15 September, 2016
Key points
The Government has reintroduced changes to the media ownership and control laws under the Broadcasting Services Act 1992 (Cth) (BSA). The Broadcasting Legislation Amendment (Media Reform) Bill 2016 (Cth) (Reform Bill) was introduced and read for a second time in Parliament on 1 September 2016. If passed, these changes would repeal two of the five major media ownership and control rules under the BSA, namely:
- the "75 per cent" rule; and
- the "2 out of 3" rule.
If passed in its current form, the Reform Bill has the potential to increase M&A activity in the Australian media sector. Such activity will remain subject to the remaining rules under the BSA as well as section 50 of the Competition and Consumer Act 2010 (Cth) (CCA), which prohibits acquisitions that would have the effect, or would be likely to have the effect, of "substantially lessening competition" in any market.
In anticipation of the Reform Bill being reintroduced, on 26 August 2016, the Australian Competition and Consumer Commission (ACCC) released new draft Media Merger Guidelines (2016 Guidelines). It is intended that once finalised, these 2016 Guidelines will replace the current Media Merger Guidelines 2006 (2006 Guidelines), which were last updated in 2011.
The 2016 Guidelines provide industry specific guidance on the application of section 50 of the CCA to an evolving media market as well as identifying relevant considerations for the ACCC when considering such transactions.
Reintroduction of the Reform Bill
The new version of the Reform Bill is in substantially the same form as the original. Our previous alert on the original version of the Reform Bill is here.
As noted in our previous alert, in addition to repealing the "75 per cent" rule and the "2 out of 3" rule, the original drafting also proposed increased local content obligations for commercial television licensees in regional markets when a change of control event resulted in them joining a group of commercial television licensees covering more than 75% of the population.
The main change in the reintroduced Reform Bill is an amendment to the "trigger event" for such increased local content obligations. Under the new proposal, a trigger event would occur if a change of control event resulted in any commercial television broadcasting licensee (regardless of whether it is regional) joining a group of commercial television broadcasting licensees covering more than 75% of the population, provided any one of the resulting combined group is a regional commercial television broadcasting licensee. This reflects a recommendation of the Senate Environment and Communications Legislation Committee's report (May 2016) into the proposed reforms, which proposed that the original drafting be extended to cover "a situation where a regional commercial television broadcasting licensee starts to be in a position to exercise 'control' of a metropolitan commercial television broadcasting licence".
Draft Merger Guidelines
The ACCC has now released the draft 2016 Guidelines to clarify its approach to media mergers, noting that this has been partly driven by the potential repeal of two of the control rules under the BSA. The 2016 Guidelines highlight the differing underlying rationales behind the BSA and CCA regimes, noting that the BSA rules are "directed at preserving diversity in media markets" whereas, by comparison, "the key purposes of the merger provisions in the [CCA] is to protect competition in markets". However, as highlighted below, the 2016 Guidelines do note that diversity of media voices is interlinked with issues for consideration under section 50 of the CCA.
While similar to the 2006 Guidelines in many respects, the draft 2016 Guidelines have been significantly shortened. While some of the substantive changes are subtle, the 2016 Guidelines reflect an evolution and refinement of the ACCC's thinking as a result of recent media merger considerations.
A summary of some of the key aspects of the draft 2016 Guidelines is below. As with the 2006 Guidelines, the draft 2016 Guidelines are intended to be read in conjunction with the ACCC's general Merger Guidelines.
1. Forward-looking analysis
The 2006 Guidelines expressed a general reticence to "crystal ball" gaze too far into the future when assessing the impact of a media merger, due to the rapid development of the sector and associated technologies. The 2016 Guidelines state that:
- the ACCC adopts a forward-looking analysis (i.e. a "with-or-without" the merger test);
- technological development in the media sector will be considered where there is sufficient evidence of likely future changes; and
- the ACCC focuses on the "foreseeable future" which will generally be one to two years, but could be longer.
2. Market Definition
As in any merger, market definition is a key starting point in assessing the likely competition effects of a media merger.
The product/service categories that will generally form the basis for the ACCC's consideration of relevant markets in a media context remain largely the same, namely:
- the supply of content to consumers (either directly or via a content aggregator);
- the supply of advertising opportunities to advertisers; and
- the acquisition of content from content providers.
The ACCC will examine substitutes available to consumers and suppliers in each area of overlap arising from the merger. The 2016 Guidelines provide that, in considering the "extent of substitution", the mode of delivery of products or services may be a relevant consideration (as may the type of content). The 2006 Guidelines noted six categories of "mode of delivery" (print, radio, free-to-air TV, pay TV and online media) as a starting point, whilst highlighting that these were likely to change in the future. The new 2016 Guidelines do not provide a static list but provide the following examples of different delivery modes:
- free-to-air television broadcasting, accessed in home or via mobile devices;
- subscription or pay television via cable or satellite (pay-TV), accessed in home or via mobile devices;
- over-the-top (OTT) video or audio on demand services accessed via the internet;
- OTT video and audio streaming services accessed via the internet;
- Internet Protocol Television (IPTV) services; and
- other digital media platforms including online sites and social media.
The new 2016 Guidelines also highlight that while media services with similar modes of delivery are likely to be closer substitutes than those with different delivery mechanisms:
- convergence within the media sector has meant that services with different delivery modes may compete more closely in some instances; and
- some delivery modes may be complementary rather than competitive.
3. Technology and media merger issues
In the 2016 Guidelines, the ACCC draws on concepts from the 2006 Guidelines to put together a new list of issues that can arise in assessment of media mergers, by reference to recent transactions.
competition and media diversity:
The 2016 Guidelines note that the diversity of media voices is interlinked with a number of issues which the ACCC will consider in making an assessment under section 50 of the CCA.
impact of technological change:
The 2016 Guidelines consider some key factors arising from technological change in the media sector, and point to a number of possible consequences of innovation on competition, including as follows:
a. New technology may alter barriers to entry. Rapidly developing markets "may facilitate new entry or expansion and erode the market shares of established incumbents".
b. Rapid product innovation may also create instability in markets resulting in increased market power gained through a merger being transitory.
c. An industry disrupter/innovator could have a comparatively small market share but a disproportionately large impact on competition.
d An industry disrupter/innovator could have a comparatively small market share but a disproportionately large impact on competition.
access to key content
The 2016 Guidelines consider the difficulties posed by acquiring premium content as a significant barrier to entry – in particular live premium sports content, and "water-cooler programming" or "appointment viewing" which viewers have a preference to watch "live" (or at the programmed time) rather than later on a catch-up or VOD basis.
two-sided market and network effects
Two-sided markets (where a platform/intermediary brings together two distinct user groups eg an online classified service) may experience significant network effects, whereby the value a user places on a service increases with the volume of users (eg a social media site). A network effect can create barriers to entry as established suppliers are likely to enjoy first mover advantage and an enduring dominant position.
bundling and foreclosure:
If activities such as bundling complementary products as a package or foreclosure (using a position in a one market to foreclose rivals in another) are facilitated by a merger, this can raise competition concerns in some cases.
minority shareholdings:
It is not only majority shareholdings that can raise issues under section 50 – some minority shareholdings may also be of concern.
Public consultation
The ACCC invites submissions from the public on the draft 2016 Guidelines by 14 October 2016.
In May 2016, the previous version of the Reform Bill was reviewed and amended based on the report of the Senate Environment and Communications Legislation Committee (Senate Committee). Upon being tabled in Parliament last week, Labor Senators have again requested that the Reform Bill be reviewed by the same Senate Committee, which is expected to provide a report by 7 November 2016.
For further information, please contact:
Adrian Lawrence, Partner, Baker & McKenzie
adrian.lawrence@bakermckenzie.com