Commission Decision

of 2 April 2003

declaring a concentration to be compatible with the common market and the EEA Agreement

(Case COMP/M.2876 - Newscorp/Telepiù)

(notified under document number C(2003) 1082)

(Only the English text is authentic)

(Text with EEA relevance)

(2004/311/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to the Agreement on the European Economic Area, and in particular Article 57 (2)(a) thereof,

Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings(1), as last amended by Regulation (EC) No 1310/97(2), and in particular Article 8(2) thereof,

Having regard to the Commission's decision of 29 December 2002 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission,

Having regard to the opinion of the Advisory Committee on Concentrations(3),

Having regard to the final report of the Hearing Officer(4) in this case,

WHEREAS:

(1) On 16 October 2002, the Commission received a notification pursuant to Article 4 of Regulation (EEC) No 4064/89 (the Merger Regulation) of a proposed concentration by which the undertaking The News Corporation Limited, Australia (hereinafter Newscorp) acquires control within the meaning of Article 3 of the Merger Regulation, via a special purpose vehicle company, of the whole of the Italian pay-TVs Telepiù Spa and Stream Spa (hereinafter, respectively Telepiù and Stream) by way of purchase of shares. Telepiù and Stream will merge their activities in a combined direct-to-home (DTH) satellite pay-TV platform. Telecom Italia SpA. (the Italian telecom incumbent, hereinafter Telecom Italia) will hold a minority stake (19,9 %) in the new combined pay-TV platform.

(2) After examination of the notification and the set of undertakings submitted by Newscorp on 31 October 2002, the Commission concluded, on 29 November 2002, that the notified operation fell within the scope of the Merger Regulation and that it raised serious doubts as to its compatibility with the common market and the EEA Agreement. The Commission therefore decided to initiate proceedings in accordance with Article 6(1)(c) of the Merger Regulation.

(3) On 14 January 2003 a new set of undertakings was submitted by Newscorp.

(4) An Oral Hearing was held on 5 and 6 March 2003.

(5) On 13 March 2003 a final set of undertakings was submitted by Newscorp.

(6) The Advisory Committee discussed the draft of this Decision on 20 March 2003.

I. THE PARTIES

(7) Newscorp is a media company active in USA, Canada, Europe, Australia, Latin America and the Pacific Basin. Newscorp's activities include the production and distribution of motion pictures and TV programming, TV satellite and cable broadcasting, the publication of newspapers, magazines and books, the production and distribution of promotional and advertising products and services, the development of digital broadcasting, the development of conditional access and subscriber management systems and the creation and distribution of on-line programming.

(8) Telepiù has been operating since 1991 as an analogue pay-TV platform. Since 1996, Telepiù has also operated as a pay-TV broadcaster via digital satellite (DTH) and, to a lesser extent, via cable. Telepiù also broadcasts on digital terrestrial television (DTT) on a technical testing basis in a very few areas of the Italian territory. Since 1997 Telepiù has been solely controlled by Vivendi Universal SA Telepiù operates mainly through its subsidiaries. In particular Europa TV SpA and Prima TV SpA are responsible for the editorial activities of the Telepiù channels and for the purchase of TV rights for sporting events and films. They hold, respectively, a concession for analogue terrestrial broadcasting and an authorisation for satellite digital broadcasting. Omega TV SpA is responsible for in-house programme productions and for the management of Telepiù's digital satellite pay-per-view offer. Atena Servizi SpA provides the technical-administrative services for the digital platform and purchases broadcasting rights for the channels produced by third parties to be offered on such platform. Finally TeleCare SpA, a company controlled by Atena Servizi, is responsible for the call centre.

(9) Stream was incorporated in 1993 and started operating as a pay-TV platform in Italy in 1998, transmitting in DTH. Between 1993 and 1997 Stream only operated as a service provider distributing pay-TV programmes for other operators. At present Stream operates only in digital technology, transmitting its signals via satellite and, to a lesser extent, via cable. Prior to mid 2000 the shareholding of Stream was as follows: Telecom Italia (35 %), Newscorp (35 %), Cecchi Gori Group Finmavi SpA (CGG) (18 %) and SDS - Società Diritti Sportivi Srl (SDS) (12 %). Since mid 2000, following the authorisation by the Commission(5) Stream has been jointly controlled by Newscorp and Telecom Italia on a fifty-fifty basis supported by a shareholders' agreement.

II. THE CONCENTRATION

(10) The proposed concentration involves the acquisition of sole control by Newscorp of Telepiù and Stream with the aim of pursuing the combination of their business. To this effect, on 1 October 2002, Newscorp and Telecom Italia entered into a "share purchase Agreement" with Vivendi Universal SA, Group Canal+ SA and Canal+ Europe BV (collectively referred to as Vivendi group), providing for the acquisition of 100 % of the shares of Telepiù by Newscorp via a special purpose vehicle wholly owned by Stream.

(11) Simultaneously, Newscorp and Telecom Italia have entered into a "Framework Agreement" whereby they intend to: (i) provide funding to Stream; (ii) redefine their interests and their respective roles in Stream and, through Stream, incorporate and capitalise a 100 % owned subsidiary of Stream as special purpose vehicle to carry out the acquisition of Telepiù; and (iii) govern their future relationships as shareholders of Stream and the related participation in the special purpose vehicle. These operations will be followed by the setting up of a combined DTH pay-TV platform merging the activities of Stream and Telepiù.

(12) Finally, the "Shareholder Agreement" attached to the Framework Agreement governs the relationship between Newscorp and Telecom Italia as shareholders of Stream.

(13) Telecom Italia will have a participation of 19,9 % in the combined platform and Newscorp will have a participation of 80,1 %. It is possible that other investors may join the shareholding structure with a mere financial interest. The Share Purchase Agreement states that such possible other investors cannot assume, either individually or jointly with others, any power of control over the combined platform, that is to say that they cannot exert any influence on the definition of the business policy nor can they participate in the designation of its management.

(14) Although it is based on various contracts, the acquisition of sole control of Stream and Telepiù by Newscorp is to be considered as one single concentration carried out exclusively with a view to the acquisition of sole control of the combined platform by Newscorp. The proposed transaction is therefore a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

(15) The proposed transaction constitutes a development of an operation scrutinised by the Italian Antitrust Authority (the IAA) in 2002(6). Under that operation, in contrast to the present transaction, the Vivendi group would have acquired sole control of the Italian DTH pay-TV platform resulting from the combination of Stream and Telepiù businesses. In that scenario, Telecom Italia together with Newscorp were the "sellers", whereas in this case, Telecom Italia maintains a link with the combined platform. That transaction was cleared by the IAA by a decision dated 13 May 2002, imposing a set of conditions substantially similar to the undertakings presented by the parties during the first phase of the Commission's investigation. The deal was subsequently abandoned by the Vivendi group.

III. COMMUNITY DIMENSION

(16) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5000 million (Newscorp EUR [...]*(7) in June 2002, Stream EUR [...]* in 2001, Telepiù EUR [...]* in 2001). The aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million (Newscorp EUR [...]* in June 2002 and Telepiù EUR [...]* in 2001, whilst Stream achieved EUR [...]* in 2001). The parties do not achieve more than two-thirds of their turnover within one and the same Member State (Newscorp achieves two-thirds of its Community-wide turnover in the United Kingdom, Stream and Telepiù in Italy). The operation therefore has a Community dimension within the meaning of Article 1(2) of the Merger Regulation.

IV. ASSESSMENT UNDER ARTICLE 2 OF THE MERGER REGULATION

A. THE RELEVANT PRODUCT AND GEOGRAPHIC MARKETS

(17) The concentration affects a number of markets within the territory of Italy.

1. PAY TV MARKET

Product market

(18) Newscorp believes that the proposed transaction should be evaluated in the context of the overall market for TV broadcasting in Italy including both pay and free TV services. The parties have argued that the Commission has recognised the interaction between these two segments in earlier decisions(8). Newscorp submits that, in relation to the Italian market, there may be reasons for the Commission to conclude that the relevant product market should include both pay and free TV services. Newscorp further argues that the strength of free-TV broadcasters in the specific case of Italy constitutes an effective constraint for the pay-TV operators.

(19) The extensive market investigation carried out in this case has shown that in Italy there is a clear distinction, from the viewpoint of both customers and suppliers, between free-to-air TV and pay-TV. The scope of the investigation encompassed free-to-air TV broadcasters, channel suppliers, football clubs and associations of consumers. A summary of the main issues raised by the market test is presented in the paragraphs below.

Free-to-air broadcasters

(20) The finding that free and pay-TVs are separate markets has been recognised both by larger (nationwide broadcasters) and by the vast majority of smaller (regional or local broadcasters) free-to-air TV operators. Nearly all of the broadcasters consulted submitted that the type of content and the programme schedules offered by pay-TV are not the same as those available on free-to-air TVs. This creates a clearly different appeal of the two services on end consumers. In addition, as regards supply-side substitutability, given that the business models of the two types of broadcasters are distinct, pay-TV operators would not be able to switch to free-to-air TV in the short term and vice versa, without incurring significant additional costs or risks(9). In particular, free-to-air TVs largely rely on revenues stemming from advertising or public funds (State contributions), whilst pay-TVs rely on revenues stemming from subscription fees (and to a much lesser extent, around 5 % in Italy, from advertising).

(21) Whilst "audience" (or viewer "share") is the parameter for the assessment of the success of free-to-air TV (bearing in mind the potential reach for advertising), the number of subscribers is the key parameter for pay-TV. Respondents have also indicated that for some specific kinds of content, for example sports and, in particular, football, pay-TVs are able to offer a panoply of events, even simultaneously. This multi-channel offer is incommensurably superior to that available to free-to-air viewers who can, at the very most, view one event, for instance a football match, at a time. At this point in time, therefore, pay-TV and free-TV services not fully interchangeable from the consumer perspective. Indeed, some free broadcasters have highlighted that viewers of pay-TVs are often interested in programme schedules of a specific kind, for example sport and cinema, which is only available in the pay-TV modality.

(22) Furthermore, some prominent free-to-air broadcasters have stated that, even if there may be a certain degree of interaction between pay-TV and free-to-air TV, content providers tend to multiply their revenue sources by clearly distinguishing the "selling windows" between pay-TV and free TV. This clearly contributes to identifying separate markets.

Channel suppliers

(23) Similar views have been put forward by a substantial number of channel suppliers, which have stated that pay-TV and free-to-air TV belong to distinct markets.

(24) Differences in typical revenue models between the two types of broadcasters contribute to placing them in different competitive arenas from the supply-side viewpoint. It has also been observed that, whilst there exists a direct economic relationship between the broadcaster and viewers as regards pay-TV (through the "subscription fee"), this is not the case for free-to-air TV, where the economic relationship is established between the broadcaster and advertisers. Furthermore, bearing in mind their respective programme schedules, from the point of view of end-consumers the relationship between the two types of TVs could be qualified as "complementary" rather than "alternative".

(25) Taking into account the supply-side perspective of thematic channel producers, respondents have stated that only pay-TVs are considered as possible purchasers of content, whilst free-to-air TV operators could hardly represent a suitable alternative.

(26) Nevertheless, it has also been held by some respondents that all broadcasters do compete in a global retail market for viewers and in a global wholesale market for the acquisition of programming material. In this respect, it has been stated that "as regards the acquisition of the so-called 'library' films (films broadcast by non-premium pay-TV channels), there is competition between pay-TV and free-TV". However, when identifying some specific elements of content, a third party acknowledged that "in general, there is no competition between pay-TV operators and free-TV operators in the acquisition/sale of channels and programmes". Another respondent stated that, in any event, even if pay and free TVs constitute separate markets, they both rely on the same sources of programmes, which in turn "means that prices and conditions negotiated in one segment have effects on the other" segment.

(27) Third parties have emphasised that the two markets are substantially different essentially because of four elements: (a) business model that makes the two products different from the supply-side point of view; (b) dimension; (c) contents; and (d) programme schedules. Leaving aside the first three elements, which have already been discussed, as regards programme schedules, it is important to underline that free TVs have a fixed "programming schedule" throughout the course of the day and of the week, whilst pay-TVs (especially thematic channels offered through pay-TV platforms) have a programme schedule that allows various "replays" of the same content/programme at various moments during the same day and week. Consequently, viewers of a pay-TV are able to watch the programme of their choice (within a pay channel) on various occasions on the same day and also during the same week.

(28) Respondents have, however, acknowledged that the presence of a high number of terrestrial free-to-air televisions in Italy influences the degree of penetration of pay-TV services and, to some extent, the ability of content providers to distribute their products through pay-TV platforms.

Football teams

(29) Football clubs are particularly closely connected to the pay-TV business, since their revenue stream is highly dependent on the sale of their broadcasting rights to pay-TV operators. This is especially relevant in Italy. As a matter of fact, the vast majority of Italian football clubs (A series and B series teams) have stated that pay-TV and free-to-air TV markets are clearly distinguishable and that free-TVs do not directly compete in the same market as pay-TVs. The difference is based on four main elements: (a) technological differences; (b) the licensing/authorisation regime needed to operate in the sector; (c) the relationship with end-consumers; and (d) the different financing system on which the two types of TV are based. These basic differences are then to be coupled with the main difference in terms of "product offer" that characterises the two markets.

(30) From a supply-side perspective, it has been said that, as regards live matches taking place throughout the year (for instance the Italian league, A series or B series) free TVs do not compete with pay-TVs for the acquisition of the relevant exclusive rights, whereas some degree of competition exists for friendly matches, highlights or other products. The majority of football teams tend to consider "football" as a unique product which is mainly geared to the exploitation in the pay modality. Exceptions in this respect might exist (for example, highlights or deferred matches), which show that there might also be some room for free-TVs to exploit football-related products, but these cases are of a sporadic nature and of marginal importance.

(31) In this respect, some respondents have stated that since the right holders (the football teams), the product (the football match) and the target (the consumers) are ultimately the same, regardless of the transmission modality (encrypted or free-to-air), it could be argued that pay-TV and free TVs compete in the same market. However, in view of (a) the fact that pay TV platforms have the possibility to broadcast several matches at the same time, and (b) that football teams, especially medium and small ones, prefer to sell their rights to pay-TVs in order to preserve attendance at stadiums, as well as (c) the characteristics and the market conduct of most suppliers of rights in respect of football events, it can be concluded that there is a clear difference in the products for which it is possible and convenient to bid.

Associations of consumers

(32) Questions were addressed to relevant Italian associations of consumers (Adusbef, Aduc, Altroconsumo, Codacons, Confconsumatori, Federconsumatori). Respondents stated that, even if competitive pressure may exist in Italy between free and pay-TVs due to the existence of a vast network of free-to-air TVs having an important set of programmes, it is nevertheless unlikely that an increase of 5 to 10 % in the subscription fee for a pay-TV platform would induce consumers to "switch" and terminate an existing subscription or refrain from subscribing(10).

(33) This is mainly because the pay-TV subscriber is typically different from the free-to-air TV viewer. Consumers willing to subscribe are driven by such strong interest for specific themes (such as sport, movies or music), that traditional generic free-TVs are not perceived as able to satisfy those interests. In this respect, it has been stated that the decision to subscribe is often an emotional one, driven by the attraction of the content offered by the pay-TV, for instance football matches of the favourite national team. This characteristic appears to blur the boundaries between the consumer of pay-TV services and the "supporter" or fan of a specific team or sport or content.

Additional elements

(34) The market investigation has highlighted a number of other elements that militate in favour of a distinction between the pay-TV and the free-TV markets.

(35) The first element relates to the difference in hardware required for the consumption of pay-TV as opposed to free-TV. A pay-TV consumer requires a decoder (so-called "set-top box" or STB) in order to decrypt the broadcasting signal. The STB must be bought or leased, in addition to the customary TV set. The STB is a piece of hardware that a free-TV consumer does not require for terrestrial analogue broadcasting. The difference in hardware requirements is particularly relevant in Italy given that, at present, no digital terrestrial TV (DTT) is commercially available. It is not excluded that in the future this difference might become less relevant since, once DTT is introduced, "terrestrial" TV sets will also require a decoder in order to receive the digital signals. However, the Italian government's plans for the introduction of DTT point towards the end of 2006 (in contrast to other countries such as Spain or the United Kingdom(11), where the digital terrestrial means of transmission is already operational). Moreover, the latest market forecasts indicate that the switch-off of analogue TV in Italy will take place at an even later stage.

(36) Moreover the distinct functionalities offered by the digital technology, which to date are only available to consumers via pay-TV, are also relevant. Apart from the possibility to show different events at the same time through a multiplicity of channels, pay-TV in Italy offers a whole range of additional features which are only made possible by digital technology. Electronic programme guides (EPGs) and interactivity, inter alia, are clear examples. Viewers of sports events may format their viewing at their convenience, switching for example among the different cameras filming a Formula 1 Grand Prix (from the inside of one car to another, or to the pit stop), replaying a goal during a football match or switching the camera to watch a penalty kick from the camera installed inside the goal.

(37) All the described elements indicate that, at present, pay-TV and free-TV are still clearly distinct markets in Italy, in spite of an undeniable interaction between the two markets. It is clear that the more attractive the offer of a free-TV broadcaster, the smaller the incentive for a viewer to opt for a pay-TV subscription. This is particularly relevant in countries such as Italy where free-TV offers a wide choice of channels, some containing what could be considered as attractive contents. In this respect, free-TV undoubtedly represents a certain constraint to pay-TV.

(38) Nevertheless, the crucial question is whether this constraint is sufficiently strong as to render free-TV a substitute for pay-TV. In this respect, the attractiveness of a free-TV broadcaster's offer depends by definition on the contents offered to viewers. At present, as shown by the market investigation, the types of contents which are considered in Italy to be "premium" (in particular, successful recent movies and sports, mainly football) are only available to and via pay-TV broadcasters. On the one hand, football clubs show a strong inclination to sell their broadcasting rights only to pay-TV operators. On the other hand, the most prominent film producers sell their broadcasting rights for a certain film under a "windowing" scheme that provides for a pay-TV "window" preceding the free-TV "window". Content providers have been unwilling, to date, to waive the pay-TV window scheme as it would mean foregoing an additional revenue source. For as long as this business model is in place, free-TV will not be able to compete with pay-TV in broadcasting successful recent movies immediately after the home video "windows" Therefore, at present there is a clear difference in Italy in terms of the "premium" contents that free-TVs and pay-TVs can offer and, most importantly, in terms of the timing at which such content is broadcast.

(39) The current situation does not, however, exclude that the distinction between the two markets may not become increasingly blurred in the future, for reasons linked, inter alia, to the evolution of technology in general and the progress of digitisation in Italy. The future introduction of DTT in Italy will certainly bring about changes in the television landscape. Furthermore, the general convergence trend between different audio-visual media on the one hand and convergence between media and telecommunications on the other is likely to bring about an increasing proximity between the different ways in which entertainment and information are brought to consumers, and the ways in which these consumers enjoy them.

Previous Commission's decisions

(40) The findings of the market investigation in this case are similar to the relevant market definitions established by the Commission in previous cases and by competition authorities of other Member States(12). The Commission has previously held that there is a separate market for pay-TV, without distinguishing between terrestrial, satellite, cable or other means of transmission. That market is financed through subscriptions and, to a lesser extent, advertising and is distinct from the market for free-to-air television, which is financed by advertising and/or through State contributions(13).

(41) While in the case of free-to-air TV there is a commercial relationship only between the programme supplier and the advertising industry, in the case of pay TV there is also a direct commercial relationship between the programme supplier and the viewer as subscriber. Pay-TV is thus marketed through a network of distributors or using sales teams. A subscriber management system is essential and the pay-TV operator requires conditional access (CAS) technology in order to limit access to its services to paying subscribers.

(42) The conditions of competition are accordingly different for the pay-TV and free-to air-TV. Whereas in the case of free-to-air TV the relationship between audience share and the advertising rates is the key parameter, in the case of pay-TV key factor is the relationship between the shaping of programmes and the number of subscriptions. The fact that subscribers are prepared to pay considerable sums for pay-TV, clearly indicates that pay-TV is a different product with a clear target.

(43) As regards other services related to pay-TV, the Commission has previously identified two other possible markets: pay per view services(14) and digital interactive TV services(15), the latter having being considered as linked and complementary to pay-TV. As concerns in particular services such as "pay-per-view" (PPV), "near-video-on demand" (nVoD) and "video-on-demand" (VoD), the market investigation has revealed that, for the time being, they could be considered as segments within the pay TV market(16).

TV channels, especially DTH pay-channels

(44) A certain degree of similarity exists between pay-TV special interest channels (marketed separately in some Member States(17)) and pay TV platforms. Individual channels cannot be assimilated to multi-channel pay-TVs such as Stream and Telepiù, where subscribers have the possibility to acquire a package of channels containing "basic" and "premium content" (bouquet). Nevertheless, in both cases (DTH channels and multi-channel pay TVs), according to information submitted during the market investigation, there is a direct commercial relationship between the programme supplier and the viewer as subscriber. Both are marketed through a network of distributors or using sales teams. A subscriber management system is essential and both require conditional access (CAS) technology in order to limit access to its services to paying subscribers.

(45) For the purpose of this case, the Commission has reached the conclusion that, in the future, independent DTH channels could constitute a competitive constraint in the Italian market vis-à-vis multi-channel pay-TV platforms such as Stream and Telepiù especially should they include premium content (recent movies, sports and football matches).

(46) In any event, it is not necessary to establish whether pay-TV channels constitute a possible separate product market within the overall pay-TV services market, given that the concentration would lead to the strengthening of a dominant position under any possible product market definition.

Conclusion

(47) In the light of the above, it can be concluded that the market investigation has shown that in Italy, although there exists a dynamic interplay between free-to-air-TV and pay-TV, which has an influence on the penetration and the success of pay-TV, these are two separate markets at this point in time, similarly to the findings of previous Commission's investigations in the same sector.

Geographic market

(48) Despite the fact that in certain niche markets channels are broadcast throughout Europe, television broadcasting is still generally organised on a national basis. As the Commission has already stated in a number of decisions(18), the markets for organisation of television are national in nature or relate to linguistically homogeneous areas. This is primarily due to differences in regulatory regimes, language barriers, cultural factors and other different conditions of competition prevailing in the individual Member States. That geographical market definition has been confirmed in this case, with specific reference to the pay-TV market. Therefore, the boundaries of the product market for the present transaction are limited to the territory of Italy.

2. UPSTREAM MARKETS (WITH REGARD TO PAY-TV)

Acquisition of audio-visual TV contents (general considerations)

(49) The transaction has an impact on the sector of audio-visual content. Within that market Stream and Telepiù operate mainly in Italy as purchasers of broadcasting rights(19). Audio-visual content covers a number of heterogeneous entertainment products. These products include, without limitation, movies, TV programmes of all genres (for example, made-for-TV movies, drama, comedy, documentaries, quiz and game shows and news), sporting events and basic and thematic channels (Audio-visual content).

(50) When TV broadcasters compile their programming schedules, and more generally their "offers", they need to take into consideration various forms of audio-visual content. According to Newscorp, since a variety of TV content is essential to build a successful pay-TV platform, acquisition of TV content as a whole should be regarded as a separate market.

(51) In this respect, the Commission's findings show that, although it is true that TV broadcasters, especially pay-TV platforms, need to buy a variety of TV content, from the demand-side viewpoint, that is to say, from a TV operator's perspective, these contents are not substitutable (a feature film and a made-for TV programme do not have the same value in terms of attractiveness to consumers).

(52) From the supply-side, rights to TV content are traded under different pricing structures and do not have the same economic value. In addition, suppliers of specific content are not able to switch production between different types of contents. The Commission has held, in previous Decisions, that at least the following markets related to TV contents exist(20): (a) premium films, (b) football events that take place regularly (every year) and where national teams play, (c) football events that do not take place regularly and where national teams play, (d) other sports, (e) TV thematic and generic channels, and (f) TV programmes. The rights mentioned in (a), (b), (c) and (d) have been considered in the past both from the supply-side point of view (sales by rights owners) and the demand-side (acquisition of exclusive rights).

(53) Moreover, although theoretically free-to-air TV and pay-TV compete for the acquisition of the abovementioned TV content, there are some categories of contents which are acquired only by pay-TVs in view, inter alia, of (i) their prices and the terms of the underlying contracts (for example, recent films are only sold to pay TVs in order to obtain additional revenues from subsequent sales to free to air TVs) (ii) in the specific case of football events, the capacity to broadcast several matches at the same time and the fact that most football clubs (especially the small and medium ones) are not interested in selling their rights to free TVs (readily accessible to all TV viewers) at the same price as to pay-TVs, since such sales policy would reduce the number of stadium goers.

(54) Consequently, this type of expensive contents cannot usually be viewed on free-TV. In particular, rights to recent premium films and most regular football events where national teams participate (namely the Italian league) tend to be acquired on an exclusive basis by pay-TV operators and constitute the essential factor (the drivers) that leads consumers to subscribe to a particular pay-TV channel / platform. Although other types of contents are also important in order to complement the bouquet of a pay-TV, they are not necessarily "driver-type" contents.

Product markets

(55) The markets affected by the present transaction on which the concentration creates or strengthens a dominant position with regard to the demand-side (the acquisition of the rights) are the following: (a) exclusive rights to Premium films; (b) exclusive rights to football events that take place every year where national teams participate (mainly national league, national cup, UEFA Cup and UEFA Champions League); (c) exclusive rights to other sport events; (d) acquisition of TV channels.

(a) Rights to premium films

(56) The Commission has previously segmented the purchasing activity for TV broadcasting rights into separate markets according to the nature of the content(21). In particular, it found in the Vivendi/CANAL+/Seagram merger case(22) that the acquisition of broadcasting rights for feature films constitutes a separate market, distinct from made-for-TV programmes.

(57) With particular regard to the pay-TV operators, the Vivendi/CANAL+/Seagram Decision indicates that "from a demand side point of view, these rights are not interchangeable from a pay-TV operators perspective. The reason is that feature films and made-for-TV programs do not have the same value in terms of consumer's attractiveness. From the supply side, these rights are traded under different pricing structures and do not have the same economic value." On this market, "Hollywood so-called major studios hold a very strong position both quantitatively and qualitatively, since they are the main source of successful movies".

(58) More recently(23), the Commission has indicated that the relevant market for films was mainly composed of "successful films", which in general correspond to films produced by the American major studios (so called Hollywood majors). Films sold to pay-TVs comprise rights for the so-called "pay periods" ("pay per view", "near-video-on-demand", "video-on-demand"), "first window" and "second window" exhibition(24).

(59) The first window is the first period of premium films' availability on pay-TV after the pay periods. A pay-TV operator which does not have any first-window rights to films can only offer "older" premium films which have already been previously broadcast on pay-TV, so-called second window. According to previous Commission investigations(25), consumers do not consider that second window films are interchangeable with first window movies in terms of novelty. Moreover, from a supply-side point of view, it is not possible to substitute a first window film by a second window film. As a matter of fact, in France, where these rights are marketed separately, second window fees are priced at between 5 % and 25 %(26) of the first window fees. The system of commercial exploitation by pay-TV operators tends to vary as well: while first window films are normally included in premium channels, second window films tend to be broadcast in specialised movie channels.

(60) In the specific case of Italy, the difference between first and second window has not, to date, been significant or relevant in the current commercial practice. According to Newscorp, none of the previously existing pay-TV platforms have shown a specific interest in acquiring rights for second pay-TV release. More particularly, within the framework of the output deals(27) entered into by the Italian pay-TV operators with the majors and the main national film producers, no specific pay-TV second release rights have been acquired or sold. Nevertheless, Telepiù has pre-emption rights for second window for a number of films and in other cases second window rights cannot be sold to third parties before exhibition in free TVs due to holdback rights. Moreover, it is possible that second window rights may be marketed in the future in Italy.

(61) The market investigation has largely confirmed that Premium motion pictures constitute a stand-alone "driver" content for pay-TV operators. In addition, the structure of supply, the characteristics of this type of contents and the pricing terms allow to consider the acquisition of exclusive broadcasting rights for premium motion pictures as a product market separate from other contents acquisition markets.

Geographic scope

(62) In a number of Decisions the Commission has considered the geographic market to be national or, in certain cases, regional(28). Although most of the rights are sourced from the United States (from the so-called Hollywood majors) and nothing prevents operators from acquiring rights for more than one territory at a time, broadcasting rights are divided and sold on a mainly national basis or, at the most, by language area and the price is structured in such a way that the economic value of the contracts depends on the specific territory for which the rights are acquired. Accordingly, in view of the constraints imposed by the division of rights, the geographic scope of the market is national or limited to a linguistic area.

(63) In Italy licences concerning broadcasting rights are limited to the Italian national territory. Thus, in the present case the geographic scope of the market is national.

(b) Rights to football events

(64) The Commission has stated in previous cases(29) that there is a separate market for the acquisition of exclusive broadcasting rights for football events played every year where national teams participate (the national league, primarily first division and cups, the UEFA Champions league and the UEFA Cup). Free-to air TVs participate in the bidding process for rights to Champions league and UEFA cup.

(65) This market can be distinguished from the acquisition of broadcasting rights for football events that do not take place regularly where national teams participate, such as the World Cup or the European Championship, which are sold by different organisations. To some extent, free-to-air TVs participate in the bidding process for these rights. These findings have been confirmed by the market investigation in the present case.

(66) For the purpose of this case, the affected market is that of the acquisition of exclusive broadcasting rights for football events played every year where national teams participate (the national league, primarily first division and cups, the UEFA Champions League and the UEFA Cup). The market investigation has clearly confirmed that this type of football contents constitutes a stand-alone "driver" content for pay-TV operators. Moreover, in view of the characteristics of this type of contents and the pricing terms (which are clearly higher than for other regular sport events where national teams participate), the acquisition of exclusive broadcasting rights for these regular football events where national teams participate can be considered as a separate product market, clearly distinguishable from other contents acquisition markets.

Geographic scope

(67) The UEFA broadcasting regulations reflect the fact that the market for broadcasting rights to football events is national since such broadcasting rights are generally sold on a national basis, even for pan-European events such as the UEFA cup and the UEFA Champions league. As regards broadcasting rights to national league and the national cup matches, the specificity of the product due to cultural factors linked to demand and national preferences implies that the geographic scope corresponds to the country where the matches are played. In Italy exclusive broadcasting rights relating to football events played every year where Italian teams participate have been acquired by Italian broadcasting operators. Furthermore, rights for the Italian league and the Italian cup are exploited in Italy.

(68) Therefore, as in previous decisions, the geographic scope of the market in this case is national, that is to say, limited to Italy.

(c) Rights on other sport events

(69) To date, the Commission has not taken a position on whether the market for the acquisition of exclusive rights to sports other than the two football markets mentioned in recitals 64 and 65 can be segmented into different markets.

(70) The market investigation has nevertheless indicated that, even if these contents do not constitute a key driver for the subscriptions to pay-TV, they are nevertheless very important for pay-TV operators in as much as they concern events with the potential to attract the interest of numerous end-consumers (for example, important tennis tournaments, boxing matches, golf and motor bike races). Moreover, the characteristics of this type of contents and the pricing terms indicate that the acquisition of exclusive broadcasting rights for these sport events can be considered as a separate product market, distinguishable from other content acquisition markets.

(71) Nevertheless, it is not necessary for the purpose of this case to decide whether the relevant markets should be divided into different markets according to single sports as regards the acquisition of broadcasting rights by TV operators, since the concentration will lead to the creation or strengthening of a dominant position regardless of the alternative product market definitions.

Geographic scope

(72) As regards some sport events, the rights are acquired on an exclusive basis for the whole European territory and, regardless of the technical means of transmission, are thereafter re-sold on a per-country basis. These major sport events such as the Olympic Games, have a pan-European interest from the viewers' perspective. Another example of sports rights sold on a pan-European basis are those acquired by the Eurosport channel, broadcast all over Europe.

(73) However, given that the vast majority of sports rights acquired by broadcasters are limited to a specific country or linguistic territory, it can be concluded that the market for acquisition of sports rights to be broadcast is still nationwide or limited to linguistic areas.

(d) TV channels

(74) The market investigation in this case has confirmed that the operation of pay-TV channels marketed independently, particularly on DTH platforms, could constitute a competitive constraint vis-à-vis pay-TV platforms. TV channels can also be acquired by pay-TV platforms to be included in their "bouquet" and, as stated by the Commission in previous cases(30), are essential for putting together pay-TV services and constitute a separate product market(31). Premium channels are normally produced by pay-TVs with premium content (sports and movies) previously acquired from original rights owners. The market investigation has also indicated that even if only premium channels constitute a key driver for the subscriptions to pay-TV, other channels, are, nevertheless, very important for pay-TV operators in as much as these various types of channels (generic and thematic) contribute to rendering the pay-TV bouquet attractive for end consumers.

(75) As regards TV channels, the supply-side is represented by providers that buy single events or contents (in general on a non-exclusive basis) and assemble them in packages for resale to TV broadcasters. This characteristic of supply, the features of the type of contents offered and the pricing terms (lower price per hour compared to exclusive contents) means TV channels can be considered as a separate product market, distinguishable from other contents acquisition markets.

(76) Nevertheless, it is not necessary for the purpose of this case to decide whether the relevant markets should be divided into different markets according to single type of channel (generic or thematic ones, for example, sports, children or news), since the concentration will create a monopsony situation regardless of the alternative product market definitions.

Geographic scope

(77) In terms of geographic scope, the acquisition of these channels is mostly determined by the cultural and sociological background of the country in which the pay-TV platform operates and in any event appears to be strongly influenced and bound by each single national territory. Therefore, any possible alternative product market would necessarily have a national dimension. This national dimension is confirmed in the case of Italy: specific thematic channels in Italian and adapted to Italian preferences have been created by suppliers and distribution takes place at national level.

B. EFFECTS OF THE CONCENTRATION

(78) The merger will lead to substantial horizontal overlaps in a number of markets which are vertically related.

1. THE ITALIAN PAY TV MARKET

1.1. General considerations

(79) The Italian pay-TV market is characterised by the presence of two operators: Telepiù and Stream. Especially since the start of the DTH services in 1996, the size of the Italian market for pay-TV services has grown significantly both in terms of value and in terms of volume (number of subscribers). The tables below show an estimate of the market size provided by the parties for the horizontally affected market from 1999 to 2001 where this growth can be easily observed (in the three years of reference +80,8 % in terms of value and +36,1 % in terms of number of subscribers).

TABLE 1

Market size

Value

>TABLE>

Source:

Form CO.

TABLE 2

Volume (number of subscribers)

>TABLE>

Source:

Form CO.

(80) It should be recalled that, prior to the merger, Telepiù (the target company) already held a dominant position in the Italian pay-TV market.

(81) In 2001 Telepiù had a [60 to 70]* % market share in terms of subscribers and [65 to 75]* % in terms of value; Stream had a [30 to 40]* % market share in terms of subscribers and a [25 to 35]* % market share in terms of value. Furthermore in November 2002 Telepiù had a [65 to 75]* % market share in terms of number of subscribers (Stream having [25 to 35]* %), and a market share of approximately [70 to 80]* % in terms of revenues. The tables below summarise Stream and Telepiù 's pre-merger positions over the three years of reference, according to value, number of subscribers (volume) and corresponding market shares:

TABLE 3

Market position of Telepiù and Stream pre-merger

Value

>TABLE>

Source:

Form CO.

TABLE 4

Volume (Number of subscribers)

>TABLE>

Source:

Form CO.

TABLE 5

Market share (value/volume)

>TABLE>

Source:

Form CO.

1.2. Considerations on costs in the Italian pay-TV market

(82) The pay-TV market is characterised, in Italy and across the EEA, by very high levels of costs incurred by platforms. The cost structure of a pay-TV operator is, to a considerable extent, determined by the burden of programming rights and by the level of subscriber acquisition costs (marketing and promotional expenses). The largest portion of the operating cost base is represented by programming costs, which have reached very high levels in absolute and relative terms in the accounts of the Italian pay-TV platforms especially over the last few years.

(83) These broadcasting or programming costs stem mainly from the need to acquire "premium" contents (particularly football events and movies, but also, for example, other sports) that have the potential to attract viewers and render them stable subscribers of the pay-TV (or pay-per-view) service. According to documents submitted by the parties, these costs "are predictable over the medium-term because of the maturity of the agreements with the content providers". They could therefore be considered to some extent as fixed or unavoidable costs for the platforms. "Such rights are usually negotiated with content providers on a per subscriber basis and often incorporate a minimum payment or subscriber guarantees. Once the minimum number of subscriber is reached, these costs become fully variable".

(84) Although these costs may be regarded as either fixed or variable costs, depending on the company's analytical accountancy system, they appear to have consistently represented a rather heavy burden on the platforms, especially in Italy, where the level of penetration of pay-TV service is lower than in other EEA countries and therefore the customer-base and the revenues, on which it is possible to amortise those costs, are more limited.

(85) These costs are determined, inter alia, by long term exclusive contracts with premium content providers which may often encompass the acquisition of exclusive rights of broadcasting not only in the pay-TV and pay-per-view modality, but also in the modalities of near-video-on-demand and video-on-demand and include various protections (holdback rights, negative exclusive rights and similar) in respect of the possibility for third parties to acquire and broadcast the same contents by way of other existing and future means of transmission (cable, Internet, UMTS(32), etc.). Furthermore, in general, contracts with content providers are structured in such a way that a substantial portion of the fees to be paid by the pay-TV operator take the form of "minimum guaranteed", directly or indirectly linked to an hypothetical minimum number of subscribers to the pay-TV platform. If the number of subscribers increased beyond that hypothetical number, then the fees to be paid by the pay-TV operator to the content provider would rise accordingly.

(86) Since the beginning of the pay-TV business in Italy in 1991 and after the inception of Stream in 1998, these broadcasting costs have skyrocketed. This factor has significantly affected the profitability of the competitive platforms, as shown by the data submitted by Newscorp.

(87) Indeed, the notifying party has reported (in the documents submitted in the course of the proceedings) that during the period 1991 to 2001 Telepiù and Stream incurred heavy losses. The table below shows in particular the financial losses incurred by the two platforms for the period 1998 to 2001:

TABLE 6

Net losses

>TABLE>

Source:

Elaboration on form CO data.

(88) In its scrutiny of the previous merger (subsequently aborted) in which the Vivendi group would have acquired control of Stream, the IAA found that programming costs represented around [55 to 65]* % of the total costs of the DTH pay-TV operators(33).

1.3. Cost of acquisition of movie rights

(89) Both Stream and Telepiù have acquired quite a substantial number of "premium" movie rights from the American majors and also to a lesser extent from Italian film producers. The total value of the acquisition (per platform) is shown in the table below for the last four years:

TABLE 7

Premium movies

Value

>TABLE>

Source:

Elaboration on data provided by the parties.

(90) From 1999 to 2002, the above costs have represented, on average, slightly less than [5 to 15]* % of total costs for Telepiù and around [0 to 10]* % for Stream.

1.4. Cost of football rights

(91) Both Stream and Telepiù have acquired a very significant number of sport rights from Italian football clubs, for the broadcasting of events regarding Italian teams and related to the Italian A series, B series, Coppa Italia, the Champions Leagues and the UEFA Cup. The total value of the acquisitions of those rights, in terms of cost for the platforms, is shown in the table below for the last four years:

TABLE 8

Football events

Value

>TABLE>

Source:

Elaboration on data provided by the parties.

(92) From 2000 to 2002, the above costs represented, on average, [40 to 50]* % of total costs for Stream and [20 to 30]* % for Telepiù.

1.5. Cost of rights to other sports

(93) Both Stream and Telepiù have acquired a very significant number of sport rights with regard to other sport events such as the Formula 1 races, important tennis tournaments (grand slam) or events where Italian teams or players participate. The total value of these acquisition of rights (in terms of cost for the platforms) is shown in the table below for the last three years:

TABLE 9

Other sport events

Value

>TABLE>

Source:

Elaboration on data provided by the parties.

(94) From 1999 to 2001 the above costs represented, on average, just over [0 to 10]* % of total costs for Telepiù and around [0 to 10]* % for Stream.

1.6. Cost of acquisition of channels

(95) Both Stream and Telepiù have acquired a very significant number of rights on channels to include in their bouquets or alternatively in their programming. The total value of these acquisitions of rights, in terms of cost for the platforms, is shown in the table below for the last four years. The cost of acquisition of these rights is also quite substantial as compared to the rest of the programming rights even if these programs cannot be considered of a "premium" nature. However, when taking into account the number of broadcasting hours acquired through channels compared to the number of broadcasting hours acquired through films and sports rights, the cost per-hour of channels is significantly lower than the cost of other programming rights. Nevertheless, the channels contribute to increasing the overall attractiveness of a pay-TV platform vis-à-vis the end consumers.

TABLE 10

Channels

Value

>TABLE>

Source:

Elaboration on data provided by the parties.

(96) The above costs represented, on average, [10 to 20]* % of total costs for Telepiù and [10 to 20]* % for Stream in 2001 to 2002.

1.7. Cost of the overall programming rights

(97) Overall, the acquisition of programming rights substantially erodes the revenue margins of each of the two platforms. However, recent data seem to point towards an improvement of the relevant ratios. The ratio "total programming costs"/"total subscription revenues" has decreased for Telepiù from [85 to 95]* % (in 2001) to [75 to 85]* % (in 2002), and for Stream from [135 to 145]* % (in 2001) to [135 to 145]* % (in 2002).

(98) The above appears to indicate that the relationship between costs and revenues for the platforms is no longer out of control. Furthermore, the economic and financial difficulties experienced in the pay-TV market by both DTH platforms in Italy are being to a certain extent reduced thanks to the ongoing efforts to combat piracy. This has led to an increase of around 150000 in the number of subscribers for Telepiù over the last months of 2002.

2. CREATION OR STRENGTHENING OF A DOMINANT POSITION IN THE ITALIAN PAY-TV MARKET

2.1. Horizontal effects (supply of pay-TV services)

(99) The pay-TV market is the overall market for pay-TV services that includes, for the time being, services such as pay-TV itself (in the strict sense of the term), pay-per-view, video on demand and near video on demand. It is possible to provide pay-TV services via various broadcasting means, namely, digital terrestrial (also known as DTT), cable or satellite (also known as DTH). Analogue terrestrial broadcasting is technologically much less adequate to support the simultaneous transmission of a wide number of channels, programmes and sport events which are typical of a pay-TV bouquet.

(100) The Italian pay-TV market is to date essentially limited to satellite transmission (DTH), where both Stream and Telepiù are active. Telepiù still maintains a residual number of subscribers for its initial analogue services (heritage of the beginning of the pay-TV era via analogue terrestrial means), whilst cable is only marginally developed (through the operator e.Biscom) and digital terrestrial television (DTT) is in its experimental phase.

2.1.(a) Competitive scenario: cable and DTH

(101) In this market Telepiù is the dominant player with a market share of [65 to 75]* % in terms of number of subscribers ([...]* as of November 2002) and most likely [70 to 80]* % in terms of revenues. Stream is the only competitor currently active in the market with [...]* subscribers (as of November 2002). The parties argue that the competitive environment in Italy allows for further growth of cable operators, such as e.Biscom, which owns a network for the provision of TV services that is capable of reaching nearly one million households.

(102) As regards cable operators, at present e.Biscom only provides video-on-demand and interactive TV services to [10000 to 20000] subscribers. Furthermore, according to e.Biscom's business plan, the company is realising a proprietary optical fibre cable network reaching customers in a limited number of big cities in Italy. In addition, e.Biscom transmits Telepiù and Stream's pay-TV offers through its cable network, but client ownership, conditions of sale and customer care services remain within Stream and Telepiù.

(103) As the Commission pointed out in a statement of objections to Newscorp there will be virtually no competition left in the pay-TV market in Italy after the merger. The competitive constraint that the combined platform will have to face from cable operators in Italy can be considered as minimal. Even Newscorp has, in public conferences and presentations to the business community, stated that in Italy the merged entity will face "no competition from cable"(34). In addition, it has been claimed by third parties that the cost of cable connection is higher, in relative terms, than in other markets.

(104) As regards DTH, Italian regulation requires access to conditional access systems (CAS) on fair, reasonable and non-discriminatory terms for third parties and contains simulcrypt obligations(35). However, for the reasons explained below (the need for any possible DTH competitor to acquire CAS from Newscorp or to enter into simulcrypt agreements with Newscorp and the ownership by Newscorp of the DTH platform), no effective competition from DTH can reasonably be expected after the merger unless additional guarantees are established.

2.1.(b) Prospects for the development of DTT

(105) As far as DTT is concerned, conditions for potential entry within a reasonable time-frame are unclear. The Italian government has fixed a deadline of 31 December 2006 for the switch-off from analogue to digital TV. However, according to the market investigation carried out by the Commission, the transition is more likely to take place at a later stage. In its white paper on digital terrestrial TV of 8 November 2000, the AGCOM (the italian regulatory Authority in the communications sector) has highlighted the difficulties regarding frequencies for broadcasters and set top boxes. It has recommended that the Italian State should subsidise each household with a digital decoder.

(106) According to a study published by the Commission(36), quoted by third parties, in order to achieve the expected benefits of DTT, the following obstacles would need to be overcome: (i) operators would need to invest in upgrading transmission networks; (ii) consumers would have to equip all current analogue receivers (main televisions, secondary televisions and video recorders) with converters/decoders and/or replace them gradually by integrated digital receivers, to receive DTT; (iii) regulators would have to modify national frequencies so that simulcasts can be organised.

(107) Third parties have also indicated that DTT operators face technical difficulties. They have pointed out that DTT technology is often not predictable enough and its relatively limited broadcasting power does not give absolute certainty that a decoder in a particular area would actually receive the signal(37). Third parties have stressed that there is no example of successful DTT pay-TV in Europe. Third parties claim that, apart from premium content, one of the main incentives for customers to pay for pay-TV remains the extensive choice of channels offered. If this is correct, a DTT pay-TV operator with limited bandwidth will not be able to compete with the number of channels that are currently offered by Telepiù and Stream.

(108) The sustainability of the DTT delivery mechanism with respect to other delivery mechanisms from a pay-TV operator's point of view depends on two factors: firstly, the existing reception infrastructure, that is to say, the number of households and receivers using terrestrial receptions; secondly, the cost of transmission via DTT, compared to cable and digital satellite TV. The fixed transmission cost of a nationwide DTT broadcast is much higher than for satellite. According to the above-mentioned study, the cost of a year of digital transmission through satellite amounts to approximately EUR 0,5 million whereas the cost of a nationwide DTT transmission amounts to EUR 5 million. It has also been indicated by third parties that the competitiveness, attractiveness and usefulness of the DTT delivery mechanism for commercial players has not been proved and that, as long as the variety of channels remains a determining factor for the promotion of pay-TV, DTH has an inherent advantage over DTT and will continue to hold the lion's share of the pay-TV market in Italy.

(109) However, in this respect it has to be borne in mind that the main driver for subscribing to pay-TVs is not so much the variety of channels offered (especially in the case of Italy with a substantial number of free-to-air channels) but rather the premium contents (premium films and sports, in particular national football). It has been indicated that a DTT bouquet can include 30 channels, as compared to 300 channels that can be viewed via a satellite platform. In this respect, according to the arguments of a third party, field tests in DTT have been conducted in Sicily and in the province of La Spezia. The recorded percentage of declared intention to subscribe at the end of the test period was extremely low and was deemed to be a deterrent for a candidate against launching its operation.

(110) In view of the above, it is not possible to assess with a sufficient degree of certitude if and when effective competitive pressure will arise from DTT platform(s) vis-à-vis the merged entity in the foreseeable future.

2.1.(c) Claimed competitive constraints from free-to-air TV

(111) Newscorp argues that the strength of free-TV broadcasters in Italy is an effective constraint for the pay-TV operators. Newscorp believes that the Italian free-to-air programming expresses a uniquely varied and attractive offer, both at national and local levels. This competitive pressure is, according to Newscorp, a critical constraint for pay-TV operators in Italy which goes beyond the mere "interaction" or "some relationship" recognised by the Commission in the past. In this respect, the notifying party states that, as regards free-to-air offer there are 12 national broadcasters, 50 channels via DTH and roughly 700 local broadcasters available in Italy.

(112) In any case, although a certain degree of competitive pressure from the free-to-air TV may exist (as is also the case in other countries, such as Germany), the evidence gathered by the Commission in this case confirms the finding that pay-TV is a distinguishable product with extra utility. This conclusion is supported by the fact that first window premium films and most football matches where national teams participate can only be viewed by pay-TV consumers and that subscribers are prepared to pay considerable sums for pay-TV services.

(113) As an example, the average revenue per subscriber was, in 2001, EUR [...]* for Telepiù and [...]* for Stream, whereas the annual fee (which is a compulsory tax) for public free-to-air TVs (RAI) for the year 2003 is EUR 97,10. Moreover, the three nationwide Mediaset TV channels can be viewed for free. As regards local free-to-air channels, as indicated in the oral hearing held on 5 and 6 March by a representative of an association of free-to-air TVs, the total turnover of the 608 regional and local Italian channels belonging to that association accounts for [40 to 50]* % only of Telepiù's turnover. These circumstances highlight, inter alia, that the competitive constraint stemming from free-TV operators vis-à-vis the pay-TV platform is rather limited at the moment.

2.1.(d) Conclusion

(114) Having regard to the above, the concentration will lead to the creation of a near-monopoly in the pay-TV market in Italy.

2.2. Vertical effects (technical services for pay-TV: CAS and technical platform)

(115) The operation of pay-TV requires a special technical infrastructure to encrypt the television signals and to decrypt them for the authorised viewer. This infrastructure is constituted by a conditional access system (CAS), and by a decoder (also called set top box (STB)).

(116) The Commission has examined in previous decisions the possible existence of a product market for the wholesale provision of the technical services necessary for pay-TV(38). "These services essentially comprise the making available of settop boxes, the provision of conditional access services, including smart cards, subscriber management services and possibly the services relating to accessing the electronic programme guide and the writing of applications compatible with the application programming interface included in the set top boxes. In addition, the provision of digital interactive television services also requires a system to allow financial transactions to be conducted in a secure environment(39)."

2.2.(a) Conditional access system (CAS)

(117) A CAS is a technology, which allows network operators and broadcasters to encrypt/scramble the digital transmission signal(40), which is then broadcast via satellite, cable or terrestrial systems to the STB. When the digital signal reaches the STB, a smart card(41), which is part of the CAS, generates the control word needed to decrypt and unscramble the broadcast signal, allowing subscribers with the required access rights to view the programmes.

(118) Newscorp is present in the supply-side of the conditional access system sector through a controlling stake of approximately 80 % in NDS, a conditional access system license supplier. More particularly, NDS provides conditional access and related products and services for the management, control and secure distribution of entertainment and information to television. The combined entity will therefore be vertically integrated with NDS, possessing in house a proprietary CAS technology (called Videoguard).

(119) In this respect, it should be borne in mind that the pay-TV sector has so far been characterised by strong vertical integration. Some of the technical services for pay-TV (and in particular the provision of CAS) have so far been provided in-house(42). In Italy in 2001, two operators (Canal+ Technologies and NDS) vertically integrated in the Vivendi group and in the Newscorp group respectively accounted for more than [80 to 90]* % of the total provision of CAS to pay-TV operators (the remaining being accounted for by the company Irdeto).

(120) The Commission pointed out in the statement of objections sent to Newscorp that it is very likely that the combined platform will, in the near future, adopt only one CAS, that is NDS' CAS Videoguard. Indeed, there are strong incentives for the combined platform to adopt this strategy: firstly, the majority stake held by Newscorp in NDS, which is the licensor of Videoguard; and secondly, the strategy, pursued by Newscorp as well as by other vertically integrated pay-TV operators, of using the CAS produced in-house. Indeed, both Stream and Telepiù started operating with the technology produced by Irdeto but switched subsequently to the CAS produced in-house (Videoguard produced by NDS and Mediaguard produced by Canal+Technologies respectively).

(121) In this context, regardless of whether separate product markets can be envisaged for CAS, STB and other technical services for pay-TV(43), the market investigation carried out by the Commission has highlighted specific concerns regarding technical services for pay-TV and in particular relating to conditional access systems. Such concerns were expressed both by some CAS providers and by some potential newcomers on the pay-TV markets (via satellite). They can be summarised as follows: firstly, the likelihood that the new entity may grant access to the NDS technology for CAS to potential new entrants under unfair terms and conditions; secondly, the likelihood that the new entity may obstruct the entry of alternative pay-TV platforms with a different CAS system from that of NDS, leading to a virtual monopoly, in view of the fact that NDS would become the only CAS used in Italy.

(122) As to the first concern, it has been argued that following the concentration Newscorp will be in a position to prevent possible new entrants in the pay-TV market in Italy from acquiring the Videoguard licence or in any case will be able to impose unfair conditions for its acquisition. Nevertheless the existence of access rules contained in Directive 95/47/EC(44) might reduce the concerns in this respect, since the said directive provides that access to CAS has to be granted in fair, reasonable and non-discriminatory terms. This provision has been rolled over to the new Access Directive 2002/19/EC(45) due to be transposed by 24 July 2003.

(123) With regard to the second concern, it has been claimed that new entrants could decide to use a CAS different from the one licensed by NDS and used by the combined entity. In this case, Newscorp would have to cooperate in order to set up a simulcrypt system able to make the CAS used by NDS compatible with the CAS used by the new entrant. Italian regulatory requirements(46) foresee simulcrypt obligations requiring implementation of interoperability between different CAS.

(124) However, the market investigation has suggested that, most likely, the Italian regulatory requirement is not sufficient to establish the conditions for unhindered new entry for pay-TV operators using a CAS different from NDS. Simulcrypt obligations are apparently difficult to implement within a short period of time(47) and a much more realistic option for any new entrant would be obtaining a licence for the NDS technology. A number of respondents in the market investigation have gone as far as considering NDS technology as a sort of "essential facility" for the Italian pay-TV market.

(125) In the light of the results of the market investigation described above, given the vertical integration of NDS within the corporate structure of the new entity and the possession of a proprietary CAS technology, the Commission concludes that it is highly likely that, post-transaction, the operation will lead to the use of a single CAS by the combined entity. Since the entry of a new pay-TV DTH platform is not expected shortly after the merger, if the combined platform decides to use only NDS' technology (as it is rationally foreseeable), only one CAS will exist in Italy and the access to this CAS will depend on Newscorp. Furthermore, the deployment of any alternative CAS will entirely depend on Newscorp cooperation for the setting up of a simulcrypt.

(126) These are factors that will significantly raise the already high barriers to entry in the Italian pay-TV market further contributing to the strengthening of a dominant position of the combined entity in the market for pay-TV.

(127) In its reply to the statement of objections, Newscorp argued that the Commission had not concluded that the likely use of a single CAS by the combined platform is in itself anti-competitive, whilst "the fact that the transaction 'may' raise barriers to entry is not sufficient to justify a prohibition decision")(48).

(128) Moreover Newscorp argued that it would not have the ability to foreclose new entry. In this context, Newscorp quotes the Commission's decision in the case Telia/Sonera(49) where it was stated that "in assessing whether (a vertical foreclosure issue) is significant, it is necessary to establish not only that the merged entity will have the incentive to foreclose, but also whether it will have the ability to do so, and whether it will have any significant effect on competition in the market in question"(50).

(129) According to the Commission's analysis, the effect of the transaction is not limited to raising barriers to entry, but is to create a monopoly as regards DTH pay-TV in Italy. In view of this monopolistic situation in the "downstream" pay-TV market and of the possession of a proprietary conditional access system, likely to become the "standard" CAS - Newscorp will not only have the incentive to pursue exclusionary strategies or to raise rivals' costs (in order to foreclose the market and maintain its monopolistic position within DTH), but it will indeed also have the ability to do so.

(130) Any potential competitor, wishing to enter the Italian pay-TV market in the satellite (DTH) modality will either have to obtain a licence from one of Newscorp's subsidiaries (that is NDS) in order to have access to the Videoguard CAS or to seek Newscorp's cooperation in order to be able to implement the simulcrypt agreement. In particular, based on past experience, this can give rise to "heavy" litigation, and reaching such agreements has already proved to be a quite lengthy, time consuming and difficult exercise even between two established competitors, as Stream and Telepiù were in the past.

(131) In the absence of corrective measures, Newscorp will, in any case, be in a position to foreclose potential DTH entry or to raise rivals' costs as regards CAS. These factors are not considered in isolation by the Commission, but they must be seen in the perspective of the overall anti-competitive effects brought about by the transaction. In this context, the circumstance that, as a result of the operation, barriers to entry as regards DTH will be raised further, inter alia, through the very likely use of a single proprietary CAS by the combined entity, in a monopolistic situation (on DTH) is an aggravating element that further strengthens the dominant position of the combined platform in the Italian pay-TV market.

(132) Newscorp has furthermore argued that there is no causal link between the transaction and the alleged competitive harm. As Newscorp already owns 50 % of an Italian pay-TV operator any incentive to raise barriers to entry into the Italian pay-TV market is already in place and would not be caused by the transaction.

(133) The Commission does not agree with this position. The possession of a proprietary CAS by a DTH monopolist is a factor that in itself does increase barriers to entry into the downstream pay-TV market. Newscorp's incentive to raise barriers to entry is a direct consequence of the transaction bringing about this monopolistic situation as regards DTH pay-TV. In addition, on the basis of the results of the market investigation, it is reasonable to expect that the situation described will not change for some time in the foreseeable future.

2.2.(b) Technical platform

(134) Stream and Telepiù will build up a common technical platform through which they will distribute their programmes via satellite. A technical platform can be defined as the system controlling conditional access and the provision of the technical services related thereto. The technical platform deciphers the signals broadcast by the programme supplier and transmits them to subscribers via the set top box.

(135) It has been claimed that, due to the important investment needed to set up a DTH platform, third parties' DTH pay and free satellite channels will need to be distributed via the combined platform of the new entity. Technical services that can be provided by Newscorp through the platform comprise conditional access management, transit through the decoders and inclusion in the pre-defined list of services (automatic tuning), digitalisation and cryptation, satellite up-link and particularly, access to the electronic programme guide (EPG).

(136) EPG is a TV listings guide. It constitutes an essential tool due to the increased programme choice available with digital televisions. Information for the EPG is sent by broadcasters, and displayed by the EPG software. The menu system allows the user to search for a particular programme type, such as films, comedy and children's programmes, or just view by programme number or time of day. Without an EPG, it would be extremely difficult for users to systematically and easily find the specific channel they seek.

(137) Access to the platform constitutes an essential element to facilitate new entry in the pay-TV market and to allow pay and free-to air channels to be broadcast via DTH. As a result of the merger DTH channels will no longer have the possibility to choose between two alternative platforms.

(138) By controlling the platform, Newscorp will have the incentive and the ability to refuse access or raise barriers to the consolidation of channels (for example by systematically changing their position in the EPG) or impose unfair or discriminatory conditions to digital satellite channels (free-to-air and pay-DTH). At this stage, there is not an adequate regulatory framework able to efficiently and speedily solve these problems. Accordingly, the possible behaviour described would contribute to consolidating the new entity's monopoly position in the pay-TV market.

(139) In its answer to the Commission's statement of objections(51) Newscorp submits that it would have no incentive to manipulate the EPG. In fact, it was argued, the merged group's incentive is to provide a high quality service to its subscribers. In particular, the merged group would be behaving ineptly towards its subscribers if it regularly swapped the order of channels in the electronic programme guide. In this respect the Commission is of the opinion that, as highlighted by Stream's past behaviour(52), the combined group's incentive to win viewer's loyalty to its own channels will override its incentive to provide a stable position in the EPG to third parties' channels.

2.3. Conclusion

(140) On the basis of the foregoing, it is concluded that the concentration strengthens on a lasting basis, a dominant position in the Italian pay-TV market. The merged entity will have a monopoly as regards the DTH means of transmission and will have all the possibilities and economic incentives to foreclose actual and potential competitors wishing to enter the market via the same and/or other means of transmission, by raising rivals' costs and raising further barriers to entry. In this respect, although existing regulations mitigate, to some extent, the competitive concerns, the use of a standard (NDS) for conditional access services across the entire satellite platform, regardless of possible lengthy simulcrypt agreements to be entered into, is likely to make potential DTH newcomers completely dependent on the combined entity from the technological viewpoint. Furthermore, control of the technical platform will give Newscorp the possibility and the incentive to set the standard for the accepted level of "intra-platform" competition. These elements are such that, in spite of applicable regulations, the monopoly of Newscorp as regards the DTH means of transmission will contribute substantially to the consolidation of the quasi monopolistic situation in the overall pay-TV market resulting from the operation for some time after the concentration.

(141) In the reply to the statement of objections(53), Newscorp indicated that the Commission had fallen short of its obligation to establish that it is more likely than not that Newscorp will adopt such conduct. Newscorp points out that in Tetra Laval BV v. Commission(54) the Court of First Instance held that the standard of proof was the balance of probabilities and rejected the Commission's approach (namely that a possibility of harm to competition was sufficient to justify a prohibition decision).

(142) In this respect the Commission submits that in the said judgment, the balance of probabilities against the Commission's approach was based on (i) the absence of any presumption of collective dominance(55) and (ii) the necessary reliance on a prospective analysis of future rational behaviour as the basis for a finding of dominance. Neither of those two conditions is met in this case. In relation to the first condition (absence of any presumption of collective dominance) it cannot be seriously disputed that the merger will, in fact, lead to the creation of a quasi-monopolistic situation in the pay-TV market. In relation to the second condition (necessary reliance on a prospective analysis of future rational behaviour) the analysis carried out for the present case is based on a situation which will occur immediately after the merger (creation of a quasi-monopoly).

(143) Therefore, on the basis of the evidence gathered throughout the procedure and having regard to the nature of horizontal overlaps brought about by the concentration, the Commission considers that there is sufficient evidence to conclude that the combined platform will, in the foreseeable future, have the necessary incentives and the actual ability to adopt the conduct indicated above, and, as a result, will, ultimately, significantly affect competition in the relevant market.

3. CREATION OR STRENGTHENING OF A DOMINANT POSITION IN ACQUISITION MARKETS

3.1. Horizontal effects in upstream affected markets (acquisition of contents)

3.1.(a) Acquisition of exclusive broadcasting rights on premium films

(144) Telepiù (the target company) already holds a dominant position in the market for the acquisition of exclusive rights for premium films (films acquired by Telepiù in 2001 represent around [85 to 95]* % of the total box office of the films that have been sold with exclusive rights to all TVs, [85 to 95]* % in terms of value(56) and [50 to 60]*(57) in terms of number of films). In 2001 the remaining rights have been acquired by Stream except for four Italian films whose first window rights have been acquired by La 7 (free-to-air TV controlled by Telecom Italia).

(145) Rights of Telepiù and Stream are shown in the tables below:

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(146) Telepiù has also subscribed contracts with Eyescreen, Nexo and other suppliers in 2002.

STREAM

American majors

(147) According to the information submitted by the parties in the Form CO, Stream holds exclusive rights with Universal for PPV and nVoD until 31 August 2002. Universal has exercised an option for an automatic renewal for five additional years.

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(58)

(148) In addition, Stream has subscribed several contracts with Filmauro, Videofilm VCKappa and Key Films (distribution companies ) for a number of Italian and non-Italian films. In 2002 it had also a number of rather "small" contracts with other suppliers (Minerva, Pasodoble, Romagnosi, and Teodora).

(149) All contracts concluded by both Stream and Telepiù with their counterparts include exclusive rights for all means of transmission (terrestrial, satellite, cable etc.). Combined, they correspond to [75 to 85]* % of the box office total of theatrical exhibition in 2001(59) and virtually [90 to 100]* % of exclusive rights acquired by pay-TVs. As indicated earlier, Telepiù has a [85 to 95]* % market share and Stream around [5 to 15]* % market share (based on box office) of films acquired/sold with exclusive rights. Free-to-air TV "La 7" (belonging to Telecom Italia) acquired first window rights for four Italian films in 2001. However, La 7 has not subscribed exclusive contracts for first window with any Hollywood major.

(150) Following the acquisition of Telepiù by Stream and the addition of customers in Italy, the merger will lead to a quasi-monopolistic situation for the acquisition of exclusive rights for films (monopsony). La 7 has acquired an insignificant number of first window rights on Italian films. In this respect, it has to be borne in mind that right owners, in particular the Hollywood majors, are not likely to be willing to sell first and second window rights to free-to-air TVs in the future. As explained above, movie rights are sold at least five or six times (theatrical exhibition, video, pay-per-view and video-on-demand, first window, second window and catalogue films). Only the last category is acquired by free-to-air TVs. If right owners were to sell first window films to free-to-air TVs (accessible to 100 % of the viewers) six months after theatrical exhibition, this would seriously undermine the revenues of film producers.

(151) This monopsonistic situation, in the absence of corrective measures, forecloses access to content for third parties (also as regards means of transmissions other than DTH) and is likely to restrict availability of content to consumers, thus reducing their possibility of choice.

(152) In addition, the parties will be able to further reduce accessibility of contents by exercising holdback and pre-emption rights as regards second window movies, as envisaged by Telepiú's current contracts with most majors (see table 11). In the absence of remedial action, this will effectively prevent potential new entrants from attempting to enter the market as a "fringe" or second-tier competitor. Moreover, these protection rights exercisable by the parties will effectively withdraw second window rights from the market, thus harming consumers' welfare and their freedom to choose at what price and at what time to "consume" pay-TV products.

(153) Having regard to the above, and taking into account the duration of the existing contracts, the concentration will have the effect of preventing potential pay-TV competitors from having access to, and thus from being able to broadcast, this content on pay-TV for a number of years.

(154) In its reply to the statement of objections(60), Newscorp argued that the transaction would not modify the current situation, as "the contracts entered into by Stream and Telepiú for the acquisition of rights are already in place and are not affected by the merger. Insofar as the network of contracts may affect the likelihood of entry, this issue is not caused by the merger". This is all to say, according to the parties, that there is no causal link between the merger and the possible competitive harm. In this respect Newscorp refers to paragraph 10 of the draft notice on horizontal mergers(61), which indicates that "the Commission compares the competitive conditions that would follow the merger with the conditions that would prevail absent the merger".

(155) As a matter of fact, before the merger, two pay-TV operators were in a position to compete for the acquisition of contents. After the merger, "the network of contracts" will be held by one single operator, which, in the absence of corrective measures, will be in a position to determine the terms and conditions of the markets vis-à-vis the right owners to a much greater extent than in the case of two competing purchasers. Most importantly, thanks to its obviously greater bargaining power, the quasi-monopsonist will in all likelihood be in a position to "tailor" the contractual relations with content providers to its need and objective to prevent potential competition from new entrants. In the light of these considerations, the argument by the parties that, post merger, "there will be a greater number rather than fewer rights available for other buyers" as the parties might reduce their demand, appears groundless.

(156) Newscorp also points out(62) that a new entrant could acquire rights analogous to those held by Stream if entered into contract with MGM with effect from 2004 and that the Commission is erroneous in assuming that the MGM contract will be extended. In this respect, the Commission considers that, firstly, following the merger it is not certain that a new competitor will enter the Italian market in 2004 and, secondly, taking into account all the evidence and other relevant factors, it is likely that MGM and TC Fox will exercise the unilateral renewal right. It is significant in this respect that Hollywood majors have, in the past, always exercised this right in spite of the existence of two alternative platforms. Columbia and Paramount exercised the right of renewal of their contract with Telepiù in 2002 and Universal has recently exercised this right with Stream. The economic context, therefore, in its historical perspective renders the claim of Newscorp unlikely.

3.1.(b) Acquisition of sport content in general

Legal framework

(157) Article 3a of the "television without frontiers" Directive as amended(63), provides that Member States may take measures in order to ensure that events considered of major importance for society are not transmitted by television broadcasters under their jurisdiction on an exclusive basis and in encoded form. A provision to that effect appears in the Italian implementing measure dated March 1999(64). These provisions are intended to make it possible for a substantial proportion (more than 90 %) of the Italian public to follow the listed events on free television without incurring additional costs for the acquisition of technical equipment.

(158) The listed events for Italy are: (a) the summer and winter Olympic games; (b) the football World Cup and all matches involving the Italian national team (to be given full live coverage); (c) the European football championship final and all matches involving the Italian national team (to be given full live coverage); (d) all matches involving the Italian national football team, at home and away, in official competitions; (e) the final and the semi-final of the Champions League and the UEFA Cup where an Italian team is involved; (f) the Tour of Italy (Giro d'Italia) cycling competition; and (g) the Formula One Italian Grand Prix. In addition, the Italian Communications Authority (AGCOM) reserves the right to amend the list in due course, in particular by including the following events: (a) finals of basketball, water polo and volleyball world championships involving the Italian national team; (b) the final and semi-finals of the Davis Cup where the Italian national team is involved; and (c) the road cycling world championship. Moreover, the Italian Communications Authority reserves the right to revise the list two years following the entry into force of its decision. The obligation of broadcasting the "listed events" on a free-to-air basis tends to result in a decrease of the price of acquisition of the broadcasting rights to such events in the Italian market.

3.1.(c) Acquisition of exclusive broadcasting rights to football events that take place regularly (every year) where national teams participate

(159) The parties' combined market shares represent [80 to 90]* % in terms of value (Stream [35 to 45]* %, Telepiù [35 to 45]* %) and [90 to 100]* % in terms of number of matches (Stream [35 to 45]* %, Telepiù [50 to 60]* %). According to Italian national law (law No 78/99), no DTH platform can own more than 60 % of total football rights. However, this rule would not apply in a single DTH platform scenario (that is to say post-merger), on condition that the duration of contracts providing for the acquisition of exclusive rights does not exceed three years.

(160) The A series and B series talian football clubs for which Stream has exclusive rights are the following: Bologna, Lecce, SDS srl(65) and Napoli (until [...]*), Brescia, Chievo Verona, Empoli, Modena and Siena (until [...]*). These rights represent [45 to 55]* % of A series matches. In addition it has exclusive rights for the UEFA Champions League for the 2002/2003.

(161) The A series and B series Italian football clubs for which Telepiù has exclusive rights are the following: Atalanta, Como, Messina, Perugia, Piacenza, Reggina and Torino (until [...]*), Inter, Bari, Juventus, Milan, Cagliari, (until [...]*). These rights represent [45 to 55]* % of A series matches.

(162) The merger will lead to a quasi-monopsonistic situation(66) of the new entity for the acquisition of exclusive rights for regular football events in which national teams participate. The exclusive rights comprise always live and non-live events for pay-TV and PPV, protection for live events in free to air TV and in some case also video on demand, UMTS and Internet. Most importantly, similarly to the case for movie rights and as a result of its greater bargaining power, the quasi-monopsonist will be in a position to "tailor" the contractual relations with content providers to its need and objective to prevent new entry.

3.1.(d) Acquisition of exclusive broadcasting rights to other sport events

(163) Stream and Telepiù have exclusive rights for an important number of sports events, in addition to Formula 1 car races which are very popular in Italy. With respect to Formula 1, the rights held by pay-TV operators (which are the only operators transmitting these Formula 1 races on satellite) are not exclusive since RAI (free-to-air television) broadcasts Formula 1 in analogue terrestrial modality in the Italian territory.

(164) According to information provided by the parties on the Form CO submitted in October 2002, Telepiù has exclusive rights for the following sport events: golf (PGA Tour 2002, Ryder Cup, Open Italia(67) and Augusta national until [...]*, British Open, US Golf Association and US PGA until [...]*), tennis (Roland Garros(68) and US Open(69) until [...]*, Australian Open, until [...]*), basketball (NCAA, NBA and ULEB Euroleague until [...]*, several FIBA until [...]*) Motonautic (UIM F1 Powerboat until [...]*), volleyball (Lega pallavolo serie A femminile for [...]*), rugby (Lega Italiana for [...]*, Trinitation 2002 [...]*), boxing (Tyson vs Lewis until [...]*(70)), football (NFL seasons until [...]*), car races (Le Mans 2002, 24 hours Spa until [...]*) etc.

(165) Stream has exclusive rights for the following events: several sports according to a contract subscribed with Espn Inc. until [...]*, golf (PGA Tour [...]* PGA European Tour 2002/2003 until February 2004) and tennis (Tennis Masters Series, WTA Roma and Wimbledon until [...]*).

(166) In any event, if sports in general, with the exception of national football, were to be considered as a separate market the transaction would lead to the creation of a dominant position in the acquisition of exclusive rights for sport events. If individual sports were to be considered as separate markets, the transaction would lead to the strengthening of a dominant position in golf and tennis. According to the notifying party, at present, Stream's market share for broadcasting rights to sport events different from national football is [35 to 45]* % and Telepiù's [30 to 40]* %. Other TV broadcasters that would be considered as competitors of Stream and Telepiù in the acquisition of those rights would have a market share of [20 to 30]* %.

(167) In this respect, in 2001 the following major sport events were broadcast by free TV on an exclusive basis: cycling (Giro d'Italia and other international competitions), athletics (the most important international meetings), boxing (Italian and European titles matches), rugby (matches played by Italian national team and six nations tournament), motorcycling (the entire motorcycling world championship, sailing (Louis Vuitton cup, America's cup), Olympic games and winter games.

(168) The proposed transaction will increase the buying power of the new entity and strengthen its position as compared to the pre-merger situation. Potential TV competitors will not have the possibility to acquire exclusive rights for most of the important sport events that will take place in [...]*. Most importantly, as a result of its greater bargaining power, the quasi-monopsonist will be in a position to "tailor" the contractual relations with content providers to its need and objective to prevent new entry by, for example, imposing long term duration or acquiring exclusive rights or protection rights for other means of transmission than DTH.

3.1.(e) TV channels

(169) In contrast to premium films and football events, a large number of channels are not acquired on an exclusive basis. In other words, pay-TV competitors are able to acquire and broadcast the same channel.

(170) Stream has exclusive rights for the following channels: Duel TV, Comedy Life, National Geographic, MT Channel, Roma Channel, Fox Kids, CFN-CNBC and Music Choice. In addition it has eight own production channels for films, travel, news, language, reality show, music and sports.

(171) Telepiù has exclusive rights for Marco Polo, Disney Channel, Canal Jimmy, Raisat Ragazzi, Raisat show, Raisat fiction, Raisat Gambero Rosso, Raisat Art, Raisat Cinema, Happy Channel, Raisat Album, Planete, Cinecinema I and II, Cineclassics, INN, Bloomberg, ESPN Classic Sport, Eurosport News, TV5, Multimusica, Matchmusic, Rock TV, Classica, Milan Channel and Inter Channel and has also a number of own production channels for films (premium channels and PPV) and sports (PPV).

(172) Most channels acquired on an exclusive basis (excluding premium sports/movies channels normally produced by the parties) are characterised by programming based on non-exclusive content. Accordingly, with the exception of premium channels, it will be possible for potential competitors to acquire and produce channels.

(173) The competitive concern in the case of TV channels arises from the fact that, unless another competitor enters the market (and this will not be the case if access to premium content is not guaranteed), the merger will lead to a monopsonistic situation (100 %) for the acquisition of channels in Italy. Therefore, following the merger the bargaining position especially of the smaller independent suppliers of channels will be weakened due to the absence of alternative platforms to the combined entity. This could indirectly harm consumers' welfare, should the merged entity decide to stop purchasing rights to TV channels or exert its monopsonist power to such an extent that some TV channel providers exit the market, due to unsustainable economic conditions. If that were to be the case, consumers would enjoy a greatly reduced variety of products and freedom of choice. These adverse effects on consumers can only be offset by creating the conditions allowing these channels to be broadcast (free-to air or pay) via DTH even without being acquired by the merged platform.

3.2. Conclusion on horizontal effects in upstream affected markets (acquisition of contents)

(174) As regards in general the acquisition of rights to contents, Newscorp has argued in its reply to the Statement of Objections, that there is no monopsony: there is competition between pay-TV and free TV operators for the acquisition of rights and competition from other pay TV operators can be expected to increase. The market for contents is, according to Newscorp, a "bidding market".

(175) The Commission disagrees. Although the acquisition of programming contents in general can, to a certain extent, be regarded as a bidding market, because of the very nature and features of the various submarkets,the "bidding" is de facto accessible to a limited number of operators with certain characteristics.

(176) As regards t