Viasat’s Business Terms Regarding the Distribution of TV 3 and TV 3+
30. september 2009
On September 30 2009, the Danish Competition Council decided that Viasat’s business terms regarding the distribution of the TV-channels TV 3 and TV 3+ in cable networks are an infringement of section 6 of the Danish Competition Act and Article 81 of the EC Treaty.
Viasat’s business terms stipulate that TV 3 and TV 3+ must be placed in the cable networks second package which is the most advantageous program package for commercial TV-channels. For the present the primary program package is (by law) reserved to must carry channels and supplemental TV-channels at such low prices that the price for supplemental channels are a very limited part of the total amount paid for the package.
The Danish Competition Council has previously adopted a decision in the case. On March 29 2006 the Council concluded that Viasat’s business terms did not infringe Article 81 or Article 82 of the EC Treaty, respectively section 6 and 11 of the Danish Competition Act. However, on April 27 2007 the Danish Competition Appeal Tribunal annulled the Danish Competition Council’s decision and remitted it to the Council for reconsideration. The Tribunal stated that the Council’s decision was unfounded and based on insufficient grounds as to the definition of the relevant market. Moreover, the Tribunal declared that the business terms had the distortion of competition as their objective.
Therefore, the Danish Competition Council had to reconsider the case on the basis of a new market survey and a new analysis of the case carried out by the Danish Competition Authority.
Originally, the case was initiated by a complaint from the Danish Cable Television Association (DCTA), who claimed that Viasat’s business terms restricted competition by reducing the options of local cable networks to decide which TV-channels to place in which packages.
Viasat (a company in the Modern Times Group) is vertically integrated and operates both as pay-tv broadcaster (with some of the most popular TV-channels – TV 3 and TV 3+) and as satellite distributor (covering more than half the Danish satellite market). Viasat’s business terms stipulate the conditions between Viasat as broadcaster and the local cable networks and commercial cable distributors.
About 65-70 pct. of the Danish households receive their TV signals from cable networks (about 90 pct. receive analogical TV signals and about 10 pct. receive digital TV signals). One large commercial cable distributor has a market share of about 60 pct. while local networks together cover about 40 pct. of the remaining market. About 15 pct. of the households receive television by satellite (digital TV signals) and about 15 pct. of the households receive television by analogical terrestrial signals (Digital Terrestrial TV is being introduced in November of 2009).
Local cable networks and commercial cable distributors offer households a choice of two or three channel packages. In networks with 3 packages the first package (the cheapest) normally contains about 10 channels including must carry channels and FTA TV-channels. The second package includes the channels from the first package and in addition approx. 10 more (mainly pay TV-channels) and the third package (the most expensive) includes the channels from the second and in addition approx. 20 more (mainly pay TV-channels). This means that households subscribing to the second package also have access to the channels in the first package, and households that have chosen the third package also have access to the channels from both the first and the second package. The first package will always have the highest penetration and the second package the second highest penetration and therefore a higher penetration than the third package. Due to limitations regarding space and price of the first and second package, only a limited number of TV-channels can be placed in the first and second package. Therefore, the TV-channels compete to get the best placements in the packages offered by the distributors and the local cable networks – usually in the second package since the first package for the present is subject to legislative restrictions.
The Danish Competition Council concluded that the relevant product market is the market for wholesale distribution of pay-TV channels in cable networks (both commercial cable distributors and local cable networks) in Denmark. In addition, the Danish Competition Council reached the conclusion that Viasat’s business terms have an anticompetitive objective as well as anticompetitive effects - and thereby infringe section 6 of the Danish Competition Act and Article 81 of the EC Treaty.
As pay-tv broadcaster Viasat has a market share above 30 pct. This makes Viasat the principal player on the market for pay-tv and thereby adds weight to the effects of the business terms. Furthermore, Viasat’s business terms are adopted in all distribution agreements between Viasat and the cable distributors/local cable networks, resulting in a TV market with a parallel network of vertical agreements that restricts competition.
The Council found that the business terms restrict open competition between the TV-channels for getting the most favorable package placements – since Viasat’s business terms reserve the most favorable package placement for commercial TV-channels - in the second package - for its own TV-channels. Thereby, the business terms have the ability of squeezing competing channels out of the second package.
If all TV-stations used similar business terms precluding competing channels from being placed more advantageously, it would break down the package-structure, leaving the cable networks with one large and presumably expensive package, resulting in fewer or no consumer options.
The investigation carried out by the Danish Competition Authority shows that Viasat has maintained the business terms for more than ten years and that the business terms actually on several occasions have forced competing pay-TV channels into less favorable package placements in the package structure of some local cable networks.
The decision also states that Viasat’s business terms do not fall within of the scope of the block exemptions for vertical agreements primarily since Viasat has a market share above 30 pct. and secondly since the business terms primarily constitute the licensing of copyrights. Moreover, the conditions for exemption cf. section 8 of the Danish Competition Act and Art. 81 (3) of the EC Treaty are not fulfilled. The decision concludes that there are no sufficient grounds for investigating whether Viasat has abused a dominant position.
As a consequence, the Danish Competition Council decided that Viasat must cease preconditioning package placements in all of their business terms and also cease preconditioning other terms such as minimum carriage requirements that have similar anticompetitive objectives and effects.
The decision of the Danish Competition Council has been appealed by Viasat to Danish Competition Appeal Tribunal and is pending decision.