Chicken Lickin bad!: Commission (provisionally) finds competition problems

The Competition Commission announced today its provisional findings in respect of the merger between BSkyB and ITV arising from the former's acquisition of a minority shareholding in the latter. Its bad news for the Murdoch business, as the Commission has identified a substantial lessening of competition attendant on the loss of rivalry between the two companies in the 'all-TV market'. The provisional findings have now been opened for comment, and the Commission is also consulting on possible remedies (albeit that only a summary note of the report and the notice of possible remedies are available as yet). It expects to offer its final advice to the Secretary of State in December.

Interestingly, the Commission reached three specific findings. First, it confirmed that a merger had taken place. It agreed with the OFT that "the size of BSkyB’s holding both in absolute and relative terms was such that on the basis of past voting patterns it would be likely to be able to block special resolutions proposed by ITV’s management".

Secondly, it reached the conclusion that the competition limb of the assessment was implicated. This finding was based on the logic that free-to-air services (FTA) pose a constraint on BSkyB’s pay-tv offering; that the BBC and ITV are both key to the strength of FTA, and that consequently the merger allows BSkyB the incentive and the opportunity to influence ITV’s future strategy in such a way as to minimize the constraint imposed on its pay-tv (para 16 - summary). It gave a number of examples of potential influence (paras 18-19). Notably, the counterfactual used was an independent ITV, and not an ITV subsumed within Virgin Media (although such a possibility was countenanced in consideration of future competitive constraints on BSkyB). Moreover, the Commission concluded that there was not likely to be any competitive detriment in the advertising, bidding for sports rights, or news provision markets (paras 22-28).

Importantly though, and thirdly, the Commission also considered that the media public interest consideration in question (s.58(2C) of the Enterprise Act 2003) had not been breached. The Commission acknowledged the importance of the wider regulatory framework and noted that "existing regulatory mechanisms reduced the scope for influence over editorial decisions by owners of television channels which broadcast news". In addition, the Commission identified that journalistic and editorial ethics and controls - the "strong commitment to editorial independence" - would see resistance to attempts at interference by owners with news output. It considered that the level of control acquired by BSkyB would not allow it any significant measure of influence over ITN (in which ITV holds a 40% shareholding), and so the number of 'news voices' would be unaffected (paras 30-43).

As regards remedies, the Inquiry Group has mooted requiring full divestiture of the shareholding, partial divestiture, or partial divestiture combined with behavioral remedies (for example, restricting BSkyB's freedom to vote as it may wish or ability to seek board representation in future).

If these provisional findings and remedies are confirmed and followed by the government, the upshot looks bleak for BSkyB. Notwithstanding James Murdoch's claim that the purchase had been undertaken with the long view in mind, the investment will have been a disastrous one (somewhere (?) in the Sunday papers this week the shareholding was estimated to have fallen in value by well over £100m since its purchase). Moreover, presumably just to stick the knife in, Richard Branson was to be found in the Observer mulling the continuing possibility of a Virgin-ITV tie-up. [Interestingly, the following excerpt is taken from the interview: "Asked if he detects a new willingness to take on Murdoch in government circles, he says: 'I think there may be a government in power that wants to do what's right (my emph.) - and that is a brave thing to do.' "].

The Secretary of State is obliged to follow the Commission's conclusions on the competition question (if they remain unrevised when given to him), but can decide the matter differently on the media policy ground (which in this case could presumably only involve an exacerbation of the negative finding).