2004/311/EC: 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) (Text with EEA relevance)
Date: 2003-04-02
Institutions: European Commission
Subjects: broadcasting, cable distribution, economic concentration, exchange of information, film production, merger control, pay television, press, satellite

16.4.2004

EN

Official Journal of the European Union

L 110/73

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:

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
special purpose vehicle
a
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
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.

their activities

(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
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.

the Merger Regulation and that

(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.

(1)

On 16 October 2002,
the Commission received a
notification pursuant to Article 4 of Regulation (EEC)

(5)

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

(1) OJ L 395, 30.12.1989, p. 1 (corrected version in OJ L 257,

21.9.1990, p. 13).

(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ C 92, 16.4.2004.
(4) OJ C 92, 16.4.2004.

(6)

The Advisory Committee discussed the draft of
Decision on 20 March 2003.

this

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I. THE PARTIES

jointly controlled by Newscorp and Telecom Italia on a
fifty-fifty basis supported by a shareholders' agreement.

(7)

(8)

(9)

activities

Newscorp is a media company active in USA, Canada,
Europe, Australia, Latin America and the Pacific Basin.
Newscorp's
the production and
include
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.

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
in-house programme
productions and for the management of Telepiù's digital
satellite pay-per-view offer. Atena Servizi SpA provides
the digital
the
platform and purchases broadcasting rights
the
for
channels produced by third parties to be offered on
company
such platform.
controlled by Atena Servizi,
is responsible for the call
centre.

Finally TeleCare SpA,

technical-administrative

responsible

services

for

for

a

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
following the
Srl
authorisation by the Commission (5) Stream has been

(12 %). Since mid 2000,

(SDS)

(10)

(11)

(12)

(13)

II. THE CONCENTRATION

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.

Simultaneously, Newscorp and Telecom Italia have
entered into a ‘Framework Agreement' whereby they
(ii) redefine
(i) provide funding to Stream;
intend to:
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.

Finally,
the ‘Shareholder Agreement' attached to the
Framework Agreement governs the relationship between
Newscorp and Telecom Italia as shareholders of Stream.

is possible

Telecom Italia will have a participation of 19,9 % in the
a
platform and Newscorp will
combined
have
participation of 80,1 %.
that other
It
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
in the
designation of its management.

can they participate

(14) Although it

is

to

be

contracts,

the
is based on various
acquisition of sole control of Stream and Telepiù by
single
Newscorp
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.

considered

one

as

(5) Case COMP/M.1978 — Telecom Italia/News Television/Stream of

29/06/2000, published on the Commission's website:
http://europa.eu.int/comm/competition/mergers/cases/.

(15)

The proposed transaction constitutes a development of
Italian Antitrust
an operation scrutinised by

the

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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)

in 2001, Telepiù EUR […]*

The undertakings concerned have a combined aggregate
world-wide turnover of more than EUR 5 000 million
in June 2002, Stream EUR
(Newscorp 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
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.

two-thirds of

recognised the

interaction between these

broadcasting in Italy including both pay and free TV
services. The parties have argued that the Commission
has
two
segments in earlier decisions (7). Newscorp submits that,
in relation to the Italian market, there may be reasons
the relevant
for
product market should include both pay and free TV
services. Newscorp further argues that the strength of
free-TV broadcasters
Italy
in the
constitutes
the pay-TV
operators.

the Commission to conclude that

an effective

constraint

case of

specific

for

(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

IV. ASSESSMENT UNDER ARTICLE 2 OF THE MERGER
REGULATION

A. THE RELEVANT PRODUCT AND GEOGRAPHIC MARKETS

(20)

(17)

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

1. PAY TV MARKET

Product market

larger

The finding that free and pay-TVs are separate markets
(nationwide
has been recognised both by
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
the
business models of the two types of broadcasters are
distinct, pay-TV operators would not be able to switch
term and vice versa,
to free-to-air TV in the short
without
or
additional
significant
risks (8).
free-to-air TVs largely rely on

substitutability, given that

incurring
In particular,

supply-side

costs

(18) Newscorp believes that the proposed transaction should
be evaluated in the context of the overall market for TV

(6) Decision of the Italian Antitrust Authority (IAA) of 13 May 2002

(case C/5109).

(*) Parts of

this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

(7) Commission decisions of 10 September 1991, case No. IV/M.110,
ABC/Generale des Eaux/Canal+/W.H. Smith TV,
recital 11; 20
September 1995, case No. M.553, RTL/Veronica/Endemol, recital
20. The mentioned decisions are published on the Commission's
website: http://europa.eu.int/comm/competition/mergers/cases/.
(8) See Commission notice on the definition of the relevant market for
the purpose of Community competition law (OJ C 372, 9.12.1997,
p. 5) point 20. The short term is to be intended as ‘such a period
that does not entail a significant adjustment of existing tangible and
intangible assets.'

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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).

that only pay-TVs are considered as possible purchasers
of content, whilst free-to-air TV operators could hardly
represent a suitable alternative.

is

subscribers

the key parameter

simultaneously. This multi-channel

(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
for pay-TV.
of
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,
is
even
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.

offer

films

(films

(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
by
“library”
broadcast
non-premium pay-TV channels),
there is competition
between
free-TV'. However, when
pay-TV and
identifying some specific elements of content, a third
party acknowledged that
is no
competition between pay-TV operators and free-TV
and
operators
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.

acquisition/sale of

‘in general,

channels

in the

there

(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
to
identifying separate markets.

clearly contributes

(27)

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.

(c)

different

essentially

that makes

because of

(a) business model

Third parties have emphasised that the two markets are
four
substantially
elements:
the two
products different from the supply-side point of view;
(b) dimension;
and (d) programme
contents;
schedules. Leaving aside the first three elements, which
have already been discussed, as regards programme
it is important to underline that free TVs
schedules,
have a fixed ‘programming schedule'
the
course of
the week, whilst pay-TVs
the day and of
(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.

throughout

from the

competitive

(24) Differences in typical revenue models between the two
types of broadcasters contribute to placing them in
different
supply-side
arenas
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
relationship
between the two types of TVs could be qualified as
‘complementary' rather than ‘alternative'.

end-consumers

the

(28)

the
Respondents have, however, acknowledged that
presence of a high number of
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.

terrestrial

Football teams

(25)

the supply-side perspective of
Taking into account
thematic channel producers, respondents have stated

(29)

Football clubs are particularly closely connected to the
pay-TV business, since their revenue stream is highly

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are

free-to-air
and that

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
TV markets
pay-TV and
clearly
free-TVs do not directly
distinguishable
compete in the same market as pay-TVs. The difference
is based on four main elements:
technological
differences; (b) the licensing/authorisation regime needed
to operate in the sector;
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.

(a)

(c)

(30)

(31)

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.
(for example,
Exceptions in this respect might exist
highlights or deferred matches), which show that there
might also be some room for
to exploit
football-related products, but
these cases are of a
sporadic nature and of marginal importance.

free-TVs

regardless of

In this respect, some respondents have stated that since
the right holders (the football teams), the product (the
(the consumers) are
football match) and the target
the transmission
ultimately the same,
it could be argued
modality (encrypted or free-to-air),
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)
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.

football

that

Associations of consumers

Federconsumatori).

Respondents
Confconsumatori,
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,
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 (9).

it

(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)

requires

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
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,
‘terrestrial' TV sets will also
once DTT is introduced,
require a decoder in order to receive the digital signals.

(32) Questions were addressed to relevant Italian associations
of consumers (Adusbef, Aduc, Altroconsumo, Codacons,

(9) In this respect, the ‘churn rate' is the measure of disaffection of
customers vis-à-vis pay-TVs. The replies have indicated that a rise
of 15 to 20 % is more likely to induce subscribers to ‘switch'.

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for

the

Italian government's plans

the
However,
introduction of DTT point towards the end of 2006 (in
contrast to other countries such as Spain or the United
Kingdom (10), 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

possible

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
features which are only
a whole range of additional
Electronic
digital
made
programme guides (EPGs) and interactivity, inter alia, are
clear examples. Viewers of sports events may format
their
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.

convenience,

viewing at

technology.

their

by

(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
is
particularly relevant in countries such as Italy where
free-TV offers
some
containing what could be considered as attractive
contents. In this respect, free-TV undoubtedly represents
a certain constraint to pay-TV.

for a pay-TV subscription. This

choice of

channels,

a wide

to opt

(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
(in particular,
are considered in Italy to be ‘premium'
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

(10) In this respect, it can be pointed out that, in Spain, Quiero TV has
been transmitted as a pay-TV DTT broadcaster until mid 2002
and, in the United Kingdom, ITV transmits via DTT.

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)

inter alia,

to the evolution of

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,
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
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
and
information are brought to consumers, and the ways in
which these consumers enjoy them.

in which entertainment

different ways

convergence

general

trend

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 (11). The Commission
has previously held that there is a separate market for
pay-TV, without distinguishing between terrestrial,
transmission. That
satellite, cable or other means of
market is financed through subscriptions and, to a lesser
extent, advertising and is distinct from the market for

(11) See for example, for the United Kingdom, the decision in the case
NTL/CWC,
http://www.competition-commission.org.uk/fulltext/
437c2.pdf for Italy the decision of the IAA, mentioned in footnote
6, in the Group Canal+/Stream merger dated 13 May 2002 and,
for Spain,
in the
Sogecable/Canalsatélite Digital/Vía Digital case of 29 November
2002.

the Spanish Government

the decision of

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free-to-air television, which is financed by advertising
and/or through State contributions (12).

(VoD), the market investigation has revealed
demand'
that, for the time being, they could be considered as
segments within the pay TV market (15).

(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
relationship between the
also a direct commercial
programme supplier and the viewer as
subscriber.
thus marketed through a network of
Pay-TV is
distributors
teams. A subscriber
sales
or
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.

using

(42)

The conditions of competition are accordingly different
for the pay-TV and free-to air-TV. Whereas in the case
free-to-air TV the relationship between audience
of
share and the advertising rates is the key parameter, in
the case of pay-TV key factor
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.

is

(43) As

services

regards other

related to pay-TV,

the
Commission has previously identified two other possible
digital
markets: pay
interactive TV services (14),
the latter having being
considered as linked and complementary to pay-TV. As
concerns in particular services such as ‘pay-per-view'
(nVoD) and ‘video-on-
(PPV),

‘near-video-on demand'

view services (13)

and

per

TV channels, especially DTH pay-channels

(44) A certain degree of similarity exists between pay-TV
interest channels (marketed separately in some
special
Member States (16)) 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
teams. A subscriber
sales
distributors
management
essential and both require
conditional access (CAS) technology in order to limit
access to its services to paying subscribers.

using
or
system is

(45)

(46)

the purpose of

For
the Commission has
this case,
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).

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.

(12) Case COMP/JV. 37 – BskyB/Kirch Pay TV, case IV(M.993 Bertels-
case COMP/M. 2211 Universal Studio
mann/Kirch/Première,
Networks/De Facto 829 (NTL) Studio Channel Ltd, case COMP/JV.
57 - TPS, Case COMP/M.2845 Sogecable/Canalsatélite Digital/Vía
Digital. In some of these decisions it was indicated that another
feature of pay-TV is the need for viewers to have a decryption
module (decoder). In this context, it has to be pointed out that,
presently,
top boxes is also needed for Digital
Terrestrial and Satellite-free TV. All these decisions are published
on the Commission's website:
http://europa.eu.int/comm/competition/mergers/cases/.

the use of set

(13) Case COMP/M.2211 — Universal Studio Networks/De Facto 829
(NTL) Studio Channel Ltd. Decision of the Commission dated 20
December 2000, published on the Commission's website:
http://europa.eu.int/comm/competition/mergers/cases/.

(14) Case COMP/JV.37. — BskyB/Kirch Pay TV, Decision of

the
Commission dated 2 March 2000, published on the Commission's
website http://europa.eu.int/comm/competition/mergers/cases/.

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

(15) Pay per view is another service where, in addition to paying a TV
subscription, the client has to pay on a product-by-product basis
to see the content (for example, a film or a sport event). Video on
demand and near-video-on-demand are different modalities for
customers of a pay-TV to have access to video contents on a
personalised basis.

(16) For instance, this appears to be the case in the United Kingdom as

regards Channel 4.

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16.4.2004

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

(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
successful pay-TV
platform, acquisition of TV content as a whole should
be regarded as a separate market.

to build a

essential

is

Europe,

broadcast

(48) Despite the fact that in certain niche markets channels
are
television
throughout
broadcasting is still generally organised on a national
basis. As
the Commission has already stated in a
number of decisions (17), 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 present
the product market
transaction are limited to the territory of Italy.

for

(51)

(52)

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

Acquisition of audio-visual TV contents (general
considerations)

(49)

transaction has an impact on the

The
sector of
audio-visual content. Within that market Stream and
Telepiù operate mainly in Italy as purchasers of
broadcasting rights (18). Audio-visual content covers a
number of heterogeneous entertainment products. These
products
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).

include, without

(17) Case COMP/JV.37 BskyB/Kirch

case

Pay TV,

IV/M. 993
Bertelsmann/Kirch/Première, Commission Decision of 27 May
1998, Official Journal L 53, 27.2.1999, p. 1. Case COMP/M. 2845
the
Sogecable/Canalsatélite Digital/Vía Digital,
the
Commission
Commission's website:
http://europa.eu.int/comm/competition/mergers/cases.

decision
published

14 August

of
on

2002

dated

(18) Fox (a company which is part of the Newscorp Group) is mainly
active in the development, production and worldwide distribution
of feature films and television channels. It supplies some of those
products in Italy, in particular filmed entertainment.

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,
are not
contents
substitutable
film and a made-for TV
programme do not have the same value in terms of
attractiveness to consumers).

feature

these

(a

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 (19): (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).

(i)

of

for

the

compete

acquisition

their prices and the terms of

(53) Moreover, although theoretically free-to-air TV and
pay-TV
the
abovementioned TV content, there are some categories
of contents which are acquired only by pay-TVs in view,
inter alia, of
the
underlying contracts (for example, recent films are only
sold to pay TVs in order to obtain additional revenues
in the
from subsequent sales to free to air TVs)
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.

(ii)

(19) See

in

particular COMP/M.553 — RTL/Veronica/Endemol,
COMP/M.2050 — Vivendi/CANAL+/Seagram,
case 37.576 —
UEFA's Broadcasting Regulations, COMP/M.2211 — Universal
Studio Networks/De facto (NTL) Studio Channel Ltd, COMP JV.57
— TPS, COMP/M.2845 — Sogecable/Canalsatélite Digital/Vía
Digital. See Commission's website:
http://europa.eu.int/comm/competition/mergers/cases.

16.4.2004

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Official Journal of the European Union

L 110/81

(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
are not necessarily
‘driver-type' contents.

a pay-TV,

they

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'.

Product markets

(55)

transaction on
The markets affected by the present
which the
a
strengthens
concentration creates or
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.

(58) More recently (22), 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
(‘pay per view',
rights for the so-called ‘pay periods'
‘near-video-on-demand',
‘first
window' and ‘second window' exhibition (23).

‘video-on-demand'),

(a) Rights to premium films

(56)

has

previously

the
The Commission
segmented
into
purchasing activity for TV broadcasting rights
the
separate markets according to the nature of
content (20).
the
in
it
particular,
In
Vivendi/CANAL+/Seagram merger
that
the
acquisition of broadcasting rights
feature films
constitutes a separate market, distinct from made-for-TV
programmes.

found
case (21)
for

(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.
feature films and made-for-TV
The reason is

that

(20) The general issue has been introduced without being settled by the
abovementioned Decision TPS of 3 March 1999 recital 34), then
decided in the abovementioned merger decision of 13 October
2000 in case COMP/M.2050 — Vivendi/CANAL+/Seagram. See
also, as for the existence of a separate market for the acquisition
events played regularly
of TV rights
throughout
in case
the year,
COMP/C.2/37.398 Joint selling of
the TV rights to the UEFA
Champions League on an exclusive basis (press release IP/01/1043
dated 20 Juli 2001), ‘The Commission opens proceedings against
UEFA's selling of TV rights to UEFA Champions League' and
background note
and case
COMP/M.2845 — Sogecable/Canalsatélite Digital/Vía Digital.
abovementioned decision of 13 October 2000,

football
statement of objections

(MEMO/01/271 dated 20/07/01)

concerning
the

(21) See

case

COMP/M.2050 Vivendi/CANAL+/Seagram.

(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 (24), 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
in France, where these rights are
marketed separately, second window fees are priced at
between 5 % and 25 % (25) of the first window fees. The

fact,

(22) Case COMP/M.2845 Sogecable/Canalsatélite Digital/Vía Digital.
(23) Generally speaking, films for pay-TV are exhibited under different
timing and windows. After a time period of theatrical exhibition
(six to eight months) and of video rentals and/or sales (four to six
months) films reach pay-TV consumers through a pay per view
period (usually a three months period). Films can be thereafter be
released on first window (usually six month period) and the on
second window (usually six month period). Finally they become
part of the major's library and available for the free-TV market.

(24) Case COMP/M.2050 Vivendi/Canal+/Seagram,

decision dated
13 October 2000, case COMP/M.2845 Sogecable/Canalsatélite
Digital/Vía Digital, decision dated 14 August 2002, published on
the Commission's website:
http://europa.eu.int/comm/competition/mergers/cases.
(25) See case COMP/M.2050 Vivendi/Canal+/Seagram, recital 19.

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16.4.2004

system of commercial exploitation by pay-TV operators
tends to vary as well: while first window films are
normally
second
window films tend to be broadcast in specialised movie
channels.

in premium channels,

included

(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 (26) 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
second window rights may be
marketed in the future in Italy.

is possible that

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
in the
limited to the Italian national territory. Thus,
present case the geographic scope of
is
national.

the market

(b) Rights to football events

(61)

investigation has largely confirmed that
The market
Premium motion pictures
stand-alone
constitute
‘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.

a

(64)

for

The Commission has stated in previous cases (28) that
there is a separate market
the acquisition of
exclusive broadcasting rights for football events played
(the
every year where national
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.

teams participate

G e o g r a p h i c s c o p e

(65)

(62)

the Commission has
In a number of Decisions
considered the geographic market to be national or, in
certain cases, regional (27). Although most of the rights
are sourced from the United States (from the so-called
Hollywood majors) and nothing prevents operators from

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.

(26) Pay-TV exhibition rights

(especially those supplied by larger
producers) are often acquired through so called output deals.
Output deals agreements are typically agreements pursuant
to
which a film producer sells all or most of the production of its
studio to a given operator. As regards output deals for pay-TV,
pay-TV operators buy the window for TV broadcasting subsequent
available,
to
pay-per-view and
video
the same film may also be
video-on-demand.
these
to other exhibition windows. The pricing of
subject
contracts takes into account the box office results of the movies in
theatrical distribution. Typically,
free-TV broadcasters purchase
subsequent exhibition windows which are commonly referred to
as free-TV windows.

and, where
In these cases,

home

(27) Case COMP/M.2050 — Vivendi/Canal+/Seagram, case COMP/

M.2845 — Sogecable/Canalsatélite Digital/Vía Digital.

(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
a
that
contents
for pay-TV operators.
stand-alone

type of
‘driver'

football
content

constitutes

this

(28) Case 37.576 - UEFA's broadcasting regulations, case COMP/M.2483
Canal+/RTL/GJCD/JV, case COMP/M.2845 Sogecable/Canalsatélite
Digital/Vía Digital.

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L 110/83

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,
from other
contents acquisition markets.

clearly distinguishable

(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,
lead to the
strengthening of a dominant position
creation or
regardless of the alternative product market definitions.

since the concentration will

G e o g r a p h i c s c o p e

G e o g r a p h i c s c o p e

(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
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.

geographic

implies

that

the

(68)

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

(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
the Olympic Games, have a
sport events
such as
from the viewers' perspective.
pan-European interest
Another
a
sports
of
pan-European basis are those acquired by the Eurosport
channel, broadcast all over Europe.

example

rights

sold

on

(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
to be
the market
broadcast
is still nationwide or limited to linguistic
areas.

for acquisition of

sports

rights

(c) Rights on other sport events

(d) TV channels

the market

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

(74)

(69)

(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
the
acquisition of exclusive broadcasting rights for these
sport events can be considered as a separate product
market, distinguishable from other content acquisition
markets.

indicate

that

of

operation

The market investigation in this case has confirmed that
channels marketed
pay-TV
the
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 (29), are essential
for putting together pay-TV services and constitute a
separate product market (30). Premium channels are
normally produced by pay-TVs with premium content
(sports and movies) previously acquired from original
also
rights owners. The market
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.

investigation has

(29) Case IV/36.237 – TPS (OJ L 90, 2.4.1999, p. 6).
(30) Case COMP/M.2845 – Sogecable/Canalsatélite Digital/Vía Digital.

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16.4.2004

resale

(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
This
for
characteristic of supply,
the type of
contents offered and the pricing terms (lower price per
hour
contents) means TV
channels can be considered as a separate product
market, distinguishable from other contents acquisition
markets.

to
the features of

compared to exclusive

TV broadcasters.

(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
for example,
of channel
sports, children or news), since the concentration will
create
the
alternative product market definitions.

situation regardless of

a monopsony

thematic ones,

(generic or

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

G e o g r a p h i c s c o p e

(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

(79)

is characterised by the
The Italian pay-TV market
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

Advertising

Subscriptions

Source: Form CO.

Total

1999

[…]*

[…]*

[…]*

2000

[…]*

[…]*

[…]*

(EUR 000)

2001

[…]*

[…]*

[…]*

TABLE 2

Volume (number of subscribers)

2000

[…]*

2001

[…]*

1999

[…]*

Source: Form CO.

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Official Journal of the European Union

L 110/85

(80)

(81)

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

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

(EUR 000)

Telepiù

Stream

Total

Source: Form CO.

Telepiù

Stream

Total

Source: Form CO.

1999

[…]*

[…]*

[…]*

2000

[…]*

[…]*

[…]*

TABLE 4

Volume (Number of subscribers)

1999

[…]*

[…]*

[…]*

2000

[…]*

[…]*

[…]*

TABLE 5

Market share (value/volume)

2001

[…]*

[…]*

[…]*

2001

[…]*

[…]*

[…]*

1999

2000

2001

Value

Volume

Wert

Volume

Value

Volume

(%)

Telepiù

[85-95]*

[70-80]*

[75-85]*

[65-75]*

[65-75]*

[60-70]*

Stream

[5-15]*

[20-30]*

[15-25]*

[25-35]*

[25-35]*

[30-40]*

Total

100

100

100

100

100

100

Source: Form CO.

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

(82)

(83)

in Italy and across the EEA, by very high levels of costs
The pay-TV market is characterised,
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.

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)

(86)

(87)

inter alia, by long term exclusive contracts with premium content
These costs are determined,
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
Internet, UMTS (31), etc.).
way of other existing and future means of
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.

transmission (cable,

Since the beginning of the pay-TV business in Italy in 1991 and after the inception of Stream in
1998,
significantly affected the
profitability of the competitive platforms, as shown by the data submitted by Newscorp.

these broadcasting costs have skyrocketed. This

factor has

the notifying party has reported (in the documents submitted in the course of

the
Indeed,
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:

(31) Universal mobile telecommunications system.

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TABLE 6

Net losses

Stream

—

[…]*

[…]*

[…]*

[…]*

(EUR million)

Total

[…]*

[…]*

[…]*

[…]*

[…]*

1998

1999

2000

2001

Aggregate 1998 to 2001

Source: Elaboration on form CO data.

Telepiù

[…]*

[…]*

[…]*

[…]*

[…]*

(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 (32).

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

Telepiù

Stream

Total

1999

[…]*

[…]*

[…]*

Source: Elaboration on data provided by the parties.

2000

[…]*

[…]*

[…]*

2001

[…]*

[…]*

[…]*

(EUR 000)

2002

[…]*

[…]*

[…]*

(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

(32) Decision of the Italian Antitrust Authority (IAA) of 13 May 2002, paragraph 33 (case C/5109).

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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

Telepiù

Stream

Total

1999

[…]*

[…]*

[…]*

Source: Elaboration on data provided by the parties.

2000

[…]*

[…]*

[…]*

2001

[…]*

[…]*

[…]*

(EUR 000)

2002

[…]*

[…]*

[…]*

(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

Telepiù

Stream

Total

1999

[…]*

[…]*

[…]*

Source: Elaboration on data provided by the parties.

2000

[…]*

[…]*

[…]*

(EUR 000)

2001

[…]*

[…]*

[…]*

(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
the
cost of acquisition of

these rights is also quite substantial as compared to the rest of

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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

2000

[…]*

[…]*

[…]*

2001

[…]*

[…]*

[…]*

(EUR 000)

2002

[…]*

[…]*

[…]*

Telepiù

Stream

Total

1999

[…]*

[…]*

[…]*

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 150 000 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
the simultaneous
transmission of a wide number of channels, programmes and sport events which are typical of a
pay-TV bouquet.

technologically much less adequate to support

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(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
the pay-TV era via
(heritage of
is only
analogue
marginally developed (through the operator e.Biscom)
and digital
in its
experimental phase.

the beginning of
terrestrial means), whilst

television (DTT)

terrestrial

cable

is

for

non-discriminatory terms for third parties and contains
simulcrypt obligations (34). However,
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
the DTH platform), no
ownership by Newscorp of
effective competition from DTH can reasonably be
expected after the merger unless additional guarantees
are established.

2.1.(a) Competitive scenario: cable and DTH

2.1.(b) Prospects for the development of DTT

(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
in Italy allows for
that
further growth of cable operators, such as e.Biscom,
which owns a network for the provision of TV services
that
reaching nearly one million
is
households.

the competitive environment

capable of

subscribers.

(102) As regards cable operators, at present e.Biscom only
provides video-on-demand and interactive TV services
to [10 000 to 20 000]
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.
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.

In addition,

(103) As the Commission pointed out

in a statement of
to Newscorp there will be virtually no
objections
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' (33). 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

(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)
regarding
frequencies for broadcasters and set top boxes. It has
recommended that
the Italian State should subsidise
each household with a digital decoder.

highlighted

difficulties

has

the

(i) operators would need to invest

(106) According to a study published by the Commission (35),
quoted by third parties, in order to achieve the expected
benefits of DTT, the following obstacles would need to
be overcome:
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
(iii)
receivers,
regulators would have to modify national frequencies so
that simulcasts can be organised.

to receive DTT;

(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

l'attuazione della direttiva

(34) Decreti legislativi approvati dal Consiglio dei Ministri del 30 aprile
comunitaria 95/47/CE
1999, per
televisi. Decreto legislativo 17 maggio
concernente dei segnali
1999. Attuazione della direttiva 95/47/CE in materia di emissione
ref: GURI no 145, 23/06/1999. Legge 78
di
29.3.1999, Delibera AGCOM 216/00.

televisi

signali

(33) For example, see The News Corporation Goldman Sachs Media

Conference October 1, 2000
http://www.newscorp.com/investor/presentations.html.

(35) Digital Switchover in Broadcasting — Final Report 12 April 2002
the European Commission.

by BIPE, Consulting Study for
Published by DG Information Society.

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absolute certainty that a decoder in a particular area
would actually receive the signal (36). 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
for
customers to pay for pay-TV remains the extensive
choice of channels offered.
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.

the main incentives

If

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

(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
satellite. According to the
than for
much higher
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
the competitiveness,
indicated by third parties
attractiveness
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.

and usefulness of

that

(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.

(111) Newscorp

of

the

that

argues

strength

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'
In this
recognised by the Commission in the past.
respect,
regards
that, as
the notifying party states
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
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.

first window premium films and most

(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
the three nationwide Mediaset TV
97,10. Moreover,
channels can be viewed for
local
free. As
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.
the
These
competitive constraint stemming from free-TV operators
vis-à-vis the pay-TV platform is rather limited at the
moment.

circumstances highlight,

regards

inter

alia,

that

(110)

In view of the above, it is not possible to assess with a
sufficient degree of certitude if and when effective

2.1.(d) Conclusion

(36) However, this seems only to be the case for earlier deployments of
DTT technology which have been based on unrealistic coverage
assumptions.

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

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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
This
infrastructure is constituted by a conditional access
system (CAS), and by a decoder (also called set top box
(STB)).

them for

authorised

viewer.

the

the

access

technical

services necessary

(116) The Commission has examined in previous decisions the
possible existence of a product market for the wholesale
provision of
for
pay-TV (37).
‘These services essentially comprise the
the provision of
making available of settop boxes,
cards,
conditional
subscriber management
the
services relating to accessing the electronic programme
guide and the writing of applications compatible with
the application programming interface included in the
set
the provision of digital
interactive television services also requires a system to
allow financial transactions to be conducted in a secure
environment (38).'

including smart

and possibly

In addition,

top boxes.

services,

services

2.2.(a) Conditional access system (CAS)

broadcasters

to encrypt/scramble

(117) A CAS is a technology, which allows network operators
and
digital
transmission signal (39), which is then broadcast via
satellite, cable or terrestrial systems to the STB. When
the digital signal reaches the STB, a smart card (40),
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.

the

(121)

(118) Newscorp is present

the
in the
conditional access system sector through a controlling
stake of approximately 80 % in NDS, a conditional
access system license supplier. More particularly, NDS

supply-side of

for

provides conditional access and related products and
the management,
control
services
and secure
and information to
entertainment
distribution of
television. The
therefore be
combined entity will
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 (41). 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
by Canal+Technologies
respectively).

produced

for

specific

services

pay-TV (42),

In this context, regardless of whether separate product
markets can be envisaged for CAS, STB and other
technical
the market
investigation carried out by the Commission has
technical
highlighted
concerns
services
relating to
conditional
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

for pay-TV and in particular
systems.

regarding

access

Such

(37) See

cases

IV/M.993 — Bertelsmann /Kirch/ Premiere,

and
IV/36.539 — British Interactive Broadcasting/Open (OJ L 312,
6.12.1999, p. 1) recital 30.

(38) See case IV/36.539 — British Interactive Broadcasting/Open.
(39) The encrypted data transmitted comprise television signals and
other data like information on the programmes or packages of
programmes subscribed to, as well as on the entitlement of the
pay-TV subscribers to receive the programmes.

(40) A smart card is a miniature computer with a microprocessor,
memory and internal operating system, which is used to operate
as a security barrier, granting or denying access to a given service.

(41) The two biggest providers of CAS at a EEA level are NDS
(belonging to the Newscorp group) and Canal+ Technologies
(which belonged to the Vivendi group and which has been sold to
the Thomson Multimedia Group in September 2002).

(42) As mentioned,

In

pay-TV.

in previous cases the Commission has looked at
CAS within the context of a wider market for technical services
for
Interactive
Broadcasting/Open (OJ L 312, 6.12.1999, p. 1), recital 32, the
Commission has already held that narrower product markets may
exist, given the different skills and technologies underlying each of
the individual technical services for pay-TV.

IV/136.539 — British

case

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terms

and conditions;

NDS technology for CAS to potential new entrants
under unfair
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.

secondly,

(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 (43) 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 (44)
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
regulatory
used
the
by
requirements (45)
simulcrypt
obligations
interoperability between
requiring implementation of
different CAS.

new entrant.

foresee

Italian

(124) However, the market investigation has suggested that,
is not
most likely, the Italian regulatory requirement
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
time (46) and a
implement within a short period of
much more realistic option for any new entrant would
the NDS technology. A
be obtaining a licence for

(43) Directive 95/47/EC of the European Parliament and of the Council
of 24 October 1995 on the use of standards for the transmission
of television signals (OJ L 281, 23.11.1995, p. 51).

(44) Directive 2002/19/EC of

the
Council of 7 March 2002 on access to, and interconnection of,
electronic
communications networks and associated facilities
(Access Directive) (OJ L 108, 24.4.2002, p. 7).

the European Parliament and of

(45) AGCOM (Italian authority for communications) Decision N.

216/00/CONS.

(46) The effective implementation of simulcrypt between Telepiù and
Stream took two years and the two operators were twice fined by
for not
the Italian authority for communications
complying with their obligations.

(AGCOM)

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)

it

a proprietary CAS technology,

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
the
is highly likely that,
Commission concludes 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
for
pay-TV.

the combined entity in the market

(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
the
in itself anti-competitive, whilst
transaction “may” raise barriers to entry is not sufficient
to justify a prohibition decision') (47).

‘the fact

that

the Commission's

(128) Moreover Newscorp argued that it would not have the
ability to foreclose new entry. In this context, Newscorp
quotes
case
Telia/Sonera (48) 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

decision

the

in

(47) Paragraph 5.1.3 of Newscorp's defence.
(48) Paragraph 5.1.5 of Newscorp's defence.

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will have the ability to do so, and whether it will have
any significant effect on competition in the market in
question' (49).

In view of

(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.
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
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.

to implement

to be

able

the

(131)

are not

considered

in isolation by

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
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
is an
entity,
in a monopolistic situation (on DTH)
that
aggravating
the
element
dominant position of
the combined platform in the
Italian pay-TV market.

strengthens

further

(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.

(49) Case COMP/M.2803 — Telia/Sonera recital 91. Decision dated

10 July 2002, see Commission's website
http://europa.eu.int/comm/competition/mergers/cases/.

(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
a direct
incentive
this
consequence of
monopolistic situation as
In
addition, on the basis of
the market
investigation, it is reasonable to expect that the situation
described will not change for
some time in the
foreseeable future.

regards DTH pay-TV.
the results of

the transaction bringing about

to raise barriers

to entry

is

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)

to the

important
It has been claimed that, due
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
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).

services

(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.

16.4.2004

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Official Journal of the European Union

L 110/95

(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
this
satellite channels (free-to-air and pay-DTH). At
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.

‘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.

(139)

answer

subscribers.

In its
statement of
to the Commission's
objections (50) 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
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 (51),
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.

In particular,

(141)

(142)

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'
In this
costs and raising further barriers
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
lengthy
is likely to
simulcrypt agreements to be entered into,
make potential DTH newcomers completely dependent
technological
on the
viewpoint.
technical
the
platform will give Newscorp the possibility and the
incentive to set the standard for the accepted level of

combined entity
Furthermore,

control of

from the

regardless

to entry.

platform,

possible

of

reply to the

that Newscorp will adopt

statement of objections (52),
In the
the Commission had fallen
Newscorp indicated that
short of its obligation to establish that it is more likely
such conduct.
than not
Newscorp points out
in Tetra Laval BV v.
that
Commission (53) 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).

the balance of probabilities against

In this respect the Commission submits that in the said
judgment,
the
Commission's approach was based on (i) the absence of
any presumption of collective dominance (54) 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
the
rational behaviour)
present case is based on a situation which will occur
immediately
a
the merger
quasi-monopoly).

the analysis carried out

(creation

after

for

of

(143) Therefore, on the basis of

evidence gathered
the
throughout
the procedure and having regard to the
nature of horizontal overlaps brought about by the
concentration, the Commission considers that there is
the combined
sufficient evidence to conclude that
platform will,
future, have the
necessary incentives and the actual ability to adopt the
result, will,
conduct
competition in the
ultimately,
relevant market.

indicated above,
significantly

in the foreseeable

affect

and,

as

a

(50) See paragraph 5.1.15 of Newscorp's defence.
(51) For example Digitaly's position in Stream's EPG has changed four

times over the last few years.

(52) Paragraph 5.1.11 of Newscorp's defence.
(53) Case T-5/02.
(54) See paragraph 142 of Tetra Laval judgment.

L 110/96

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Official Journal of the European Union

16.4.2004

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 (55) and [50 to 60]* (56) 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:

TABLE 11

Telepiù

American majors

Name

First window

Second window

PPV

VoD

NVoD

Expiration

Buena Vista
(Walt Disney)

Columbia

Dreamworks

Paramount

MGM

TC Fox

Warner Bros

Source: Form CO.

Confidential

TABLE 12

Italian film producers

Name

Pay-TV

PPV

VoD

NVoD

Expiration

Medusa

Eagle Picture

Fandango

Lucky Red

Mediatrade

Source: Form CO.

Confidential

(55) Of total amount of money paid in Italy for rights on premium films.
(56) This reduction in the market share as regards the volume is due to the fact that Telepiù has most of the films

produced by American majors which are the most expensive ones and the more viewed in the theatres.

16.4.2004

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Official Journal of the European Union

L 110/97

(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.

TABLE 13

Italian film producers

Pay-TV

PPV

VoD

nVoD

Expiration/ type of
contract

(57)

Confidential

Name

Cecchi Gori

Clemi

Istituto Luce

Lady Film

Mikado

Raitrade

Tangram

Palomar

Eyescreen

Lantia

CDE

Veradia

Cattleya

Source: Form CO.

(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 (58) 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.

(57) […]*
(58) In 2001, with the exception of four Italian films for which first window rights were acquired by La 7 almost 19 %

of box office stemmed from films for which no exclusive rights were purchased or marketed.

L 110/98

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Official Journal of the European Union

16.4.2004

for

the

films

(150) Following the acquisition of Telepiù by Stream and the
addition of customers in Italy, the merger will lead to a
quasi-monopolistic
acquisition of
situation for
exclusive rights
(monopsony). La 7 has
acquired an insignificant number of first window rights
on Italian films. In this respect, it has to be borne in
in particular the Hollywood
mind that right owners,
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
the
films to free-to-air TVs (accessible to 100 % of
this
theatrical exhibition,
viewers)
would seriously undermine
film
revenues of
producers.

six months after

the

situation,
in the
forecloses access to content

(151) This monopsonistic
absence of
corrective measures,
for
transmissions
third parties (also as regards means of
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
as
attempting to enter
‘fringe' or
second-tier
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.

the market
competitor. Moreover,

a

this issue is not caused by the
likelihood of entry,
merger'. This is all to say, according to the parties, that
link between the merger and the
there is no causal
possible competitive harm.
In this respect Newscorp
refers to paragraph 10 of the draft notice on horizontal
mergers (60), which indicates
‘the Commission
compares the competitive conditions that would follow
the merger with the conditions that would prevail
absent the merger'.

that

(155) As a matter of

fact, before the merger,

two pay-TV
the
operators were in a position to compete for
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.
to its obviously greater
Most
importantly,
bargaining power,
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.
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.

thanks
the quasi-monopsonist will

these considerations,

In the light of

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

preventing

potential

effect

the

of

(154)

In its reply to the statement of objections (59), Newscorp
the transaction would not modify the
argued that
situation, as ‘the contracts entered into by
current
Stream and Telepiú for the acquisition of rights are
already in place and are not affected by the merger.
the
Insofar as the network of contracts may affect

(59) Paragraph 6.1.3 of Newscorp's defence.

in 2004 and,

(156) Newscorp also points out (61) 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
taking into
Italian market
account all the evidence and other relevant factors, it is
likely that MGM and TC Fox will exercise the unilateral
renewal
that
significant
right.
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.
in its historical
The
perspective renders the claim of Newscorp unlikely.

economic

therefore,

secondly,

context,

in this

respect

is

It

(60) http://europa.eu.int/comm/competition/mergers/review/

final_draft_en.pdf.

(61) Paragraph 6.1.4 of Newscorp's defence.

16.4.2004

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Official Journal of the European Union

L 110/99

3.1.(b) Acquisition of sport content in general

3.1.(c) Acquisition of exclusive broadcasting rights

to football events that take place regularly
(every year) where national teams participate

L e g a l f r a m e w o r k

(157) Article 3a of the ‘television without frontiers' Directive
as amended (62), 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 (63). 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
the
acquisition of technical equipment.

incurring additional costs for

(158) The listed events for Italy are:

(c)

(a)

live coverage);

live coverage);

in official competitions;

the summer and
winter Olympic games; (b) the football World Cup and
all matches involving the Italian national team (to be
the European football
given full
championship final and all matches involving the Italian
national team (to be given full
(d) all
matches involving the Italian national football team, at
home and away,
(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
in particular by
in due course,
to amend the list
including the following events: (a) finals of basketball,
championships
water
involving the Italian national team;
(b) the final and
semi-finals of the Davis Cup where the Italian national
the road cycling world
team is
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.

involved; and (c)

volleyball world

polo

and

(62) Council Directive 89/552/EEC of 3 October 1989 on the
coordination of certain provisions laid down by law, regulation or
administrative action in Member States concerning the pursuit of
television broadcasting activities (OJ L 298, 17.10.1989, p. 23) as
amended by Directive 97/36/EC of the European Parliament and
of the Council (OJ L 202, 30.7.1997, p. 60).

(63) Regulation or administrative action in Member States concerning
(OJ C 277,

television broadcasting activities,

the pursuit of
30.9.1999, p. 3).
http://europa.eu.int/eur-lex/de/consleg/pdf/
1989/de_1989L0552_do_001.pdf.

(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
is to say
in a single DTH platform scenario (that
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 (64) and Napoli
[…]*), Brescia,
Chievo Verona, Empoli, Modena and Siena (until […]*).
These rights
[45 to 55]* % of A series
matches. In addition it has exclusive rights for the UEFA
Champions League for the 2002/2003.

represent

(until

(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 (65) 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
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.

its greater bargaining power,

result of

a

(64) Roma, Lazio, Parma.
(65) As explained above,

football clubs especially the medium and
small ones are reluctant to sell their rights to free-to-air TVs given
that pay-TV platforms have the possibility to broadcast several
matches at the same time and in order to preserve attendance to
stadiums. Free-to-air TVs only compete for the acquisition of
rights for the UEFA cup and the UEFA Champions League and
Coppa Italia.

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3.1.(d) Acquisition of exclusive broadcasting rights

(167)

to other sport events

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

championship,

important

sailing

(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
the
result
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.

bargaining

greater

power,

its

of

(163) Stream and Telepiù have

for

an
rights
exclusive
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
the following sport events: golf
exclusive rights for
(PGA Tour 2002, Ryder Cup, Open Italia (66) and
[…]*, British Open, US Golf
Augusta national until
tennis (Roland
Association and US PGA until […]*),
Garros (67) and US Open (68) until
[…]*, Australian
Open, until […]*), basketball (NCAA, NBA and ULEB
Euroleague until
[…]*)
Motonautic (UIM F1 Powerboat until […]*), volleyball
(Lega pallavolo serie A femminile for […]*), rugby (Lega
Italiana for […]*, Trinitation 2002 […]*), boxing (Tyson
vs Lewis until […]* (69)),
(NFL seasons until
[…]*), car races (Le Mans 2002, 24 hours Spa until
[…]*) etc.

FIBA until

football

several

[…]*,

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

Series, WTA Roma

(Tennis Masters

(PGA Tour

[…]*, golf

(166)

If

sport events.

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
sports were to be
individual
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]* %.

(66) Live rights only.
(67) Exclusive rights for Roland Garros are not applicable in relation to
Eurosport provided that Eurosport transmits matches from quarter
finals onwards in languages other than Italian.

(68) Exclusive rights for the US Open are not applicable in relation to
from

Eurosport provided that Eurosport
quarters final onwards in languages other than Italian.

transmits matches

(69) Live rights only.

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).

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(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.

‘bidding' is de facto accessible to a limited number of
operators with certain characteristics.

for

(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 %)
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.

(176) As

first

regards

acquisition of

(and at
least
the
theoretically second) windows
for premium movie
rights, ‘bidding' is restricted to pay TV operators, due to
the business model of the Studios (70) that is to say, the
segmentation per windows. De facto free-to-air TV
operators are prevented from acquiring such rights in
competition with pay-TVs.

(177) Similar conditions of ‘restricted bidding' occur de facto
as regards the acquisition of most rights for football
events that
take place regularly (every year) where
national teams participate, namely the A series and B
series championships. As already indicated, it emerged
clearly from the market tests that right owners (football
teams) prefer to sell rights to pay-TV operators rather
than free-to-air in order to avoid a negative impact on
stadium attendance (the other main source of revenues).
Once again,
that de facto free-to-air TV
operators do not effectively compete with pay-TVs for
the acquisition of such rights.

seems

it

(178)

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

(174) As

rights

regards

in general

the acquisition of

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
is, according to
Newscorp, a ‘bidding market'.

for contents

Finally, as regards rights to the other sport events (for
example, tennis and golf) although bidding conditions
do appear to be more open, de facto the two existing
pay-TV operators already (and the combined platform
will) hold a dominant position as regards the acquisition
of exclusive rights for these sport events. This further
illustrates that most exclusive rights of all sorts tend to
be purchased by pay-TVs even when right owners have
no reasons, inherent to their business model, to prefer
pay-TVs over
the
probative value of the arguments put forward by the
parties
future market
as
conditions and the possible behaviour of the merged
entity and its potential competitors.

also undermines

to the merger

free-to-air.

regards

It

4. OVERALL CONCLUSIONS ON THE HORIZONTAL AND
VERTICAL EFFECTS OF THE CONCENTRATION IN THE
AFFECTED MARKETS

(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

(179) On the basis of the foregoing, it can be concluded that:

(70) Throughout this document the word ‘Studios' identifies both the

Hollywood majors and the Italian film producers.

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16.4.2004

4.1. Newscorp will have the monopoly as a pay-TV

supplier in Italy

where, as indicated by Newscorp, every household with
television can receive a great number of
free-access
channels.

in Italy

(180) Stream and Telepiù are presently the only pay-TV
suppliers
although e.Biscom, DTT
and,
broadcasters and DTH channels or an alternative DTH
platform could potentially act as competitive constraints
in the future, there are not sufficient guarantees that
potential competitors will have access
to premium
content (especially premium films from the Hollywood
majors and football matches of national teams). These
specific contents are essential for the survival of any
pay-TV operator and they will not be available in the
market.

4.2. Newscorp will have access to the most attractive

and most comprehensive content

(181) Access to premium contents, mainly recent films and
football events but also other sports events, is vital to
the successful operation of a pay-TV. These contents
incite potential conumers to subscribe. Access to second
also
window films
important
for potential competitors which would be
interested in creating an alternative platform.

and non-live

events

sport

is

4.3.1. Foreclosure effects

(184) Premium programme

films

(recent

resources

supplier will have access

and
football rights) are in short supply. Moreover, as a
general rule broadcasting rights for premium content,
(particularly premium films of the Hollywood majors)
long term exclusive
are granted on the basis of
contracts. For the duration of the existing contracts, no
other
combined
platform's programme resources.
In addition football
rights are extremely expensive and acquisition of such
rights entails an important financial risk. Thus, potential
competitors will not be in a position to create an
alternative successful pay-TV platform. As regards other
means of transmission, the only existing cable operator
(e.Biscom) will have the capacity to reach a very limited
number of households and potential DTT competitors
will only be operational in the medium-long term.

to the

(182) As indicated above, the Commission's investigation has
shown that the combined platform will have access to
programme resources unparalleled in Italy. In addition,
‘pay-TV driver' content,
part of the essential content,
namely films of the majors will not be available in the
market within a reasonable time (until the end of […]*),
if unilateral renewal rights are exercised by MGM and
TC Fox.

(185)

It is also unlikely that the situation will change in any
way once the current contracts for pay-TV rights have
expired. Theoretically, pay-TV services could potentially
be supplied in Italy by alternative DTH operators, cable
operators such as e.Biscom and DTT operators. As
indicated above, output deals
concluded with the
Hollywood majors will begin to expire by the end of
[…]* (if MGM and TC Fox exercise their renewal right).
Although contracts with sports rights suppliers expire at
earlier
stages, potential competitors would have to
match the combined platform's offers for these rights.
The chances for potential competitors to be able to offer
attractive pay-TV appear at this stage to be very low.

4.3. No other undertaking will have the essential

content to establish an alternative pay-TV

(186)

(183) Access to rights is even more important for pay-TV
than for free TV. In order to entice the consumer to
subscribe, or to take particular productions on pay-per
view basis, certain specific types of content are crucial.
In order to be sufficiently attractive a pay-TV package
must include a combination of premium rights for first
least second window films and for
window, or at
popular sport events. This is especially true in Italy,

In view of its market position, the combined platform
will be well established by then. Competitors' prospects
of securing any substantial volume of attractive pay-TV
broadcasting rights will be small. To have any hope of
acquiring broadcasting rights, it is vital to have access to
viewers, in the form of an established subscriber base.
The prices of pay-TV rights are usually determined by
reference to the number of subscribers, subject to a
stated minimum. This is certainly the case in output
deals with the Hollywood majors. As the combined
platform's subscriber base can be expected to be the
largest in the years to come,
it follows that a sale of
rights to Newscorp should secure a considerably higher
price than a sale to a newcomer. A newcomer would

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L 110/103

to guarantee

a minimum subscriber

also run a considerable financial risk by concluding
output deals, at least for first window films. It would
have
base
equivalent
to that guaranteed by Newscorp, without
being in a position to achieve the guaranteed figure.
Newscorp will have a competitive advantage compared
to any potential competitor
in the negotiation of
contracts for premium content, even if these potential
competitors possessed the resources to acquire rights
from one or two majors.

competition can surface in the pay-TV market from (at
least initially) smaller and less prestigious operators (71).
The foreclosing effect of the protection rights held by an
incumbent
pay-TV
operator vis-à-vis potential entry is undeniable. Indeed,
the quintessential
foreclosing the market constitutes
objective of such protection rights.

(near-monopolist/monopsonist)

(187) The Commission has therefore concluded that contracts
affording the merged entity exclusive rights with studios
will foreclose potential market entry.

(188) Moreover, as

rights

theatrical

explained above,

to premium
movies for pay-TV purposes can be acquired in different
formats (so-called windows) depending on the timing of
the allowed exhibition. The closer this timing to the
timing of
the more valuable the
window and thus the premium content. Second window
rights are usually valued at a fraction of
the first
window pay-TV rights. It can reasonably be argued that,
owing to their price differential and to their different
time of broadcasting, first and second window rights to
premium movies are de facto dissimilar products.

release,

(189) Telepiú holds a number of exclusive rights on first
window movies pursuant to output deals with Studios.
the same output deals with most
On the basis of
majors, Telepiú also holds protection rights
(for
for second window rights,
example, holdback rights)
effectively
‘second window
movies' from ever reaching the market by creating a
sort of ‘black-out' period.

the product

impeding

(a)

(190) This ‘protection' or black-out rights not only have the
objective of
from
having access to cheaper premium contents but also
have the effect of (b) depriving consumers of their right
to choose the time and price at which they prefer to
view pay-TV products.

foreclosing potential entrants

(192) As

regards

fundamental

consumers of

the restriction of consumer choice, by
exercising such protection rights, a pay-TV operator
to
their
deprives
choose. Consumers' preferences, price sensitivity and
needs differ greatly, in all markets and with respect to
all products. If second window movies were never to be
accessible, consumers wishing to have access to pay-TV
a
forced
products would
‘one-format-fits-all' scenario, at the timing (first window)
and at the price established by the pay-TV operator.

consume

right

be

to

in

(193)

in the

absence of protection rights
In contrast,
effectively withdrawing second window movies from the
market, consumers would have the possibility to choose
between ‘first tier' pay-TV operators, offering premium
movies at a timing closer to theatrical release at a
fee and a ‘second tier' operator
higher (subscription)
offering the same contents at cheaper prices although
to theatrical
further down the time-line with respect
release.
the
for
scenario,
preferred form of consumption of pay-TV services
would rest entirely with the consumer.

the right

In this

to opt

for broadcasting on the

(194) Should the new entity decide to buy itself second
window rights
combined
platform rather than simply blocking access to them for
potential competitors, such rights would still not be
available for a potential entrant. However, this would be
the result of commercial
transactions between the
combined platform and one or more Studios and not
In any event, second
the effect of blackout clauses.
window contents would eventually reach the market,
albeit through the offer of the near-monopolist.

(191) As regards market foreclosure, if second window rights
were available for negotiations with the studios (in
particular with the majors), a potential new pay-TV
operator would have the possibility to enter the market
with lower financial
investments and lesser risks and
would be able to offer cheaper premium contents at
some time after the merged entity. Examples in other
that
national markets

in the Community indicate

(195)

It is therefore concluded that any protection right or
black-out rights have the objective and the effect of
foreclosing potential market entry and have the effect of

(71) Second window rights are exploited in France by TPS, which has
in
established itself as a significant competitor to Canal+ and,
Belgium, by Cinenova.

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16.4.2004

harming consumers, by preventing access to premium
contents for both potential competitors and potential
pay-TV consumers.

(196) Finally,

in the case of regular football events where
national teams participate, any potential competitor will
also have to match the offers of the combined platform
in order to acquire these rights. The importance of the
price of these rights in overall costs is extremely high
compared to other rights. The financial risk for a new
entrant to subscribe contracts with football clubs would
be much higher than for the combined platform.

(197) Accordingly, without corrective measures, it is unlikely
that e.Biscom or any other potential competitor (on
DTH or on DTT) will be in a position to establish a
fully-fledged
platform of
alternative
equivalent reach for the following reasons:

programme

(a)

they do not hold exclusive rights for premium
content;

it had the choice between several
more easily if
competing platforms. Such choice existed in Italy before
the proposed transaction.
an
alternative platform in Italy, however, potential DTH
competitors on the Italian market or
free channels
wishing to offer their own channels to subscribers of
the combined platform will in the future be dependent
on access to Newscorp's platform.

absence of

In the

(199) This means that every DTH pay-TV operator which is
not able to set up an alternative infrastructure and every
free channel transmitted via digital satellite wishing to
reach the combined platform's
subscribers will be
obliged to have its channels broadcast via Newscorp's
platform.
corrective measures
absence of
Newscorp would thus gain a large degree of control
upon these competitors' activities and would be in a
position to determine to some extent the conditions on
which other pay DTH operators competed with it or the
conditions under which its subscribers had access to
free-to-air digital satellite channels.

In the

(b) most rights (in particular rights to the Hollywood
majors' movies) will not be available on the market
for a number of years;

(200) Newscorp will be in a position to refuse access to its
to impose unfair or discriminatory

platform or
conditions.

(c) many football rights and sports rights for important
events will not be available for the coming years;

(d) the financial risk incurred by a new entrant when
events
rights

buying
constitutes an additional barrier to entry.

exclusive

football

for

4.4. Newscorp will be the ‘gatekeeper' of a tool

(Videoguard CAS) that may facilitate entry for
any alternative pay DTH operator and of an
infrastructure (the platform) that may ease the
conditions for the broadcasting of pay- and
free-TV satellite channels

(198)

through access

In principle DTH pay-TV operators have a choice
between building up their own infrastructure or offering
to an existing
their programmes
new
a
of
platform. However,
infrastructure
a
juncture,
to be,
theoretical alternative at best, certainly not available to
operators without sufficient programme resources to be
able to make a premium offer. An outsider would
usually be able to gain access to an existing platform

setting
at

up
this

appears

the

be

can

obstructed

(201) Moreover, any alternative pay-TV platform wishing to
enter the Italian market will need a CAS in order to be
in a position to broadcast encrypted programs. As
indicated above, Newscorp is the owner of NDS CAS
(Videoguard). Although the existence of access rules
contained in Directive 95/47/EC (72) and Directive
2002/19/EC (73) might reduce and assuage the concerns
in this respect, third parties believe that access to NDS'
unless Newscorp
technology
undertakes to comply with those rules and appropriate
and effective dispute settlement is put in place. Should
this not be the case, long disputes on prices will arise
which in the meantime will undermine the possibility to
the adoption by a
compete. On the other hand,
the
in spite of
newcomer of a different CAS can,
law
simulcrypt
Italian
imposed
obligations
transposing Directive 95/47/EC,
in all
to entry given that
likelihood an additional barrier
effective application of these simulcrypt obligations has
required in the past up to two years and can be
extremely expensive.

by
constitute

(72) Directive 95/47/EC of the European Parliament and of the Council
of 24 October 1995 on the use of standards for the transmission
of television signals (OJ L 281, 23.11.1995, p. 51).

(73) Directive 2002/19/EC of

the
Council of 7 March 2002 on access to, and interconnection of,
electronic communications networks (OJ L 108, 24.4.2004, p. 7).

the European Parliament and of

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(202) The merged platform,

in the absence of corrective
measures, will thus be in a position to raise rivals' costs
by controlling third parties' access to the DTH platform
services and to CAS.

(203) Consequently,

the possibility for a newcomer DTH
broadcaster, which is not able to set up an alternative
infrastructure, to be in a position to become operational
to raise
will depend on Newscorp's goodwill not
barriers when giving access to its platform services. In
addition
newcomer DTH
broadcaster to be in a position to compete effectively
with Newscorp will depend on Newscorp licensing its
NDS CAS or fulfilling simulcrypt obligations in time
and on transparent and non-discriminatory terms and
conditions.

possibility

the

for

a

4.5. Duration of dominance

(204) All the evidence shows that it is highly unlikely that any
alternative competitor will be in a position to effectively
compete with the parties in the foreseeable future, by
any means of transmission. e.Biscom, the only possible
competitor currently in the market in the cable segment
will only have a capacity to reach 1 million households
in the near future (5 % of Italian households), whereas
Italian
satellite has the capacity to reach virtually all
households. On the other hand DTT is expected,
according to the governments' plans,
to start being
operative in Italy only by the beginning of 2007.
However,
the Commission's investigation has shown
that this will probably not be the case and that a longer
time frame is to be envisaged. Finally, no alternative
DTH platform will be in a position to enter the market
facilities is not
if access to content and to technical
and
reasonable
guaranteed. Accordingly,
convincing grounds for the Commission to conclude
that, as a result of
the transaction, Newscorp will
continue to be the only pay TV operator in Italy for a
considerable time in the foreseeable future and that this
effective
will most
competition.

significantly

impede

likely

there

are

V. APPLICATION OF THE CONCEPT OF THE ‘RESCUE
MERGER'

(205) To date, the Commission has only twice based a merger
decision on the
‘rescue merger'
(commonly referred to as failing company defence), in
case Kaliund Salz/MKD/Treuhand (74)
(hereinafter Kali

concept of

the

(74) Commission Decision of 14 December 1993 relating to a
proceeding pursuant to Council Regulation (EEC) No 4064/89,
(OJ L 186,
Case No IV/M.308 — Kali-Salz/MdK/Treuhand)
21.7.1994, p. 38).

und Salz) and in the BASF/ Eurodiol/ Pantochim
decision (75).
In Kali und Salz the criteria set by the
Commission for the application of the rescue merger
defence were the following: (a) the acquired company
would in the near future be forced out of the market;
(c) the
(b) there is no less anti-competitive purchaser;
acquiring undertaking would gain the market share of
the acquired undertaking if it were forced out of the
market.

(206) According to its judgment

link

resulting

competitive

between the

in Kali und Salz (76)

(31
March 1998), the Court of Justice found that a merger
can be regarded as a rescue merger if the deterioration
in the
from the
structure
concentration would occur in a similar fashion even if
the concentration did not proceed. According to the
Court of Justice (77) ‘The introduction of this criterion
(the acquiring undertaking would gain the market share
of the acquired undertaking) if it were forced out of the
market is intended to ensure that the existence of a
causal
the
deterioration of the competitive structure of the market
can be excluded only if
the competitive structure
resulting from the concentration would deteriorate in
the concentration did not
similar
proceed. The criterion of absorption of market shares,
although not
the Commission as
sufficient in itself to preclude any adverse effect of the
concentration on competition, therefore helps to ensure
the neutral effects of the concentration as regards the
deterioration of the competitive structure of the market.
This is consistent with the concept of causal connection
set out in Article 2(2) of the Regulation'.

concentration and

fashion even if

considered by

(207)

Justice,

the existence of a causal

In its Decision in BASF/Eurodiol/Pantochim,
the
Commission indicated that the approach taken by the
Court of Justice is wider than the criteria set out in the
Commission's Decision in Kali und Salz. According to
link
the Court of
between the concentration and the deterioration of the
competitive structure of the market can be excluded and
so a merger can be regarded as a rescue merger only if
from the
the
concentration is expected to deteriorate in similar
fashion even if the concentration were not allowed to
proceed, that is to say, even if the concentration were
prohibited.
the
BASF/Eurodiol/Pantochim Decision, the concept of the
‘rescue merger' requires that
the undertakings to be
acquired can be regarded as ‘failing firms' and that the

competitive

according

structure

resulting

general

terms,

to

In

(75) Case COMP/M.2314, BASF/Eurodiol/Pantochim decision of 11 July
2001 (OJ L 132, 17.2.2002, p. 45) and also published on the
Commission's website:
http://europa.eu.int/comm/competition/mergers/cases/.
(76) Joined cases C-68/94 and C-30/95, France v Commission.
(77) Points 115 and following of the judgment in Joined Cases C-68/94

and C-30/95.

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the cause of

the
merger is not
competitive structure. Thus, for the application of the
rescue merger, two conditions must be satisfied:

the deterioration of

(a)

the acquired undertaking would in the near future
be forced out of the market if not taken over by
another undertaking; and

(b) there

is
purchase.

no

less

anti-competitive

alternative

(208) However, the application of these two criteria does not
completely rule out the possibility of a takeover by third
parties of the assets of the undertakings concerned in
the event of their bankruptcy. If such assets were taken
over by competitors
in the course of bankruptcy
proceedings, the economic effects would be similar to a
takeover of the failing firms themselves by an alternative
purchaser. Thus, the Commission in that particular case
decided that, in addition to the first two criteria, it was
necessary to establish that:

(c)

assets

the
to be purchased would inevitably
disappear or exit from the market in the absence of
the merger.

(209)

(210)

the application of

In any event,
the
‘rescue merger' requires that the deterioration of the
competitive structure resulting from the merger is at
least no worse than that which would have occurred in
the absence of the merger.

the concept of

the conditions

In its reply to the statement of objections, Newscorp
for a ‘failing company
argued that
defence' were met
in the
absence of the merger, Telepiù would gain a position
comparable to the combined platform's after the merger
and that
the assets of Stream would
in any event
inevitably exit the market.

in this case, namely that,

(211) Before examining this claim,

argues

Stream,

it should be noted that
jointly
Newscorp
currently
that
the
is
controlled by Newscorp and Telecom Italia,
‘failing firm' which would exit the market but for the
merger. The present transaction is in fact a combination
of a change from joint to sole control of Stream by one
of its parent companies, Newscorp, and its merger with
another company (Telepiù). As Stream is a separate
‘division' of one ‘company', Newscorp, this merger raises
the question whether
the ‘failing company defence'
applies when the acquiring firm is financially healthy
but one of its divisions, which is failing, is merging with
another entity.

(212) As indicated by the Commission in its Decision in
Rewe/Meinl (78), in a case of a ‘failing-division defence'
and not of a ‘failing-company defence', the burden of
proving lack of causality between the merger and the
creation or strengthening of a dominant position falls
on the companies claiming it. Otherwise, every merger
involving an allegedly unprofitable division could be
justified under merger control
law by the declaration
that, without the merger, the division would cease to
operate. The case Rewe/Meinl involved a division of the
by Rewe. The
Meinl
importance of proving lack of causality is even greater
in the case of a claimed ‘failing division', which is
actually
could
reasonably be argued that it is possible that the buying
group might have strategic reasons to keep its failing
division alive even if the merger were to be prohibited.

acquiring company.

group that was

acquired

Finally,

the

it

(a) THE FAILING COMPANY WOULD HAVE BEEN FORCED
OUT OF THE MARKET IF NOT TAKEN OVER BY ANOTHER
UNDERTAKING

service)

(213) Newscorp argues that Stream is currently a ‘failing firm'
which will exit the market in the absence of the merger
because economic and business logic dictates that the
shareholders' decision whether
to take Stream into
bankruptcy is based on a comparison of the (negative)
net present value (NPV) of the future cash flows (before
from remaining in business with the
debt
(possibly negative) NPV from bankruptcy.
If the NPV
associated with bankruptcy is greater than the ‘remain
in business' NPV, then the rational decision is to seek
bankruptcy given that there are no realistic prospects of
Stream becoming profitable as a stand alone entity.
According to Newscorp, the exit costs that Newscorp
and especially Telecom Italia face today are significantly
lower than the ‘remain in business costs', and Stream
has not yet exited the market only because of
the
prospects of closing the transaction under consideration.
However, some third parties have argued that, with
better management and higher efforts to effectively
combat piracy,
the number of subscribers and the
corresponding revenues would substantially rise.

(214)

In the present transaction, the acquirer of sole control
of the failing company is one of its parent companies,
which is also acquiring sole control of another company

(78) Commission Decision of 3 February 1999 relating to proceedings
under Council Regulation (EEC) No 4064/89 (Case No IV/M.1221
— Rewe/Meinl) OJ L 274, 23.10.1999, p. 1).

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(217)

forced out of

(Telepiù). Although Stream is a separate legal person,
there seems to be no question that a whole firm (i.e.
Newscorp) would be
the market.
Newscorp acts as a holding company and Stream
accounts for only part of the business activities and
subsidiaries of the Newscorp group. Stream's withdrawal
from the Italian pay-TV market would accordingly take
the form of a management decision to abandon a
business activity whose development has not lived up to
the expectations of the firm's managing board.

(215)

It is important also to note that the parties have raised
this argument at a very late stage. Indeed, no mention
was made in the notification. This casts further doubts
on the probative value of their claim as nothing has
fundamentally changed since the notification.

apart

It is clear from the Commission's reasoning in the Kali
und Salz Decision that the burden of proving that there
is no alternative potential buyer
from the
acquiring firm falls,
in the Commission's opinion, on
the party claiming it. Newscorp's argument does not
from some
discharge this burden of proof. Apart
attempts to find mere financial
investors for Stream,
Newscorp has neither indicated the potential buyers
(apart from the Vivendi group for Stream and Newscorp
for Telepiù) with which Newscorp and the Vivendi
their
group have entered into negotiations
respective companies in Italy nor the reasons for which
the negotiations failed. The only attempt
its
controlling stake in Stream was made by Telecom
Italia (80) but neither Stream nor the Vivendi group
have actively tried to find a less anti-competitive
two companies.
solution than the merger of
According
the
information
Commission, neither Newscorp nor Telecom Italia have
ever put Stream on public offer.

available

to sell

to sell

the

the

to

to

(b) THERE IS NO LESS ANTI-COMPETITIVE PURCHASER

(c) THE ASSETS TO BE PURCHASED WOULD INEVITABLY
DISAPPEAR FROM THE MARKET IN THE ABSENCE OF THE
MERGER OR THE ACQUIRING UNDERTAKING WOULD
GAIN THE MARKET SHARE OF THE ACQUIRED
UNDERTAKING

(216) Newscorp argues that

for

the

existing shareholders, have

in the absence of substantial
synergies, any potential buyer would face a similar
situation to Newscorp and Telecom Italia. It is also likely
that another buyer would face greater uncertainty over
future profitability because Newscorp and Telecom
Italia,
superior
as
the business. There is no realistic
information about
prospect of a less anti-competitive purchaser emerging
because it is very difficult to imagine somebody having
large enough to substantially change the
synergies
financial
Stream from JPMorgan's
outlook
projections (79) and there were no other potential
buyers attempting to purchase Telepiù from the Vivendi
group in May-June 2002 when the sale to Newscorp
was finalised. In this respect JPMorgan notes that, to its
understanding, no other potential buyers submitted a
formal bid for either Telepiù or Stream. This was the
case despite the fact
the transaction discussions
were made public in 2001 and 2002 and the price was
reportedly negotiated down by Newscorp over
the
course of extended negotiations and there were no other
potential buyers attempting to purchase Stream from
Newscorp when the sale to the Vivendi group was
finalised.

that

(79) Document attached to Newscorp's defence. Expert report on the
financial viability of Stream SpA. This document, allegedly shows
that Stream is not financially viable as a stand-alone business in
the foreseeable future and that, absent continued funding by its
two shareholders, it would be forced into bankruptcy within the
first half of 2003.

for

(218) According to Newscorp, the assets to be acquired would
inevitably exit the market. There are two main assets
currently held by Stream whose future allocation is
the competitive conditions, namely its
critical
it
subscriber base and the rights on content
currently holds. Stream's DTH subscribers would most
likely flow to Telepiù because there is no other satellite
platform, and cable is only available in limited areas. As
regards Stream's premium rights, Newscorp argues that
acquired by Telepiù.
likely be
they would most
Following Stream's bankruptcy,
the rights would be
returned to the right holders that would be able to put
them up for sale again.

that

the

competing

(219) According to Newscorp, Telepiù would be more likely
to win these rights (for instance in comparison with
free-to-air operators).
e.Biscom or
Nevertheless it can reasonably be argued that at least
some content (for example, Champions League rights or
tennis rights) would not necessarily be acquired by
Telepiù. As indicated above, free-to-air TVs and pay-TVs
can at least to some extent compete for the acquisition
of these rights and they would be in a better position to
bid for these rights if Telepiù's financial situation were
to be weaker
the combined platform
resulting from the merger. Newscorp has not given any
indication as regards the possible acquisition by Telepiù

than that of

(80) According to Telecom Italia's submission in the oral hearing held
on 5 and 6 March 2003, in 2001 Telecom Italia gave a mandate
to a financial institution to sell its stake in Stream.

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or other companies of other assets of Stream, such as
trademarks and distribution networks.

1. SUMMARY OF THE COMMITMENTS OFFERED BY
NEWSCORP ON 13 MARCH 2003

(220) However since neither of the first two conditions is met
in the present case, it is not necessary to take a final
position on whether
the third condition (inevitable
disappearance or exit from the market of the assets to
be acquired) is fulfilled in the present case.

(225) The commitments offered by Newscorp on 13 March

2003 provide the following:

Ongoing exclusive contracts

(d) CONCLUSION

(221) The Commission considers,

therefore,

that Newscorp
has not been able to demonstrate that there is no causal
link between the concentration and the effect on
competition, because conditions of competition can be
expected to deteriorate to a similar or identical extent
even without the concentration in question. However,
the risk of Stream exiting the market,
it were to
materialise, would be a factor to take into account when
assessing the present merger. The Commission further
considers that an authorisation of the merger subject to
to
appropriate
consumers than a disruption caused by a potential
closure of Stream.

conditions will be more beneficial

if

VI. UNDERTAKINGS

(222) On 13 March 2003, Newscorp submitted a revised set
of undertakings (hereinafter referred to as undertakings
or commitments) in accordance with Article 8(2) of the
Merger Regulation,
achieving
clearance of the merger. The commitments are set out
in the Annex to this Decision and form an integral part
thereof.

the purpose of

for

(223) The commitments proposed by Newscorp build upon
submitted to the Commission on 31
the remedies
October 2002 and on 14 January 2003. Following its
investigation and on the basis of the market test on the
two
the
set
Commission concluded that the undertakings submitted
were not sufficient to solve the competition concerns
raised by the operation. As a result, the Commission
issued a communication pursuant to Article 18 of the
Merger Regulation.

abovementioned

commitments,

of

(224) The Commission is of

the
commitments submitted on 13 March 2003 address and
competition
satisfactory manner
resolve
concerns raised by the concentration.

view that

in a

that

the

the

(a) Right

for

film studios

to
unilaterally terminate contracts entered into with
Stream and Telepiù with no applicable penalties.

and football

clubs

(b) Newscorp shall waive exclusive rights with respect
to TV platforms other than DTH (terrestrial, cable,
UMTS, Internet etc.). Furthermore, the parties shall
waive any protection rights as regards means of
transmission other than DTH.

(c) Newscorp

shall waive

for
pay-per-view, video on demand and near video on
demand on all platforms.

exclusive

rights

Future exclusive contracts

(d) Newscorp shall not subscribe contracts exceeding
the duration of two years with football clubs and of
three years with film Studios. The
exclusivity
attached to these contracts would only concern DTH
transmission and would not apply to other means of
transmission (for example, terrestrial, cable, UMTS
and Internet ). Furthermore, the parties shall waive
any
of
transmission other than DTH. As regards football
rights and worldwide sports events, the contractual
counterparts shall be granted a unilateral right to
terminate contracts on a yearly basis.

regards means

protection

rights

as

(e) Newscorp shall not acquire protection rights for
DTH and will waive
for
pay-per-view, video on demand and near video on
demand on all platforms.

exclusive

rights

(f) Newscorp

not

shall

future
acquire,
contracts or re-negotiations of
the
existing contracts, any protection or black-out right
with respect to DTH.

through
the terms of

Relations with competitors/third parties: wholesale offer
and access to the platform and technical services

(g) Newscorp shall offer third parties, on an unbundled
and non-exclusive basis, the right to distribute on

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platforms other than DTH any premium contents if
and for as long as the combined platform offers
such premium contents to its retail customers. Such
offer will be made on the basis of the retail minus
principle.

(h) Newscorp shall grant third parties and possible new
DTH entrants access to its platform and access to
the application program interface (API) according to
a cost-oriented non-discriminatory formula based
on: directly attributable costs of the services, a share
of relevant technical costs (fixed and common costs)
and a reasonable return over an appropriate period.
In the provision of access services, the combined
platform shall not apply dissimilar conditions to
equivalent transactions.

(i) Newscorp shall procure that NDS shall grant

to
third parties on a fair and non-discriminatory prices
basis licenses for its conditional access system (CAS).

(j) Newscorp shall endeavour to enter into simulcrypt
agreements in Italy as soon as reasonably possible
and in any event within nine months from the
written request from an interested third party.

Divestiture of the DTT business and undertaking not to
enter into DTT activities

(k) Divestiture of Telepiù'

s digital

and analogue
terrestrial broadcasting assets and commitment not
to enter into any further DTT activities, neither as
network nor as retail operator. The frequencies will
have to be acquired by a company willing to include
pay-TV broadcasting of or more channels in its
the divested
business plan for
business after
from analogue to
the switchover
digital terrestrial television broadcasting in Italy.

the operation of

Arbitration

to guarantee

(l) Newscorp has proposed an arbitration procedure in
order
the
the
commitments. This arbitration system includes, inter
the jurisdiction of AGCOM for the matters
alia,
including the
within its competence under Italian,
wholesale offer.

effectiveness

of

or

the

combined

the
Newscorp
Commission decides to shorten their duration on
grounds that the conditions of competition would
no
such
longer
Commitments.

continuation

platform,

justify

the

of

2. ASSESSMENT OF THE COMMITMENTS

(226)

the market investigation and of

two
In the light of
market tests on the sets of commitments consecutively
submitted by Newscorp, the Commission considers that
the final undertakings are sufficient
to resolve the
competitive concerns raised by the notified operation.

2.1. GENERAL REMARKS

(227) The new entity will hold a monopolist position in the
pay-TV market and a quasi-monopsonist position in the
markets for the acquisition of TV channels, premium
films, rights for national
football clubs and for TV
channels and a dominant position for the acquisition of
other
included in the Italian legislation
implementing the ‘television without frontiers' Directive,
considered as ‘worldwide' sport events.

sports not

(228) The main thrust and the underlying ultimate objective
of any remedy package should be to create
the
for actual competition to subsist and/or
conditions
potential competition to emerge. In a case like the one
at stake, this aim must be achieved by lowering barriers
to entry in the affected markets and through the
creation of competitive constraints which effectively
operate as a disciplining and restraining factor vis-à-vis
the dominant player. The package of remedies proposed
by Newscorp has been conceived and constructed with
this ultimate objective in mind.

2.2. ACCESS TO CONTENTS (POINTS 1 TO 7 OF THE

COMMITMENTS TEXT)

Duration of the undertakings

(m) The commitments shall expire at

the latest on
31 December 2011 unless, upon application of

(229) As regards access to contents, the scope and duration of
exclusivity rights held by the combined platform will be
extensively reduced to allow such rights to be contested
on a frequent (in the case of DTH rights) or permanent
(in the case of non-DTH rights) basis. Furthermore,
premium contents to be broadcast via DTH by the

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16.4.2004

at wholesale prices

combined platform will be made fully available to
non-DTH platforms
the
wholesale offer. In addition Newscorp will not acquire,
through future contracts or re-negotiations of the terms
of the existing contracts, any protection or black-out
right with respect to DTH.

via

2.2.1. Ongoing exclusive contracts

(230) As regards football rights, the undertaking submitted by
Newscorp provides for the combined platform to grant
to right holders a unilateral termination right starting
from the
season 2003/2004. This provision will
enhance contestability of premium football contents as
early as the coming season and will therefore improve
the chances for a potential competitor to enter the
pay-TV market.

(231) Newscorp has also undertaken to waive exclusivity and
other protection rights for non-DTH transmission for
football
allow
operators competing on other means of transmission
(for example, cable, Internet and UMTS) to have direct
and immediate access to premium sport contents.

events. This will

and other

sport

to

their

access

premium movie

contracts. Given the

(both Hollywood majors

exclusivity and other protection rights

(232) As regards movie rights, Newscorp has undertaken to
for
waive
allow operators
non-DTH transmission. This will
competing on other means of
transmission (for
example, cable, Internet and UMTS) to have direct and
immediate
contents.
Moreover, the counter-parties in the agreements with
the combined platform will be given a unilateral right to
considerable
terminate
duration of current output deals entered into with the
studios
and Italian film
producers), the unilateral termination right will increase
contestability of
rights on premium movies to the
benefit of potential new entrants in the pay-TV market
even as regards DTH transmission. The obligation to
provide a wholesale offer (see below) coupled with the
unilateral termination right held by film producers (the
studios) will increase availability of premium contents to
completely
the maximum extent possible without
undermining the ongoing contractual commitments
between the merging parties and film producers. The
commitment therefore appears to be both adequate and
proportionate.

teams

to two years

and the unilateral
football
termination right granted to football right owners are
effective undertakings, in that they will make premium
football contents contestable on the market at regular
intervals.

(234) As regards movie rights, a limitation on the duration of
future exclusive contracts for DTH transmission will be
applied to output deals concluded by the combined
platform and the Studios (both Hollywood majors and
Italian film producers). The duration of future output
deals with studios will not exceed three years.

the market

(235) A limitation of the maximum duration of contracts with
football right owners of two years as compared to three
years for contracts with studios is appropriate in view of
the results of
tests. Whilst, within the
Studios, all Hollywood majors unanimously favoured no
in any event the longest possible duration of
cap or,
their contracts with the combined platform, greatly
diverging views were expressed by football teams: some
advocated a maximum duration of one year, while some
others advocated longer duration.
these
diverging views and preferences, which appeared to
highlight the peculiarity of the football teams' business
model compared to that of the studios', the Commission
considers that a maximum duration of two years, in line
with the condition imposed last year by the Italian
Competition Authority
is
in
appropriate. Moreover, unlike the studios, football teams
will also be granted a unilateral termination right also
for future contracts. Such termination right constitutes
an appropriate undertaking in that it will allow for the
real value (which can be liable to drastic changes every
football season in view of the results achieved) of each
specific team's rights to be taken duly into account
when negotiating with the combined platform.

the mirror

In view of

case,

(236) As regards movie rights, Newscorp has undertaken not
to acquire exclusivity and other rights for non-DTH
allow operators
means of
competing on other platforms
(for example, cable,
Internet and UMTS) to have direct access to premium
movie contents.

transmission. This will

(237) Newscorp has also committed not

to acquire, with
respect to future agreements with Studios, pay per view,
video on demand and/or near video on demand
exclusive rights and other protection rights.

2.2.2. Future exclusive contracts

(233) As regards football rights, the limitation of the duration
of future exclusive contracts for DTH transmission with

(238)

In addition Newscorp has also undertaken not to seek
DTH protection rights for pay-TV in the event of
renegotiation of present contracts.

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2 . 2 . 2 . 1 . P r o p o r t i o n a l i t y o f t h e

u n d e r t a k i n g o n t h e d u r a t i o n o f
f u t u r e c o n t r a c t s w i t h s t u d i o s

(239) As stated above, as regards movie rights, the duration of
future DTH exclusive agreements with the studios will
be limited to a maximum of three years. A reduced
duration of output agreements with film producers will
significantly reduce the foreclosure of the movie rights
acquisition market
to the benefit of potential new
in the pay-TV market. The acknowledged
entrants
crucial
importance of premium films as a ‘driver' for
pay-TV subscriptions translates into a potential new
entrant being easily precluded from entering the market
where premium movies are placed beyond his reach.
Such foreclosure effect will
inevitably stem from the
cumulative effect of long-term agreements entered into
by the dominant market player with all the major film
these producers'
producers and covering the bulk of
output, no matter whether such initiative is undertaken
by the incumbent, or by the film producers or by both.
As
is
long as an exclusive purchasing agreement
running, the mere possibility of a bid by another buyer
is ruled out by the agreement itself. In this case, due to
the
this
foreclosure effect is extended to an extremely high tied
market share of a crucially important supply market.
This is why the duration of the agreements is, under
such circumstances, a very important parameter. If the
combined platform were to be allowed to continue to
enter
into long-term agreements with such film
producers in the future (for example, by being allowed
to renew 10-year long terms for current contracts), the
prospects for entry in the pay-TV market would be
simply destroyed and potential
competition would
consequently be eliminated. In addition, this duration of
three years is considered to be proportionate given that
it is in line with normal industry standards for contracts
subscribed in the past with Italian film producers.

agreements,

cumulative

effect of

several

(241) As an alternative to the reduction in the duration of
output deals,
interested third parties argued that a
unilateral termination right should be granted to the
studios in respect of future agreements. After careful
consideration, the Commission concluded that such a
contestability of
enhance
solution would not
premium movie rights as effectively as a reduction in
the duration of output deals and that, furthermore,
it
could bring about some undesired effects resulting from
a disproportionate shift of bargaining power in favour
of the studios, to the ultimate detriment of potential
new entrants.

the

(242) Any arguments made in respect of

be

segmentation of

‘windows', pursuant

acquisition market must

the monopsonist
power to be exercised by the combined platform in the
rights
carefully
counterbalanced, as regards movies rights, with the fact
that such monopsonistic power will only subsist if and
for as long as the studios (in particular the Hollywood
mjors) maintain their current marketing model based on
a
to which
free-to-air TVs are able to bid for the rights on a
particular film only after the ‘pay-TV window' has been
duly exploited by pay-TV operators. The moment right
holders decide to allow free-to-air TVs to bid for film
rights at the same time as pay-TV operators,that is to
say, when they eliminate a distinction between a ‘free
TV window' and a ‘pay-TV window', the monopsonistic
power of
the combined platform will disappear ipso
facto. This is particularly true in countries such as Italy
where free-to-air TV, although still corresponding to a
distinct relevant market, undeniably displays a certain
interaction with pay-TV (as previously acknowledged),
and where major broadcasting groups are known to
financial means. The studios
possess
to be
therefore already hold a powerful
exercised
to
their
counterbalance any future monopsonistic power of the
combined platform.

instrument
in

to significant

discretion

order

full

at

(240)

if

to a

limited

agreements

the duration of
is

the abovementioned
In contrast,
exclusive
reasonable
maximum, a potential buyer will have the possibility to
submit an offer to each studio on a more regular and
improve competition on the
frequent basis. This will
buying side for
the acquisition of premium movie
rights. In the light of the characteristics of the relevant
purchasing market, a maximum duration of three years
will provide
for
competition without undermining the possibility for
content providers to secure the sale of
rights
during a certain period of time. Although shorter than
the current
three years remains
sufficiently long to remove any possible technical or
commercial legitimate concern on the supply side.

terms, a period of

flexibility

sufficient

level of

their

a

the

gives

supplier

(243) Secondly, relying only on a mere unilateral right of
termination on the part of
the Studios in order to
remove the concern relating to a foreclosure effect
would be unrealistic. A unilateral right of termination
does not allow for a genuine full renegotiation between
the supplier and the potential buyers. On the contrary,
it
to prolong
automatically all the initial contractual conditions with
the current buyer. In the context of pay-TV film rights
output
particularly
worrisome, since there exist a number of factors that
may lead the studios to favour the status quo. Pay-TV
film rights output agreements provide for a large
number of commercial conditions. For instance,
the
determination of fees may depend on several technical
parameters. These parameters can be the classification of

the possibility

this would

agreements,

be

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a

films

the duration,

precise method

lump sums and/or
films according to their success,
variable prices such as the so-called ‘cent per subscriber'
(CPS), the number of subscribers (which may be subject
calculation), minimum
to
of
guarantees or price caps. Other keyterms are,
for
covered by the
the
example,
agreement, the volume and characteristics of products
that the licensee must acquire each year and/or during
all the license term, the number of exhibitions, dates of
availability,
terms, and
security measures, payment
warrantees. Should the market conditions change, and
they are likely to do so over time as shown by past
experience, any of these numerous key terms will create
a potential incentive for the studios to preserve a status
quo as long as possible. The stronger this inertia, the
greater the foreclosure effect in spite of the theoretical
existence of a unilateral termination right.

2.3. PREMIUM WHOLESALE OFFER (POINT 10 OF THE

COMMITMENTS TEXT)

(246) The wholesale offer is intended to allow competitors of
the new entity on platforms other than DTH to subsist
or to enter in the Italian pay-TV market. The underlying
idea is that such wholesale offer will lower barriers to
entry in the pay-TV market by allowing non-DTH
pay-TV operators to access premium contents which
would otherwise be too costly for them to purchase
directly or which are
locked away by means of
long-duration exclusivity agreements entered into by the
incumbent players with the content providers. Some
types of content (mainly, but not exclusively, football
and films) are considered to be ‘subscription-drivers' and
are therefore crucial
the success of any pay-TV
operation.

for

(244) Thirdly,

the

to when a
complete uncertainty as
particular studio will choose to unilaterally terminate its
contract with the combined platform, as opposed to a
fixed expiration date, would not allow a potential new
to properly plan its entry in the market,
entrant
particularly from a financial point of view. Indeed,
in
order to enter the market, a potential entrant needs a
critical mass of premium films. With respect to this
the bargaining position of a new entrant
constraint,
would be particularly weak in case of a mere unilateral
It would have to persuade and to
termination right.
negotiate with each studio individually,
facing a
counterpart aware that all other studios have long-term
ongoing contracts and that no rights are therefore
instantly available. This is another reason why a set of
fixed regular expiration dates, entailing that several
studios are regularly and more or less simultaneously
seeking purchasers,
and
satisfactory. In addition, the current contracts of half of
the Hollywood majors supplying the merging parties
have expiration dates no more than three months apart.
This means that
the new contracts to be eventually
entered into with the combined platform are likely to
expire at least on dates close to each other, if not at the
same time, should the combined platform negotiate
simultaneous expiration dates.

is much more

effective

(245) Lastly,

it is a fact that most monopolist/monopsonist
pay-TV broadcasters, if not all of them, have in the past
concluded very long-term output agreements. Such was
the case, in particular, of Telepiú in 1996. This clearly
shows that looking at duration as an issue of clear-cut
vertical conflict, where the buyer necessarily aims at
shortening the
the
contract
is over-simplistic and does not
supplier's
accurately reflect the reality of the market.

term of

interest,

against

the

(247)

this

that

particular

undertaking

from comments submitted by third
It was apparent
tests carried out by the
parties during the market
Commission,
as
originally formulated, raised five issues: (a) the scope of
the notion of ‘premium contents';
(b) the contractual
availability of the necessary rights in order to provide a
wholesale offer to platforms other than DTH;
(c) the
possible bundling of products; (d) the determination of
the wholesale price of the offer pursuant to the ‘retail
minus' principle;
(e) the availability of the whole sale
offer to all interested third parties.

(248) As

regards

even where

the scope of

the notion of

‘premium
contents', the commitment now provides for a wholesale
offer covering all premium contents broadcast by the
combined platform,
is
broadcast via a basic channel or package. Furthermore,
all pay-TV modalities will be included in the wholesale
offer, meaning that third party operators will also be
able to offer pay-per-view and/or video-on-demand in
respect of premium content
the
combined platform under such modalities.

transmitted by

such content

a

including

submitted

(249) As regards the contractual availability of the necessary
rights in order to provide a wholesale offer, Newscorp
‘best
has
an undertaking
endeavours clause' concerning the acquisition of
the
necessary non-DTH rights for the wholesale offer to
work. In the event that the combined platform, having
used such reasonable endeavours, has been unable to
acquire the rights to broadcast on non-DTH pay-TV
certain content which it
is entitled to broadcast on
DTH, it shall take all reasonable steps to provide a full
package of content under the premium wholesale offer,
including the provision of suitable alternative content.

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(250) As

regards

the possible bundling of products,

the
commitment now explicitly provides for the wholesale
offer to be provided on an unbundled basis, that is to
say that a licensee will have the possibility of benefiting
from a wholesale offer only as regards premium content
without having to pay for, or somehow bear the costs
of, basic content.

(251) As regards the determination of

lays

down

commitment

the price for

the
wholesale offer according to the retail minus principle,
the
the
satisfactorily
fundamental principles without unduly restricting the
discretion of the monitoring authority as regards the use
of a particular test, be it to assess the possibility of
margin squeeze or any other possible anti-competitive
exercise of market power. Furthermore, an account
separation between the wholesale
retail
operations of the combined platform will be provided,
coupled with cost allocation to be carried out
in
accordance with the principle of causation. This will
allow for, inter alia, the identification of avoidable costs
in the calculation of the wholesale price.

and the

(252) As regards discount structure (so called rate card) to be
implemented in the future,
the Newscorp undertakes
not to discriminate between its own retail operation and
third party retailers nor among third party retailers. In
particular,
the combined platform will be prevented
from designing a discount structure such as to only
allow its own retail operation to benefit
from the
highest discount rate made available by its wholesale
operation, to the detriment of third party retailers.

(253)

is

the above,

concluded that

In light of
the
it
mechanism of the wholesale offer, as well as the ‘retail
minus principle' enshrined therein, may be regarded as
instruments
adequate
competition
concerns
raised in respect of access by non-DTH
operators to the pay-TV market as regards access to
premium contents and in respect of illegitimate exercise
of market power.

to resolve

the

2.4. DTT AND DIVESTMENT OF FREQUENCIES (POINT 9

PART I AND THE ENTIRE PART III OF THE
COMMITMENTS TEXT)

(254) The

of

its

divestiture

by Newscorp

terrestrial
broadcasting activities should prevent the extension of
its stronghold on DTH to other technical platforms and,
to the extent possible, allow a potential competitor
pay-TV competitor to emerge. Such is the basis for the
The
final
liberate analogue as well as digital
divestiture will

by Newscorp.

undertaking

submitted

for other operators

to exploit, digital
frequencies
frequencies assuming in this respect particular relevance
due
allowed for by digital
technology.

functionalities

to the

(255) As a logical complement to the divestiture commitment,
Newscorp undertakes not to enter the DTT business
either as a network operator or as a retail provider,
thereby allowing alternative operators to emerge.

(256) Against

the

that

this background,

the undertaking to divest
terrestrial frequencies and not to enter the DTT business
appear to be sufficient to establish favourable conditions
for potential entry by other operators. Furthermore, the
terrestrial
suitable purchaser of
fact
frequencies and of
the divested business must be a
company willing to include pay-TV broadcasting of one
or more
the
switchover from analogue to digital terrestrial television
competitive
broadcasting
constraints vis-à-vis the combined platform will also
emerge from the DTT means of transmission.

in its business plan after

channels

ensures

Italy

that

the

in

2.5. ACCESS TO PLATFORM (POINT 11 OF THE

COMMITMENTS TEXT)

(257) Access

services
to the platform and to technical
necessary to operate are instrumental in ensuring that
intra-platform competition is actually possible. The
undertakings submitted by Newscorp go a long way in
providing accessibility to the combined platform with a
view to allowing effective competition to be achieved.

(258)

to be broadcast via DTH. Moreover,

In the light of the above, new entry will be facilitated in
the pay-TV market and it will be possible for free to air
channels
the
competitive concerns arising from the impossibility for
third parties to gain access to two alternative competing
platforms available pre-merger (Stream's and Telepiù's
platforms) will be offset by the undertakings offered by
Newscorp.

2.6. DISPUTE RESOLUTION/ARBITRATION (POINT 15 OF

COMMITMENTS TEXT)

(259) The submitted undertakings are to a large extent
behavioural. An effective monitoring system is therefore

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crucial. The proposed undertakings provide for an
effective system of monitoring.
they
provide a dispute settlement mechanism that involves
on the one hand a private arbitration system and on the
other
Italian
jurisdiction
Communication Authority on key matters such as access
to platform and the wholesale offer.

In particular,

hand

the

the

of

2.7. THE DURATION OF THE COMMITMENTS WOULD BE

AT THE LATEST UNTIL 31 DECEMBER 2011

(260) The Commission considers that the proposed duration
the undertakings provides sufficient guarantees to

of
allow effective competition to be restored.

3. CONCLUSION ON THE COMMITMENTS OFFERED BY
NEWSCORP

(261)

In the light of the foregoing, the Commission considers
the commitments presented by Newscorp are
that
sufficient
identified anti-competitive
effects in the relevant markets, taking into account the
specific features of this concentration.

to resolve

the

VII. TELECOM ITALIA'S LINK

1. PRELIMINARY CONSIDERATIONS

(262) Pursuant to the ‘Shareholder Agreement' (see recital 12)
with Newscorp, Telecom Italia holds a minority stake in
the combined entity (19,9 %), appoints one member of
the board of Directors (for as long as it holds at least [0
to 10]* % of the issued voting capital of the merged
entity) and holds a number of rights concerning the
protection
platform
investment
(modification of the by-laws, modification of corporate
scope, increase/decrease of capital, issuance of securities,
dividend policy,
liquidation rights, and specific rights
concerning the possibility of IPO (initial public offers) or
sale of the merged entity by Newscorp).

the

its

of

in

financial. This is partly based on the fact that Telecom
Italia is already directly present
terrestrial
broadcasting activities (through two free-to-air TVs: La 7
and MTV).

in the

in the

closing of

interim (pre-merger)
the

(264) Moreover, pursuant to the ‘Framework Agreement' (see
together with
recital 11) Telecom Italia participates,
funding of
Newscorp,
Stream (before
concentration deal),
through prorata shareholder loans for an amount not
exceeding (for both parties)
in aggregate EUR […]*.
Telecom Italia may be asked to contribute in the same
proportion to the losses that Stream incurs in the
meantime, also through contribution of additional
funding. Post-completion of
the acquisition, Telecom
Italia, together with Newscorp, will participate in the
combined platform, by means of
the
funding of
statutory capital contributions
in proportion to its
shareholding, for an amount not exceeding (for both
parties)
in aggregate EUR […]*. The importance and
relevance of Telecom Italia's investment in the present
deal and consequently in the combined platform is
therefore clear (81).

(265) The participation and the financial support of Telecom
Italia has been considered a key element for Newscorp
in its decision to carry out the acquisition of control of
the combined platform. Although contested by Telecom
Italia in its written observations on the statement of
objections (82), this element has been clearly confirmed
by the statements made by the notifying party during
the oral hearing.

(266) Furthermore,

there is indeed prima facie a manifest
industrial, commercial and strategic fit
that can be
implemented as a result of the deal between the merged
satellite platform and Telecom Italia. In this regard, it is
important to note that a rapid convergence is taking
place between the telecom and the media markets,
which were previously clearly distinct. This distinction is
being increasingly blurred by technological evolution
which is, in turn, spurring new business strategies and
models aimed at exploiting commercially the new
possibilities brought about by such convergence.

(267) The market investigation revealed that specific concerns
exist in relation to the possible interest of the combined
platform to elect Telecom Italia as its privileged partner

(81) See Article II, paragraph 2.2 (Funding) and Article IV, paragraph
the Framework

the combined platform) of

4.1 (Funding of
Agreement.

(263) Despite the minority shareholding position of Telecom
the
it would appear unrealistic to consider
Italia,
investment of the Italian telecom incumbent as ‘merely'

(82) See point 4 of the written observations of Telecom Italia in reply
to the non-confidential version of
the European Commission's
statement of objections, pursuant to Council Regulation (EC) No
447/98 on the notifications, time limits and hearings provided in
the Merger Regulation.

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for the telecom markets. Third parties have also argued
that this would contribute to sterilising at the outset the
actual/potential
stemming
therefrom and thus potentially leading both parties to
develop mutually reinforcing strategies/behaviours as
regards the markets where the said convergence is
taking place.

competition

constraint

eventually

(268) Furthermore, concerns have been expressed as regards
the fact that the link between Telecom Italia and the
combined platform would
to a
consolidation or strengthening of a dominant position
held by Telecom Italia in the following markets:
(a)
Internet access, especially in broadband; and (b) fixed
the transaction
telephony. The overall assessment of
should not
in the
foreseeable future the link between Telecom Italia and
the combined platform might have post-concentration
in the above mentioned telecom markets.

likely effects

ignore

lead

that

the

for

it creates or

the following reasons:

strengthens a dominant
Regulation if
position held by a third party or third parties (i.e. one
which is not held by the undertakings concerned in the
concentration)
‘It can be
noted that Article 2(3) of the Merger Regulation states
that a concentration which creates or strengthens a
dominant position is to be declared incompatible with
the common market. Article 2(3) is thus, in terms, not
limited to the prohibition of an operation which will
give rise to the creation or reinforcement of a dominant
position on the part of one or more of the parties to
the concentration, see also recitals 1, 5 and 7 in the
preamble to the Regulation (…) The Commission
considers
reinforcement of a
dominant position by a third party is not excluded from
the scope of application of Article 2(3) of the Merger
Regulation.'

the creation or

that

2. THE COMMISSION'S JURISDICTION TO ASSESS THE
EFFECTS OF THE MINORITY PARTICIPATION OF TELECOM
ITALIA IN RELEVANT MARKETS UNDER THE MERGER
REGULATION

(271)

In Exxon/Mobil, the Commission applied the principles
above on the basis of, inter alia, the reasoning in two
judgments, namely, that of the Court of Justice in Kali
und Salz (86) and that of the Court of First Instance in
Gencor v Commission (87).

(269)

(270)

the

combined

platform in

In its reply to the statement of objections, Newscorp did
not contest that the Commission is entitled to carry out
the Merger
an assessment, within the framework of
Regulation regarding the position of
the minority
shareholder Telecom Italia as a potential competitor of
the
pay-TV market.
Nevertheless, it stated that the Merger Regulation does
not confer power on the Commission to prohibit a
transaction on the ground that it creates or strengthens
a dominant position held by a third party, that is to say,
an entity which is not itself an undertaking concerned
transaction (Telecom Italia) (83). However,
in the
Newscorp also recalls a number of Commission's
decisions in which the Commission carried out, under
the Merger Regulation, the assessment of a dominant
position held by third parties to the concentration at
stake. Finally, it adduces that in theory ‘the Commission
is clearly correct that such a transaction may create or
strengthen a dominant position held by a third party
and, accordingly, may harm consumer welfare' (84).

In
particular,
Exxon/Mobil (85)
transaction may be prohibited under

as
in
the Commission concluded that a
the Merger

acknowledges,

Newscorp

(83) Paragraph 7.1.1 of Newscorp's defence.
(84) Paragraph 7.3.5 of Newscorp's defence.
(85) Case IV/M.1383, recitals 225 to 229.

(272)

Grupo

Villar Mir/EnBW/Hidroélectrica

In
del
Cantábrico (88) the Commission found that the merger
strengthened a position of collective dominance held by
two electricity companies which were not undertakings

the Court stated:

(86) Joined Cases C-68/94 and C-30/95 France and Others v Commission
[1998] ECR I-1375. At paragraph 171,
‘A
concentration which creates or strengthens a dominant position
on the part of the parties concerned with an entity not involved in
the concentration is liable to prove incompatible with the system
of undistorted competition which the Treaty seeks to secure.
Consequently, if it were accepted that only concentrations creating
or strengthening a dominant position on the part of the parties to
the concentration were covered by the Regulations, its purpose (...)
would be partially frustrated. The Regulation would thus be
deprived of a not insignificant aspect of its effectiveness without
being necessary from the perspective of the general structure of
the Community system of control of concentrations.'
(87) Case T-102/96 Gencor v Commission [1999] ECR II-753.
(88) Case COMP/M.2434.

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in

transaction.

joint control over

in
Similarly,
the
concerned
EnBW/EDP/Cajastur/Hidrocantábrico (89)
the Commis-
the acquisition by EnBW, EDP and
sion found that
Cajastur of
the Spanish utility
company, Hidrocantábrico would strengthen the existing
dominant position held collectively by Endesa and
Iberdrola (neither of which was involved in the notified
concentration). In that Decision, the Commission found
that EDF, which jointly controlled EnBW, would, as a
result of the transaction, no longer have the incentives
which existed beforehand to expand the electricity
interconnection capacity between France and Spain,
which would eliminate the existing Spanish electricity
generators' main potential independent competitor (EDF
the Spanish
itself) and maintain the
electricity market
European electrical
systems outside the Iberian Peninsula (90).

isolation of

from other

(275)

obliged to use Article 81 or Article 82 EC treaty to
eventually assess any competition problems arising from
it. Consequently,
the
Commission in this
in economically
case
equivalent transactions being treated differently' (92).

approach adopted

results

the

by

In its written submission Telecom Italia contends that
‘the strengthening of Telecom Italia's dominant position,
if it ever takes place, will then be the consequence of its
minority shareholding in the combined platform and
not of the concentration itself' (93). Therefore, Telecom
Italia implicitly recognises the existence of a causal link
least between its minority participation and the
at
possible adverse effects of
in the various markets
it
brought about by this minority ‘link'. Nevertheless,
Telecom Italia appears still to consider its participation
in the combined platform as an operation independent
from the
the
concentration.

transaction which

brings

about

(273)

(274)

In its written observations, Telecom Italia has contended
that since the Commission has recognised that Telecom
Italia will not have a controlling interest
in the
combined platform and it
is not an ‘undertaking
concerned' in the sense of the Merger Regulation, then
the Commission would act ultra vires if it were to assess
under
the Merger Regulation the
possible adverse effects arising from Telecom Italia's
significant minority participation in the
combined
platform in the various markets at stake (both the
Italian pay-TV market and the Italian telecom services
markets), due
it has been
construed (91).

the umbrella of

transaction as

to the

(276) The Commission is of

the opinion that

the legal
reasoning put forward by Telecom Italia is incorrect. In
the agreements notified by Newscorp, Telecom Italia
participates in the merger with a 19,9 % shareholding
and this factual reality is what is legally relevant for the
purposes of assessing the notified merger, not the purely
hypothetical arguments advanced by Telecom Italia.
Moreover, as was made plain during the oral hearing,
the minority shareholding of Telecom Italia can be
considered a ‘structural part' of the notified transaction
and is clearly not
interchangeable with a possible
acquisition of a minority shareholding by Telecom Italia
in the combined platform occurring at a later stage, i.e.
post-merger.
this minority
addition, without
shareholding, as stated by Newscorp during the oral
hearing, the merger would not have been achieved in
the form as notified to the Commission.

In

In particular Telecom Italia contends that ‘if the present
operation were structured in two different phases and
Telecom Italia's non-controlling interest in the combined
that
platform were acquired at
the
acquisition would not
Merger Regulation and the Commission would be

stage,
fall within the scope of

some

later

(277)

It is very artificial to argue that it would be possible to
‘carve out' an essential part of the transaction bringing
about
the concentration. The evidence available also
suggests that it is speculative to present the acquisition
of minority participation as a stand-alone operation
which it would be possible for Telecom Italia to
conclude post-merger.

(89) Case COMP/M.2684, recitals 33 and 37.
(90) See recital 33 of case COMP/M. 2684. The transaction was finally
approved after EDF and the French grid operator, EDF/RTE,
submitted undertakings to take all necessary steps to increase
capacity on the interconnector connecting France and Spain to
about 4 000 MW from an existing 1 100 MW.

(91) See paragraph 5 and in particular paragraphs 9 to 13 of the

mentioned written observations.

(278)

In accordance with the case-law of the Court of Justice
in Kali und Salz, the Commission considers that any
decision under the Merger Regulation must cover a
concentration in its
transaction bringing about

a

(92) Paragraph 14 of the written observations.
(93) Paragraph 16 of written observations.

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including minority shareholdings. Telecom
entirety,
Italia fails to recognise that the transaction has been
structured in such a way as to maintain Telecom Italia
as a minority shareholder in the combined platform.
Nevertheless, neither the notifying party, nor Telecom
Italia have been able to show that without Telecom
Italia's participation in the venture,
the transaction
would have been proposed and achieved. On the
contrary,
it has emerged clearly, also from the oral
hearing, that the presence of Telecom Italia is essential
for the transaction to proceed.

(281)

Insofar as the adverse effects described in Article 2 of
the Merger Regulation may arise from the transaction
(in its entirety) bringing about a concentration,
the
Commission concludes that it has jurisdiction to carry
out its competitive assessment and to respond to the
claims and arguments made by interested third parties
during the investigation and the oral hearing.

in all

(279) The factual and legal situation arising from the notified
transaction enables the Commission to examine and
assess the effects of the transaction at stake (including
the minority shareholdings)
relevant markets
where it could bring about adverse effects of the kind
described under Article 2 of
the Merger Regulation.
Telecom Italia does not appear to contest that a ‘causal
link' exists as regards its minority participation and the
its dominant position in
possible strengthening of
telecom markets. For the reasons set out above,
the
Commission considers the minority shareholding of
Telecom Italia to be an integral part of the transaction
bringing about the concentration.

the Merger Regulation,

(280) Furthermore, in this respect, in a recent case referred to
the Spanish competition authority pursuant to Article 9
of
Sogecable/Canalsatélite
Digital/Vía Digital (94), the Commission examined the
merger between the two satellite platforms in Spain (95)
(Sogecable, controlled by the companies Promotora de
Informaciones SA (Prisa) and Group Canal+ SA (Group
Canal+) and Vía Digital, controlled by Telefónica SA
(Telefónica)),
in a combined platform which would be
jointly controlled by Prisa and Group Canal+. The
Commission found that, as a result of the concentration,
competition concerns would also exist in relation to the
position of a company (Telefónica) not having a
controlling interest
in the venture, as regards some
(telecom markets) which were not directly
markets
affected by the concentration (96).

(94) M.COMP/2845 Sogecable/Canalsatélite Digital/Vía Digital, Decision
the Commission dated 14 August 2002. See Commission

of
website: http://europa.eu.int/comm/competition/mergers/cases/.
(95) COMP/M.2845. The case concerns the acquisition of by Promotora
de Informaciones SA (Prisa) and Group Canal+ of joint control
over the combined Spanish satellite platform (stemming from the
In this venture,
integration of Sogecable with Vía Digital).
Telefónica would have had a position of significant minority
shareholder, but would not have had any joint control over the
merged entity.

(96) See recitals 96, 100 and 102 of the mentioned merger decision
Sogecable, regarding the Internet access market in Spain, and 106
to 109 regarding the fixed telephony market in Spain.

3. ASSESSMENT IN CONFORMITY WITH ARTICLE 2 OF THE
MERGER REGULATION

A. Horizontal effects as regards the Italian pay-TV market

1. REMOVAL OF COMPETITION CONSTRAINT FOR THE

COMBINED PLATFORM

1.1. General considerations

(282) The transaction and the link between Telecom Italia and
the monopolistic pay-TV platform has to be assessed
from the perspective of the possible horizontal effects
that it may generate as regards the pay-TV market itself
(in
and
pay-per-view
particular,
video-on-demand), which,
in turn, would have an
adverse effect for competition in some telecom markets.

services

(283) At the outset it is important to recall that, as regards
pay-TV services, the market investigation carried out in
this case has revealed that particular services such as
‘pay-per-view' (PPV), ‘near-video-on-demand' (nVoD) and
‘video-on-demand'
considered as
(VoD),
segments within the overall pay TV market (97).

could be

(284) The pre-merger situation and the market investigation
carried out in the present case have shown the interest
of Telecom Italia in respect of pay-TV services and/or its
interest with regard to the use of some premium
content via its own means of transmission, even in the

(97) Pay per view is a service where,

in addition to paying a TV
subscription, the client has to pay on a product-by-product basis
to see the content (e.g. a film or a sport event). Video-on-demand
and near video on demand are different modalities for customers
of a pay-TV to have access to video contents on a personalised
basis.

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hypothesis that it were to focus on one or few segments
of
and
the
pay-per-view).

pay-TV business

(video-on-demand

(285)

In this respect,
it was postulated by third parties that
Telecom Italia's shareholding (and its presence in the
board of directors of the combined platform) would give
Telecom Italia high incentives to help strengthening the
platform rather than to compete with it in the pay-TV
market, either via its ‘halted' cable network, or via its
own xDSL broadband infrastructure. This
strategic
choice would have appeared credible in the light of
losses
Telecom Italia's
accumulated in the past years in the Stream joint
venture with Newscorp. At the same time, Newscorp
would have had an interest in keeping Telecom Italia
within the new entity in order to secure its significant
financial support.

objective

recoup

the

to

(286) Among the main arguments put forward in the course
of the procedure, the fact that the ‘link' would create a
convergence of
interests between the two companies
was highlighted, as well as the fact that this would give
both parties incentives to develop mutually reinforcing
common strategies/behaviours, with respect both to the
‘affected market'
(pay-TV) and the markets where the
media and telecom convergence takes place (Internet
broadband access and fixed telephony).

1.2. Newscorp's arguments

to

have

enter

platform would

into
combined
co-operation strategy with Telecom Italia) the burden of
proof to be applied should meet the requirements set
out by the Court of First Instance in the Tetra Laval
case (99). Therefore,
the Commission
it argues
should demonstrate that ‘it is more likely than not that
the merged group would adopt such a strategy' (100).

that

1.3. General assessment

(289) Against

the

this

background,

Commission

the transaction as

has
thoroughly analysed all the available evidence and the
possible impact of
the
regards
concerns raised during the market
investigation with
regard to the Italian pay-TV market. It has come to the
conclusion that the evidence gathered in this respect
does not make it possible to establish that possible
adverse effects on competition would be brought about
by the transaction creating the merger (i.e. including the
minority shareholding of Telecom Italia) (101). The
elements underpinning this conclusion are illustrated in
detail below.

(287)

reduce Telecom Italia's possible

incentive
(by choosing not

In its reply to the statement of objections (98), Newscorp
stated that
the presence of Telecom Italia with a
significant shareholding in the combined platform (in
any event through a ‘non-controlling involvement') does
to
not
compete in the pay-TV market
to
re-enter and/or by cooperating with the combined
platform) compared to the pre-merger situation, where
Telecom Italia was owner on a fifty-fifty basis of Stream.
Furthermore, Newscorp stated that considering Telecom
Italia as a credible entrant in the pay-TV market in the
near future is incorrect if due account is taken of the
actual
limitations of xDSL and of UMTS
technologies as regards their ability to provide suitable
alternatives to DTH, cable and DTT as a broadcaster of
pay-TV services.

technical

1.3. A. Incentive for the combined platform to

exploit the link, consolidating its dominance
in Pay-TV through positive discrimination
vis-à-vis Telecom Italia

(290)

It is true that in principle the link between the new
entity and Telecom Italia would have the potential to
strengthen further the dominant position of the new
entity in the pay-TV market. Telecom Italia is the
dominant player in xDSL broadband access and is also
likely to be a very strong player in UMTS in the future.

(288) Furthermore, Newscorp claims that,

specifically

in respect of

any incentive

in general
that

(98) Paragraphs 7.1.1 to 7.2.12 of Newscorp's defence.

(and
the

(99) Case T-5/02 Tetra Laval SA v. Commission, judgment of 25 October

2002, paragraphs 153 and 251.

(100) Paragraph 7.2.12 of Newscorp's defence.
(101) As regards the applicable burden and standard of proof, see
Joined Cases C-68/94 and C-30/95, France
and Others v
Commission [1998] ECR I-1375, in particular paragraphs 110, 120,
128 and 246.

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Pay-TV services and in particular video content can be
provided to end consumers through various means of
transmission: DTH, cable and to a certain extent already
today via the xDSL broadband technology (102), while
DTT will be operational
in the foreseeable future. As
the new DTH platform will be a
explained above,
near-monopolist
in the pay TV market. Actual
competition is expected to be very limited, due to the
limited reach of
the only
alternative pay-TV operator already active in the market.

cable network of

the

1.3.A.1. M a r k e t i n v e s t i g a t i o n

the competitive
Telecom Italia to somehow ‘sterilise'
threat coming from the dominant player in one of the
existing alternative means of
transmission of pay-TV
services (broadband Internet access) and which is likely
to be a strong player also in one of the future means of
transmission (UMTS).

(293) This

its competitors

sterilisation objective could have been further
achieved, it was suggested, by favouring Telecom Italia
vis-à-vis
in the Internet broadband
market by, for instance, making its contents available to
Telecom Italia under more favourable conditions (in
terms of price, quality and timing). In return for this
the link,
favourable treatment and on the basis of
Telecom Italia might have a lesser incentive to compete
with the platform on a full scale basis via its existing
operations.

(291)

(292)

it was

respect,

In this
stressed during the market
investigation that Telecom Italia would, already at this
juncture, have the potential to act as one of the main
competitive constraints on the new entity through its
cable or through its xDSL broadband network services.
Third parties have observed that, because of the link,
Telecom Italia might neither compete nor have any
to
incentive to compete with the platform and/or
re-enter
cable
network (103) and via ADSL.

the pay TV market,

even via

its

In the light of this, third parties had expressed concerns,
investigation and in
in the course of
tests, as regards the new
responding to the market
link with
entity's

in exploiting its

incentive/interest

the market

the

and

high

large

speed

hence

require

amounts

the higher

(102) In the context of Internet access, the term ‘bandwidth' refers to
the speed at which information can be transferred. The higher the
bandwidth,
the line, and the more
the speed of
information a telecommunications system can transfer. Modern
applications within the Internet, and in particular video on
transmission of
demand
of
information,
broadband
require
interconnections if they are to be usable by the final subscriber. A
kind of high speed band is represented by the ‘xDSL'
(digital
subscriber line) technology. There are a number of variants of
DSL technology such as ADSL (assymmetric digital subscriber
line), HDSL (high data rate digital subscriber line) and VDSL (very
line). They are collectively
high rate data digital
technologies. Broadband services can be
referred to as ‘xDSL'
offered over the existing copper line if
is hooked up to
it
so-called ‘enabling' technologies such as one of the ‘xDSL' (digital
subscriber line) technologies. The xDSL technologies are capable
of effectively converting a copper pair into a high speed digital
line, and so overcome the technical limitations of the traditional
also cable network
copper
local
similar
access offers
infrastructure
performances
be
and
considered substitutable to xDSL technologies from the demand
standpoint.

loop.
respect
In this
for broadband Internet
the
vis-à-vis

end-consumers

subscriber

could

(103) Virtually Telecom Italia could re-activate its cable network project,
which was interrupted in 1998. This possibility concerns the
completion of its existing cable network in Italy, (so-called project
Socrates) initially aimed at connecting […] million households to
a Hyber Fiber Coaxial (HFC) network.

1.3.A.2. C o m m i s s i o n ' s a p p r a i s a l

(294)

In order to carry out its assessment, the Commission
has analysed, inter alia, the state of play, in the specific
the xDSL technologies having the
case of
Italy, of
to offer pay-TV services in the foreseeable
potential
in competition with the satellite means of
future,
the Commission has also
transmission.
combined
analysed the
the
to
platform might have to give privileged treatment
Telecom Italia compared to its competitors.

In addition,
likely incentives

that

(295)

the third party submissions cannot
In general all
overcome the factual evidence that, as regards pay-TV
services, Telecom Italia is exiting full-scale operations
and, at present, has no significant commercial incentive
to reactivate its cable network in order to offer full scale
pay-TV services in any event.

(296) As regards xDSL broadband access technologies (ADSL
this technology could
is true that
it
in particular),
theoretically, be
a valid means of
considered as
transmission for pay-TV services, as an alternative to
DTH in the foreseeable future. However, the state of
development of ADSL technology in Italy would still
the
require
network (104) before being able to transport bundles of
TV ‘broadcast'
transmission allowing
simultaneous vision by all end-users, such as live events,
football matches or films).

investment

channels

upgrade

huge

and

(i.e.

of

(297) The Commission's

investigation has

revealed that
Telecom Italia has, to date, not committed resources to
this objective. This does not rule out the possibility that
it may decide to make such investments in the future. In

(104) For instance,

in order

to increase the width of

the present

network functionalities, both long-term and at local level.

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any event, it has not been possible to gather sufficient
evidence during the market investigation to draw the
conclusion that Telecom Italia is already a potential
re-entrant
‘potential
in the pay-TV market whose
re-entry'
is sterilised by the ‘link' with the combined
platform to a significant extent.

(298) As regards the direct and indirect incentives that the
combined platform might have to elect Telecom Italia as
preferred partner in its role of co-owner and because of
its cofinancing (pro-quota) of the DTH platform (i.e.
incentives stemming from the ‘link'),
the contractual
provisions laid down between the the platform and
Telecom Italia for the purpose of the present transaction
do not allow to infer such conclusion,
that a
favourable treatment by the combined platform vis-à-vis
the telecom incumbent would materialise as a direct
the
consequence of
merger (i.e. including the minority participation).

the transaction bringing about

i.e.

the combined platform
that
unreasonable to expect
would try to exploit the link with Telecom Italia in
order to get access to its very wide customer base and,
consequently, would try to enlarge its subscriber base,
by extracting all possible advantages from the link with
if
the
appropriate, common commercial initiatives. Therefore,
it could be reasonably expected that both the telecom
incumbent and the combined platform would adopt
forms of tacit or explicit cooperation.

telecom incumbent

including

through,

(302) Third parties affirmed that because of the link, and of
the possible ‘sterilisation' of the competitive threat, both
parties might have
into
agreements whereby the joint offer/purchase of products
or services to customers is made possible in such a way
respective market positions by
as to enhance their
cross-exploitation of their assets and infrastructures.

to enter

incentive

the

(299)

(300)

the above,

In view of
it cannot be concluded that,
because of the presence of Telecom Italia as a minority
combined platform would have
shareholder,
the
reasonably strong incentives
telecom
to elect
incumbent as its privileged partner, thereby sterilising
the potential competitive threat stemming from Telecom
Italia and strengthening its dominant position in the
pay-TV market in Italy.

the

1.3.B. Incentive for the combined platform and
Telecom Italia to develop parallel or joint
conducts/strategies that further limit the
remaining scope for competitive constraint
between themselves

to enter

audiovisual

(303) Third parties have stressed the potential risks arising
from the
into
ability for both parties
preferential agreements for the distribution of content of
the combined platform, or for bundling multimedia
and/or
content with telecom services.
Moreover, it emerged from the market test that, because
of their link (the minority shareholding and presence
in the board of directors) the new entity and Telecom
Italia might have an incentive and sufficient margin
for manoeuvre
strategic
enter
alliances/agreements which could have detrimental effect
on potential competitors to the new entity.

into more

to

the

regards

pay-TV market

It is true that the transaction and the link between the
monopolistic pay-TV platform and Telecom Italia may
generate significant incentives between the two parties
as
particular,
pay-per-view services and video on demand), which, in
turn, may also have an adverse effect for competition in
the telecom markets. In particular, Telecom Italia and
the combined entity may coordinate their activities with
regard to (a) full scale pay-TV services and video on
demand
services
stemming from the media convergence.

(b) multimedia

interactive

and

(in

to giving the

(304) According to nearly all third parties, this would further
contribute
combined platform and
Telecom Italia, in the respective markets, an unrivalled
their competitors and
competitive position vis-à-vis
would
parallel
of
facilitate
strategies/behaviours of ‘market partitioning' within the
segments of the pay-TV market of respective interest,
thus further limiting the scope for competitive pressure
that,
in the absence of the link, Telecom Italia would
still be able to exercise at the margin of the Italian
pay-TV market.

adoption

the

1.3.B.1. M a r k e t i n v e s t i g a t i o n

1.3.B.2. N e w s c o r p ' s a r g u m e n t s

(301) During the market investigation, it has been submitted
by third parties to the Commission that it would not be

(305) Newscorp has

the combined platform's
incentives to cooperate post-merger with Telecom Italia

stated that

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are not materially affected by the merger, since the new
platform and Telecom Italia are committed by contract
to its involvement in the project and ‘therefore there is
no question of
the combined platform seeking to
maintain Telecom Italia's goodwill. Further, Telecom
the combined platform and,
Italia does not control
therefore, the combined platform's rational strategy is to
enter cooperative arrangements only if
they are the
most profitable strategy for
the combined platform
itself' (105).

1.3.B.3. C o m m i s s i o n ' s a p p r a i s a l

(306) Against this background, the Commission has carefully
analysed the above arguments and scenarios, bearing in
mind the legal requirement that the described adverse
effect on competition must arise from the transaction
bringing about the concentration. In the light of this,
the factual evidence gathered by the Commission during
the entire procedure does not show that, in the absence
of the possibility for Telecom Italia to exercise de facto a
‘decisive
commercial
behaviour of the combined platform, both the platform
and Telecom Italia would have incentives to develop
parallel or joint conducts/strategies and, as a result of
that, risks of substantially affecting competition would
materialise due to the notified transaction.

influence'

strategic

the

on

(307) Therefore, it is concluded that the market investigation
has not provided sufficient evidence to establish that the
risks for competition highlighted by third parties in the
course of
the procedure, would materialise in the
foreseeable future as a consequence of the transaction
including the minority
bringing about the merger (i.e.
participation of Telecom Italia
combined
platform).

in the

2. CONCLUSION

(308) Even if

it

is not unreasonable,

the
historical background and the context
in which the
notified merger takes place, to consider that the link
between Telecom Italia and the combined platform

in the light of

(significant minority shareholding and member in the
board of directors) may remove a possible source of
it has not been possible to
potential competition,
conclusively establish that
such link would further
contribute to strengthening the dominant position of
the combined platform in the Italian pay-TV market.

B. Telecom services markets where the concentration may

strengthen a dominant position of the incumbent Telecom
Italia

(309) Telecom Italia operates in Italy, inter alia, as provider of
fixed telephony services, mobile and satellite telephony
services and as an Internet service provider (ISP) both at
wholesale and retail levels. Furthermore, Telecom Italia
is active in providing website creation services, in selling
on-line advertising spaces and in providing multimedia
services. The business areas of Telecom Italia that are
particularly relevant in the context of this concentration
are Internet access and fixed telephony services, both of
related to the possible provision of
which are
multimedia services.

(310) Telecom Italia holds a dominant position in Italy both in
the broadband internet access market and in the fixed
telephony market.

1. ANALYSIS OF POST-TRANSACTION POSSIBLE ADVERSE

EFFECTS ON COMPETITION IN THE IDENTIFIED TELECOM
MARKETS

1.1. General considerations

(311) The combined platform would have the exclusive rights
to exploit important sports content (such as, but not
limited to,
these rights
football) and movies. Whilst
have, to date, mainly been exploited via satellite in the
Italian market,
the existence of negative exclusivity
rights and holdback provisions in the corresponding
contracts make it possible for the combined entity to
prevent the use of the same or part of those contents
instance
on different platforms of
Internet). To this extent, it is worth noting that in the
proceedings before the IAA concerning the aborted
‘mirror'
the
combined platform already proposed,
inter alia, a
commitment to waive those negative exclusivity rights
and holdback rights on platforms other than DTH.

referred to in recital 15,

transmission (for

agreement

1.2. Market investigation

(105) Paragraph 7.2.12 of Newscorp's defence.

(312) The market investigation has confirmed that multimedia
rights such as the ones held by the combined platform

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regardless of

(especially football and sport contents) are suitable for
exploitation in relation to means of transmission other
than DTH,
the network infrastructure
(Internet, cable, satellite or other). In particular, some of
the content
(for example football events) are also
suitable for transmission in the ‘streaming' modalities
using xDSL technology, for instance the main actions of
a football match. In this connection, in the course of the
procedure third parties have contended that, due to its
foothold in the combined platform, Telecom Italia
would be in a clearly advantageous position to obtain
privileged sublicensing of exclusive rights concerning
some
for
exploitation on the means of transmission that it holds,
notably broadband Internet access. For instance, the risk
has been highlighted that, should Telecom Italia's portals
get those contents under better conditions (for instance
in near-real-time) than other portals, other ISPs would
be put at a clearly unfair competitive disadvantage.

combined

platform'

contents,

the

of

(313)

(314)

In the above context, it is true that, if more favourable
treatment were to materialise, the current market power
of Telecom Italia, which results, inter alia, directly from
its wide customer base, could be ultimately enhanced by
its ability to further increase and lock in old and new
customers by launching offers of bundled services
fixed telephony
including broadband Internet access,
and multimedia content services (so-called ‘triple play'
offers). The enormous customer base of the incumbent
is an attractive and relevant element both for advertisers
and for content providers, as opposed to the much
smaller customer base of the incumbent's competitors.

In this scenario, the risk may exist that the incumbent's
competitors would not be able to match any of the
possible triple play offerings available to Telecom Italia.
As a consequence, other
telecom licensed operators
(OLOs) would in all likelihood become increasingly less
content
for
appealing
providers) (106).

advertisers

(and

for

1.3. Newscorp's arguments

(315) Newscorp has

strongly contested the fact

the
transaction could strengthen Telecom Italia's dominant
positions in broadband Internet access and in fixed
telephony, thanks to preferential access to the combined
platform's content, thereby allowing unmatched ‘triple
play' offers. On the contrary, Newscorp stated that ‘it is

that

(106) The competitors of Telecom Italia in respect of broadband
Internet access services are: Fastweb (e.Biscom), Wind, Tiscali,
Albacom, Gruppo I.net, MCI Worldcom (especially for business
clients). Some of these companies are also competitors of the
services
regards
telecom incumbent
(Wind-Infostrada, Albacom, Fastweb, Tiscali).

telephony

fixed

as

not at all obvious why the other shareholders in the
combined platform would wish to favour Telecom Italia
[…]*. The combined platform has no incentive to grant
Telecom Italia preferred access to any content. The
combined platform is not controlled by Telecom Italia
and therefore determines its own commercial strategy.
The combined platform has no need to seek to maintain
Telecom Italia's goodwill because Telecom Italia is
committed to its investment by contract. The Combined
Platform's rational strategy is therefore to grant access to
length basis on normal
its content on an arm's
commercial terms to any and all third parties including
but not limited to Telecom Italia' (107).

1.4. Telecom Italia's arguments

that

it wishes

strategic fit

(316) Telecom Italia has stated that its participation in the
combined platform is a merely financial
investment.
According to Telecom Italia ‘there is no industrial,
commercial or
to gain
through its minority stake. Since 2000, it had decided
the pay-TV market and, should the previous
to exit
“mirror agreement” (the acquisition of sole control over
the Combined Platform by the Vivendi group) been
finalised, it would have sold its entire participation. The
reasons why it remains as a minority shareholder of the
Combined Platform […]* are linked to the possibility of
recuperating some of
is a
simple financial decision' (108).

the investments made:

it

1.5. The Commission's appraisal

(317) Against

the

this

background,

Commission

has
thoroughly analysed the impact of the transaction as
regards the possible competitive concerns, namely the
possible
strengthening of a dominant position of
Telecom Italia in the relevant Italian telecom markets
(broadband Internet access and fixed telephony).

(318) As mentioned above, the Commission has not been able
to establish that a more favourable treatment by the
combined platform vis-à-vis Telecom Italia, as compared
to other ISPs/OLOs, would materialise as a consequence
of the transaction bringing about the concentration (i.e.
including the minority participation of
the telecom
incumbent).

(107) Paragraph 1.2.7 of Newscorp's defence.
(108) Paragraph 24 of Telecom Italia's observations.

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1.6. Conclusion

(319)

it

the foregoing,

is concluded that

In view of
the
evidence gathered in the course of the procedure is not
sufficient to establish that possible adverse effects on
competition in the Italian telecom markets would result
from the transaction bringing about
the merger (i.e.
including the minority shareholding of Telecom Italia).

interactive services

audio-visual contents,will not induce its clients to
return path via
route their
Telecom Italia, and will not enter
into strategic
agreements with Telecom Italia without prior
approval of the Commission.

(b) The undertakings

regarding Telecom Italia will
remain in force for as long as Telecom Italia holds a
shareholding of no less than 5 % and has a member
in the board of directors of the combined platform.

2. CONCLUSION ON TELECOM ITALIA'S LINK

2. ASSESSMENT OF THE COMMITMENTS REGARDING

TELECOM ITALIA

(320) The merger will not

lead to the strengthening of
Telecom Italia's dominant position on a durable basis, as
regards those telecommunication markets (broadband
Internet access and fixed telephony) which are brought
into the assessment by the link of Telecom Italia with
the combined entity.

(324)

In the light of the above findings and conclusions, the
Commission takes note of the commitments offered by
Newscorp in respect of its relations with Telecom Italia.
neither
These
conditions nor obligations of this decision.

commitments,

constitute

however,

4. UNDERTAKINGS RELATING TO TELECOM ITALIA

VIII. CONCLUSION

referred

(321) As mentioned in recital 222, on 13 March 2003,
Newscorp submitted a revised set of commitments
(hereinafter
or
to
‘commitments') in accordance with Article 8(2) of the
Merger Regulation,
achieving
clearance of the concerned merger. As already stated
above,
upon remedies
submitted to the Commission on 31 October 2002 and
on 14 January 2003.

the purpose of

commitments

‘undertakings'

these

build

for

as

(322) The commitments proposed by Newscorp contain a part
combined

between

the

concerning
relations
the
platform and Telecom Italia.

(325) For the reasons set out above,

it

for

the acquisition of exclusive rights

is concluded that,
subject to compliance with the commitments entered
into by Newscorp, the proposed concentration would
not create or strengthen a dominant position on the
market for the supply of pay-TV services, and on the
markets
to
premium movies, to football events played every year
where national teams participate, to other sport events
as well as in the market for TV channels, and as a result
of which effective competition would be significantly
impeded in the common market or in a substantial part
of it. The concentration should, therefore, be declared
compatible with the common market pursuant
to
Article 8(2) of the Merger Regulation and with the EEA
Agreement pursuant to Article 57 thereof, subject to
compliance with the commitments set out in the Annex,

1. SUMMARY OF THE COMMITMENTS OFFERED BY
NEWSCORP ON 13 MARCH 2003 RELATING TO
TELECOM ITALIA (POINT 13 OF THE COMMITMENT
TEXT)

HAS ADOPTED THIS DECISION:

(323) The commitments offered by Newscorp relating to its

relationships with Telecom Italia provide the following:

Article 1

(a) Newscorp will not make joint offers with Telecom
Italia
and Internet
broadband access, will not discriminate in favour of
sublicensing of
regards
Telecom Italia

combining pay-TV services

the

as

The notified operation whereby The News Corporation Limited
(Newscorp) acquires control of the whole of the undertakings
Telepiù Spa and Stream Spa is declared compatible with the
common market and with the EEA Agreement.

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Article 2

Article 1 is subject to full compliance by Newscorp with the
commitments set out in the Annex, with the exception of
point 13 of part II.

The News Corporation Limited
1211 Avenue des Americas
New York, NY 10036
United States of America.

Done at Brussels, 2 April 2003.

Article 3

This decision is addressed to:

For the Commission

Mario MONTI

Member of the Commission

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ANNEX

The full original text of the conditions and obligations referred to in Article 2 may be consulted on the following
Commission website:

http://europa.eu.int/comm/competition/index_en.html.