the AT&T Inc./Time Warner Inc.[1] combination while observing that there existed several players in the managed streaming services market and in the market for distribution of audio-visual content to end-users thereby providing a choice to customers and exerting competitive constraints.

Additionally, in the combination of Prime Focus Limited/Reliance MediaWorks Limited[2], the CCI conducted a market investigation by seeking information from competitors and customers - in relation to visual effects and post-production services. Based on its investigation, the CCI concluded that due to the presence of several competitors there were no AAEC concerns.

(b)  Varying metrics of market shares:  The CCI has demonstrated that there is no one-size-fits-all approach for the calculation of market shares and has deftly chosen the parameters based on the peculiarities prevalent in each segment.

In the combination of Walt Disney Company (Walt Disney)/Twenty-First Century Fox (Fox)[3], the CCI calculated the combined market share of the parties in the markets for production and supply of films in India based on 'the gross box office receipt'. In the markets for operation and wholesale supply of TV in India, the market share of the parties and their competitors were calculated, based on 'the number of channels and viewership data'.

In contrast to the above, in the combination of Sony Pictures Networks India Private Limited (Sony Pictures)/Aqua Holding Investment (Pvt.) Ltd. (Aqua)[4], which pertained to the sports broadcasting business, the CCI observed that the market for the acquisition of rights for broadcasting sports events in India, is a bidding market (awarded through a tender process). Accordingly, the CCI examined the bidding data for a 5-year period and based on the bid analysis, examined the market share of the transacting parties in terms of number and value of the contract, Gross Rating Points (GRPs) and advertising revenue. These multiple estimates of market share were factored by the CCI to conclude that Sony Pictures and Ten Sports were not close competitors and Star India would continue to be a significant competitor post the acquisition.

(c)  Nature of the broadcasting industry in India: The CCI has demonstrated a thorough understanding of the entire value chain and the role played by various stakeholders across all levels, within the broadcasting industry in India. This in-depth scrutiny of the broadcasting value chain has also been employed by the CCI to analyze the extent of substitutability between different broadcasting services and the geographic reach of such services, for the purposes of delineating the relevant market(s).

In Sony Pictures/Aqua, the CCI delved into this value chain, involving the major players at each level of the chain. It observed that the major players in the value chain of the broadcasting industry include content owners, broadcasters and direct platform operators (DPOs). Content owners are entities who generate the content to be broadcasted and own the rights for the broadcast of this content. Different types of DPOs in India are Multi System Operators (MSOs), Local Cable Operators (LCOs), DTH, Internet Protocol Television (IPTV) and Headend-in-the-Sky. Further, over-the-top (OTT) services include applications and services accessible over the internet.  Additionally, the CCI also took note of the terrestrial television service provider which is owned and operated exclusively by the national public service broadcaster - Doordarshan, a division of Prasar Bharati.

In Dish TV India Limited (DishTV)/Videocon D2h Limited (Videocon D2h)[5], the CCI analyzed the substitutability or interchangeability between categories of DPOs. Here, the CCI observed that distribution of TV content by different categories of DPOs may not be closely interchangeable or substitutable in terms of the provisions of the Act.

(d)  Presence of a sector specific regulator - Telecom Regulatory Authority of India (TRAI): In Sony Pictures/Aqua, the CCI observed that the market for wholesale distribution of sports channels is regulated by TRAI. The CCI took cognizance of the Telecommunication (Broadcasting and Cable) Services Tariff Order, 2004 issued by TRAI, which puts a ceiling on the charges to be paid by a subscriber to the LCOs, LCOs to MSOs and MSOs to broadcasters. In view of these regulatory provisions coupled with Sony India's insignificant presence, the CCI held that the transaction was not likely to cause an AAEC.

Based on the approach adopted in the abovementioned cases, the CCI approved the global transaction of Walt Disney/Fox[6], that was notified across multiple jurisdictions, including United States of America and the European Union. In India, Walt Disney and TWDC Holdco 613 Corp. (HoldCo) filed a Form I (short form) merger notification, in relation to the acquisition of Fox' film and television studios, cable and international TV businesses (Combination). Post the Combination, Walt Disney and Fox became wholly-owned subsidiaries of HoldCo, (Walt Disney, HoldCo. and Fox are collectively referred to as the Parties). The CCI approved the Combination in the Phase I review period.

The CCI in determining that the Combination would not raise any AAEC concerns, evaluated several factors such as market share of the Parties and their competitors, existing market conditions, competitive constraints posed by other competitors etc. While evaluating the Combination, the CCI assessed nine horizontal overlaps between the Parties. Additionally, the CCI also assessed three vertically related markets of the Combination and held that as each vertical market was characterized by either an insignificant presence of the Parties or the presence of significant competitors who would continue to exert competitive constraints on the Parties, post the Combination, there would not be any adverse competition law concerns.

Interestingly, the CCI reiterated its approach, followed in Sony Pictures/Aqua and observed that the said transaction would not foreclose competition in view of the role played by TRAI in formulating regulations and directions to generate competition and ensure fair play in the telecom and broadcasting sector.

Conclusion

The CCI has demonstrated significant expertise by factoring the various facets of the value chain in its assessment of combinations in the media, entertainment and broadcasting sector.

Interestingly, the CCI's approach in evaluating combinations in this sector demonstrates its willingness to conduct a detailed market investigation in seeking the opinion of third parties such as customers, competitors, etc. and thereby not restricting its assessment merely on the details submitted by the notifying parties.

The coming years are likely to witness the CCI bolstering its approach in the media, entertainment and broadcasting sector, based on the experience garnered over the last decade, which will benefit companies undertaking M&A activities in this sector. Given the rapidly evolving nature of technology and digitalization, the CCI will need to evolve international best practices to determine its assessment of the relevant market in the media, entertainment and broadcasting sector.

Footnotes

[1] Combination Registration No. C-2016/11/456.

[2] Combination Registration No. C-2014/08/198.

[3] Combination Registration No. C-2018/07/583.

[4] Combination Registration No. C-2016/09/436.

[5] Combination Registration No. C-2016/12/463.

[6] Combination Registration No. C-2018/07/583.

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