Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Ofcom investigation into Football TV rights: towards yet another layer of bad regulation

with 10 comments

Berlusca here we go again

Ofcom announced earlier this week the opening of an investigation into the licensing by FA Premier League of its live TV rights. This is an area where competition and regulatory authorities have been very active over the past decade. The way in which football associations offer their rights is now subject to tight conditions, which prescribe the TV operators to which the content is to be sold or the appropriate length of the agreements. The same can be said of the licensees who acquire these rights to exploit them. The fact that the regulatory apparatus is growing across the value chain does not mean that intervention was needed in the first place and/or that it has improved the functioning of markets. And it does not mean, to be sure, that the sort of intervention at which Ofcom hints in its press release will achieve anything meaningful.

In 2006, the Commission adopted a decision requiring the FA Premier League to license its TV rights in several packages, as it had done in previous cases like UEFA Champions League. The twist in Premier League is that the Commission sought to ensure that consumers would be made worse off following intervention. The football association was not allowed to sell all of its live TV rights to a single operator (which was assumed to be Sky, as it had successfully bid for them in previous auctions). After the decision, sports fans were required to subscribe to two different Pay TV services to have access to all games (some Commission officials have been candid with me about the angry letters they received from some of these fans).

Then came Ofcom’s pay TV investigation. In 2010, the sectoral regulator required Sky (the licensee of the TV rights offered by the FA Premier League) to offer its premium sports channels to its downstream rivals on regulated terms and conditions. Ofcom’s officials issued hundreds of pages during the investigation but never claimed that Sky’s premium sports channels were an ‘essential facility’ for competing pay TV operators or that they were indispensable within the meaning of IMS Health (most probably because they are a far cry from being one or the other). What is certain, on the other hand is that BT (which, in case younger readers do not know, is the incumbent telecommunications operator in the UK) is clearly better off in the aftermath of the investigation (and even better off when its effects are combined with those resulting from the Premier League decision). This was not, I believe, what the regulator intended.

Now Ofcom seems to suggest that the FA Premier League may not be licensing enough games to TV operators. Virgin Media, the complainant, claims that only 41% of Premier League games are offered on TV, which is apparently a low figure when compared to practices in other EU Member States. At first blush, this looks like a convincing case. It is a horizontal agreement whereby football teams taking part in the Premier League restrict output in a coordinated manner. This is it. A plain-vanilla cartel.

Well, reality is much more complex than that. The joint licensing of TV rights in this context has absolutely nothing to do with the restriction of output that one observes in the context of a cartel, for the simple reason that football teams are not really rivals offering the same product and limiting competition between them. Co-operation between football teams allows them to create a new, complex product, which is the league as a whole and which the teams individually would have been unable to offer. An agreement of this kind is similar in its nature to other pro-competitive horizontal ventures, including the one examined by the ECJ in Groupement des Cartes Bancaires or by the US Supreme Court in BMI v CBS.

If ‘output restriction’ in this context is not comparable to a cartel arrangement (I remember a wonderful piece by Bill Bishop and Alison Oldale explaining this point clearly and concisely), then it is necessary to understand why the FA Premier League does not license all of its games. The most plausible explanation, in my view, is that it is all about creating a certain brand image, that is, about making sure that fans are not flooded with football games. Is creating relative scarcity bad per se? And again, scarcity relative to what? I struggle to see why it would be an issue in itself. Is it not precisely what Apple or luxury firms do, and what explains in part their success? Is the Premier League itself not an excellent example of successful global brand positioning? Is the task of a regulator exercising its powers under the Competition Act to decide about brand positioning on behalf of right holders?

[about the pic: there is always an excuse to include one of the best magazine covers of all time!]

Pablo

Written by Pablo Ibanez Colomo

19 November 2014 at 2:17 pm

Posted in Uncategorized

10 Responses

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  1. “The most plausible explanation, in my view, is that it is all about creating a certain brand image, that is, about making sure that fans are not flooded with football games.”

    You ignore the major factor of the Saturday afternoon “blackout” (no English football games are permitted to be broadcast by UK broadcasters on Saturday afternoons to protect lower league attendances.)

    Removing this anachronistic blackout (which probably doesn’t achieve its stated goal in any case) would be a simple way of increasing the levels of Premier League broadcasts and so improving the choice available to consumers; particularly those consumers who would like to watch less succesful teams – who are far less likely to be accommodated in TV-friendly slots outside the blackout window.

    Colm

    19 November 2014 at 2:27 pm

    • Hi Colm,

      Great point. Although I did not mention it explicitly, what I discuss in the post would also apply word for word to the blackout rule.

      That the justification of the blackout is not convincing (which is what you suggest) should only come at a second stage, that is, once a breach of Article 101(1) TFEU (and/or its national equivalent) is established. It would be necessary to show that the blackout rule has as its object or effect the restriction of competition. And this is where I struggle, as I mention in my post. One may not be convinced by the arguments brought forward to justify the blackout rule, but it is not easy for me to identify the appreciable effects on competition such a rule has in the context in which it is implemented (I assume you do not believe it has a restrictive object).

      Pablo Ibanez Colomo

      19 November 2014 at 2:55 pm

      • Hi Pablo

        Thanks for your helpful response – you certainly raise several interesting issues. I don’t consider the blackout rule has a restrictive object, but I’m not quite sure on effect; it is difficult, as you rightly say, to identify clear competition concerns arising from it. I’m just not convinced by your argument that the Premier League is deliberately trying to create scarcity – that may be the case, but I find it a bit odd and not to my knowledge replicated by any other major sports (and I’m sure the 41% figure is much higher outside the UK in any case).

        Colm

        19 November 2014 at 3:09 pm

      • It is true that the 3pm blackout is (at least according to the official story) responsible for the fact that only 138/380 matches are put on the market.

        I also agree that the real test for the blackout rule lies under Article 101(3). The economic studies on the correlation between football on TV and stadium attendance are largely inconclusive. That said, it is telling that most countries have abolished a similar rule and thus do not see its public benefit (anymore). Austria and England remain the only EU MS where the national football federations are holding onto it. In addition, the UEFA Broadcasting regulations were introduced in 1988 when ticket sales were still a key income stream for football so arguably protecting that income stream was the main rationale of the closed period rule to begin with – not promoting stadium attendance.

        As for the appreciable effect: this might have been true when the Commission adopted its decision into the UEFA Broadcasting Regulations in 2001 (after ten years of investigation). Yet ever since the PL has de facto imposed the blackout rule on the entire EU, I think it is fair to say that this restrictions has appreciable cross-border effects now (I develop this argument here: http://kluwercompetitionlawblog.com/2014/05/06/premier-league-fans-in-europe-worse-off-after-murphy-judgment/), which leads us to 101(3) with UEFA bearing the burden of proof to substantiate its benefits (which it never had to do as the Commission in 2001 (conveniently) concluded that 101(1) was not invoked).

        Ben VR

        20 November 2014 at 10:08 pm

  2. Hi Colm,

    Thanks to you for commenting on the blog!

    The main lesson I draw from Groupement des Cartes Bancaires is: ‘if the agreement is more complex than a plain-vanilla cartel, be careful’. Where the restrictive effects are not obvious to identify (as you rightly say), it is likely that the agreement serves a pro-competitive purpose.

    There are, in my view, two facts that are difficult to dispute. Pay TV has been immensely successful in the UK, more than in France, Germany, Italy or Spain. Football has played an important role in this regard. Secondly, Premier League is a very strong brand (I regularly read that it is more popular on a global scale and more watched than other European leagues). Against this background, I struggle to identify a competition law issue. Which is precisely what motivated my post.

    Pablo Ibanez Colomo

    19 November 2014 at 3:33 pm

    • I also do not see an obvious competition law issue as abolishing the 3pm rule would not necessarily solve the duopoly problem. It is rather a remedy design issue: it demonstrates the (unintended) side-effects of the remedy package and the no single buyer obligation. What is obvious is that the PL has benefited most from the remedy package and not necessarily the consumer (innovation and quality yes, price absolutely not). Enough reasons to at least re-evaluate and adjust the 2003/2006 design (as has been done elsewhere on a systematic basis, e.g. in Germany).

      Ben VR

      20 November 2014 at 10:21 pm

  3. Hi Ben,

    Thanks for your comments. It is interesting that you claim that it is all about remedy design. This assumes that there is something to remedy in the first place. It has never been clear to me why joint selling in this context is as such problematic under Article 101(1) TFEU. If we revisit the 2003/2006 acquis, as you suggest, it would be good to do so with all the consequences. I never found the reasoning in UEFA Champions League as to why joint selling is restrictive of competition particularly convincing.

    And again, only if a restriction of competition is convincingly established would a discussion about the blackout rule be relevant (i.e. whether, and to what extent, the blackout rule contributes to the restrictive effects identified). For the time being, claiming that the blackout rule does not serve its purpose is tantamount to saying that it has no meaningful restrictive effects on competition and thus that it is something that does not require remedial action.

    Pablo Ibanez Colomo

    21 November 2014 at 5:04 pm

    • In my view, Prof Picker’s comment on the American Needle judgment neatly summarizes what competition really is about:
      “As that suggests, the NFL is particularly good at what it does, and what it does is create
      competition—organize competition—to produce a compelling product. The NFL sells that
      product to broadcasters around the world, who in turn sell 30-second time slots to advertisers.
      Advertisers pay for eyeballs—especially eyeballs with attractive demographics—and so the NFL
      has a direct stake in the relative competitiveness of its teams. A one-sided game means fewer
      viewers and therefore a weaker product to sell to advertisers.
      All of this necessitates a tight level of interaction among the 32 separately owned teams
      that compete in the NFL. They need to have common, basic rules of the game, but the need to
      make the product itself compelling suggests vastly more legitimate, necessary cooperation than
      we might otherwise see among firms competing in the same industry.”
      http://www.law.uchicago.edu/files/file/523-rcp-competition.pdf

      Now European leagues are not closed shops like their major US counterparts, and do not go to the same lengths to ensure the relative competitiveness of their teams. With a view to this, it does not seem outlandish to assume that they may have an interest in licensing only a limited number of games in order to preserve the attractiveness of the league as a whole.

      On another note, it looks like four years after the Supreme Court’s decision, the American Needle case will be proceeding to trial:
      http://business.cch.com/ald/AmericanNeedleNewOrleansLouisianaSaints442014.pdf

      HK47

      26 November 2014 at 4:18 pm

  4. Dear Pablo, I dare to disagree with you, on your own blog, on this statement ”Co-operation between football teams allows them to create a new, complex product, which is the league as a whole and which the teams individually would have been unable to offer”. Football matches do exist and can be sold at different values, so they are distinctive products, which happen to be also part of a full championship (OK, it does not just happen – they must be integrated in a league).
    But, please, do take into account that from the perspective of the customer, we deal with differentiated products – fans of various teams will look for and will be ready to pay for the matches where their favourites play. From the demand perspective, hence, the matches are not perfect substitutes, although they may be regarded as such from the offer perspective (which seems to be the one you take).
    I would use a comparison: the fact that cars are designed to go on roads and roads are made for cars, does not mean that cars and roads form an unique product.

    Valentin Mircea

    2 December 2014 at 4:38 pm

    • Dear Valentin,

      Disagreement is most welcome in this blog! Thanks for your comments.

      The purpose of my post was not to deny the obvious, i.e. that a league is a complex product composed of individual games and that some games within a championship are more attractive than others. And, to be sure, nobody would dare to claim that football fans are all interested in the same teams and in the same games.

      The point I was trying to make is a different one, i.e. whether individual teams would be in a position to offer a product that is as attractive as the league. And here is where we may disagree. The most attractive game in a league is interesting first and foremost because it is part of a championship. The value of any team depends on its ability to take part in a league. Would you dare to say that a stand-alone game between Germany and Brazil is as interesting as a World Cup semifinal between the two teams? Do you think Manchester United would have the same value if it were not part of a competition and simply played stand-alone games against other teams?

      Pablo Ibanez Colomo

      3 December 2014 at 8:44 am


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