The Commission concluded the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
The Commission's findings concern solely the competition aspects of the proposed transaction.
They are without prejudice to the ongoing investigation by the competent UK authorities of whether the proposed transaction is compatible with the UK interest in media plurality, which is different from the Commission's competition assessment.
The UK remains free to decide whether or not to take appropriate measures to protect its legitimate interest in media plurality (as permitted under Article 21 of the EU Merger Regulation).
Joaquin Almunia, commission vice-president and commissioner for competition, said: "I am confident that this merger will not weaken competition in the UK. The effects on media plurality are a matter for the UK authorities."
The proposed transaction
The proposed transaction will bring together BSkyB, the leading pay-TV operator in the UK and Ireland, with News Corp, one of the six major Hollywood film studios (20th Century Fox), a TV channel producer (such as Fox, National Geographic), a leading newspaper publisher in the UK and Ireland (such as The Sun and The Times) and a leading pay-TV operator in Italy (Sky Italia) as well as in Germany and Austria (Sky Deutschland).
News Corp announced on 15 June 2010 its offer to acquire the remaining 60.9% of the shares in BSkyB which it does not already own. On 3 November 2010, it notified the proposed transaction to the Commission for regulatory clearance.
News Corp and BSkyB are mainly active in different markets in the UK and Ireland and compete with each other only to a limited extent, in the wholesale supply of basic pay-TV channels and in the supply of online and TV advertising space. The Commission found that the proposed transaction would only lead to a small increment on BSkyB's existing share of the market for the supply of basic pay-TV channels in the UK and Ireland. The parties also have a small combined market share in the market for online and TV advertising. Therefore, the transaction does not give rise to horizontal competition concerns.
Given that the merging companies are mainly active at different levels of the market, the Commission's assessment focused on whether the proposed transaction could lead to possible anticompetitive effects arising from vertically linked or neighbouring activities in the audiovisual sector, in newspaper publishing, or in advertising.
The Commission investigated whether, as a result of the proposed transaction, News Corp would be able to prevent or significantly limit access by BSkyB's competitors to premium movie content.
The Commission found that News Corp lacks sufficient market power in the market for the licensing of broadcasting rights for premium movies and that BSkyB's competitors would retain several alternative suppliers with equally attractive content. While the market investigation revealed strong concerns over BSkyB's exclusive deals for premium movies with all six Hollywood majors for the first pay-TV window, the transaction will do little to worsen this market situation that exists already today – and is currently under investigation by the UK Competition Commission following a recent decision by UK regulator Ofcom.
The Commission also investigated whether the proposed transaction would lead to a risk of exclusion from BSkyB's pay-TV offering of competitors of News Corp in the licensing of premium film content and TV programmes and in the wholesale supply of basic pay-TV channels.
The Commission found that News Corp's premium movie content and TV programmes and basic pay-TV channels constitute a minimal part of Sky's bouquet and that BSkyB would continue to have the incentive to acquire content from News Corp's competitors to have the most attractive retail packages.
As the proposed transaction brings BSkyB into the same group as Sky Italia and Sky Deutschland, the Commission investigated if the new company would enjoy increased bargaining power vis-à-vis rights holders by purchasing premium content jointly for several territories, to the detriment of its pay-TV competitors.
The Commission found that it was unlikely that the merged company would be able to impose upon content rights holders a change from current licensing practices (along national territories or language areas) towards simultaneous negotiations across several countries such as Germany, Austria, Italy, UK and Ireland.
Newspaper publishing sector
The Commission investigated whether the merged company would be able to foreclose competing newspaper publishers by offering mixed bundles of subscriptions to Sky and News Corp's print, online or tablet-based newspapers.
With respect to bundling with print subscriptions, the market investigation revealed that price is only one, and not the main factor determining readers' choice of and loyalty to a newspaper. Furthermore, no such bundling has been attempted before.
Finally, tabloid papers such as The Sun do not offer any subscriptions to its print editions and a low subscription rate to newspapers of 6% of overall UK circulation and of 25%-33% for quality titles indicates that the subscription model currently does not appeal to a majority of readers.
With respect to bundling with online news, the vast majority of newspapers' online editions – apart from most News Corp titles – as well as other news sources are currently free of charge and there is no evidence that this will dramatically change in the foreseeable future. For these reasons, the Commission excluded that competition concerns in the newspaper publishing sector would arise from the transaction.
The Commission investigated concerns that the merged entity could either refuse advertising by BSkyB's competitors in News Corp's newspaper titles or charge a competitive premium, thereby impeding their ability to attract subscribers or viewers.
The Commission's investigation revealed that there are sufficient alternative opportunities to advertise with other print media. It also found that, in any event, News Corp's refusal would not have a significant impact on subscription rates in the pay-TV market.
The Commission also found that the merged entity was unlikely to be able to tie the purchase of advertisements in News Corp's print newspapers to the purchase of advertisements on BSkyB's TV channels given that News Corp or BSkyB lack the required market power to engage in such tying.
UK media plurality review and Article 21 of the EU Merger Regulation
The Commission has exclusive jurisdiction to assess the impact of the proposed transaction on competition in the various markets. However, Article 21 of the EU Merger Regulation recognises that Member States may take appropriate measures, including prohibiting proposed transactions, to protect legitimate interests, such as the plurality of the media.
The purpose and legal frameworks for competition assessments and media plurality assessments are very different. The competition rules focus broadly on whether consumers would be faced with higher prices or reduced innovation as a result of a transaction.
A media plurality assessment reflects the crucial role media plays in a democracy, and looks at wider concerns about whether the number, range and variety of persons with control of media enterprises will be sufficient.
The UK Secretary of State for Business Innovation and Skills issued a European intervention notice on 4 November 2010. This notice requires the relevant UK authorities to investigate and report by 31 December 2010 on whether the proposed transaction is or may be expected to operate against the public interest in sufficiency of plurality of persons with control of media enterprises.
The Commission's findings concern solely the competition aspects of the proposed transaction. Today's clearance decision is therefore without prejudice to the UK's ongoing media plurality review of the proposed transaction.
This article was first published on mediaweek.co.uk