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BSkyB's bid for Manchester United
Potential impact on competition


Contents
1. Introduction
2. Summary
3. BSkyB
  (a) Corporate structure of BSkyB
(b) BSkyB's dominance of the UK pay-tv market
(c) The 1996 Report
(d) Developments since 1996
4. United
  (a) United's pre-eminence off the field
(b) United's pre-eminence on the field
(c) United's influence
5. Potential impact on competition
  (a) the market for Premiership broadcasting rights
(b) the market for the retail supply of pay-tv packages
(c) the market for the wholesale supply of pay-tv programming
6. Conclusion

1. Introduction

1.1 British Sky Broadcasting plc ("BSkyB") has announced an offer for Manchester United PLC ("United") and notified the proposed takeover to the Office of Fair Trading ("OFT") for formal merger clearance. This paper is provided in response to the OFT's public invitation to comment of 14 September.

1.2 This paper seeks to highlight the potential detrimental effects on competition that may result if BSkyB is permitted to acquire control of United. It is submitted that the potential adverse impact on competition is sufficiently serious to warrant investigation by the Monopolies and Mergers Commission ("MMC").

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2. Summary

2.1 It is widely recognised that BSkyB is dominant in the market for pay-tv in the UK. Control of United would enable BSkyB to reinforce this position of dominance because it would hand BSkyB even greater control of live rights to Premiership football for the foreseeable future than it would otherwise enjoy, thereby seriously undermining the competitive threat posed to BSkyB by digital terrestrial television, and cable.

2.2 Detrimental effects may in particular be felt in the following markets within the pay-tv sector; namely, the markets for:

  1. Premiership rights
  2. retail supply of pay-tv packages
  3. wholesale supply of pay-tv programming

2.3 Before looking in turn at the potential impact on these individual markets, the following sections explain why both BSkyB and United enjoy unrivalled positions in their respective fields.

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3. BSkyB

(a) Corporate structure of BSkyB

3.1 BSkyB's ultimate major shareholder is News Corporation of Australia ("News Corp"). BSkyB is a publicly quoted company and is owned as to 40% by News Corp through its UK subsidiary News International. The other major shareholders in BSkyB are BSB Holdings and the Pearson and Granada groups in the UK. The rest of the shares are widely dispersed. Although News Corp does not own a majority of the shares in BSkyB, its share holding is such that in practice it can control and manage the BSkyB business almost as if it were a wholly owned subsidiary. Significantly, Elisabeth Murdoch, daughter of Rupert Murdoch, the founding owner of News Corp, is head of Sky Networks, one of three managerial positions of equal rank immediately below the chief executive of BSkyB, Mark Booth.

3.2 News Corp has various media interests which span the globe from Australia to Europe and from America to the Far East and include interests in newspapers, television broadcasting, film studios and publishing. Its main media interests in Europe are in the UK, held by News International. News International is the largest publisher of national newspapers in the UK owning The Times, The Sunday Times, The Sun and News of the World.

3.3 As such, News Corp controls a powerful and influential commercial empire, which is especially strong in the UK.

3.4 In Australia, News Corp has attempted to establish a rival rugby league "super league", by poaching players from the existing league, because another broadcaster had the tv rights to the existing league. The result has been poor tv ratings and attendances for both leagues, whereas before rugby league had dominated the tv ratings.

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(b) BSkyB's dominance of the UK pay-tv market

3.5 In the UK, BSkyB has established an effective monopoly over the provision of pay-tv. That monopoly is maintained and reinforced (in part) by various exclusive broadcasting rights which BSkyB has negotiated.

3.6 In particular, BSkyB has established an effective monopoly over a wide range of movie and sports rights, by means of exclusive contractual arrangements with the owners of those rights. The ability to offer movie and sports channels are the financial pillars of pay-tv operations. Rupert Murdoch is himself reported as saying:

"We have the long term rights in most countries to major sporting events and we will be doing in Asia what we intend to elsewhere in the world - that is, use sports as a battering ram and a lead offering in all our pay television operations".

3.7 The fortunes of BSkyB itself are a case in point. BSkyB saved itself from financial ruin effectively by securing live Premiership football on an exclusive basis in 1992.

3.8 BSkyB's acquisition of a significant body of movie and (especially) sports rights materially impedes BSkyB's rivals' ability to assemble a package of channels that compares with BSkyB's offering.

3.9 If they are to market their services effectively against BSkyB's satellite service, rival broadcasters (eg cable operators and, more recently, Ondigital (formerly British Digital Broadcasting ("BDB")) -- BSkyB is the only major UK satellite broadcaster) have little option but to take a significant amount of programming from BSkyB. In reality, the fees they pay BSkyB for programming account for a major part of their overall programming costs. As a result, rival broadcasters are heavily dependent upon BSkyB.

3.10 BSkyB's dominance of the pay-tv sector was effectively confirmed by the Director General of Fair Trading in his "Review of BSkyB's Position in the Wholesale Pay TV Market" of December 1996 (the "1996 Report").

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(c) The 1996 Report

3.11 The 1996 Report described BSkyB as having a "powerful position in the Pay TV market" and added that "a number of concerns had arisen from this situation".

3.12 In particular, the 1996 Report noted that:

"For a potential competitor to BSkyB to enter the market it needed to be able to obtain access to programming rights of sufficient quality to attract a large volume of paying customers......".

3.13 On the subject of programme rights the 1996 Report confirmed that premium sports and movie channels were the main drivers of subscription to pay-tv. As regards sports, it concluded that BSkyB was:

"dominant in the supply of sports channels in the UK Pay TV market and was at that time the only provider of premium sports channels with the exception of one specialist channel (The Racing Channel)".

3.14 As regards movies, it was noted that BSkyB had pay-tv rights to over 90% of first run major films; in other words, the films needed for a successful premium movie channel.

3.15 In the event, the DGFT accepted behavioural undertakings from BSkyB instead of referring the concerns that resulted from BSkyB's dominance of the sector to the MMC for detailed investigation. This decision was influenced by the belief that the advent of digitalisation might act to weaken BSkyB's position.

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(d) Developments since 1996

3.16 The importance attached to digital terrestrial television as a potential source of competition to BSkyB's position of dominance was confirmed by the Independent Television Commission ("ITC")'s decision that BSkyB would have to sell its one third stake in BDB for BDB to be awarded a licence to operate a multiplex on digital terrestrial television. The ITC was concerned that BSkyB would have too much power over a rival delivery platform.

3.17 BSkyB's dominance of premium sports and movie channels has continued. For instance, with the exception of The Racing Channel, BSkyB's three sports channels remain the only premium sports channels on offer in the UK. Eurosport is a dedicated sports channel but it is a free-to-air channel. Unsurprisingly, the content of its sports programming in no way compares with BSkyB's offering.

3.18 BSkyB has retained control of most, if not all, key pay-tv movie and sports rights. For example, BSkyB currently holds exclusive live rights for:

  • Premiership football
  • rugby union internationals held at Twickenham
  • boxing involving Frank Warren's stable of fighters
  • England's overseas cricket tours, including the forthcoming Ashes tour, together with Benson & Hedges Cup and Sunday League cricket and
  • Ryder Cup golf

3.19 Therefore, whilst Ondigital is a second alternative platform to BSkyB's satellite service (the first alternative being cable), Ondigital will, like cable operators, have to continue looking to BSkyB for significant parts of its programming, particularly sports programming.

3.20 Consequently, BSkyB's overall dominance of the pay-tv sector, and in particular as a provider of the key sports programming, has not significantly weakened since the 1996 Report, even following the introduction of digital terrestrial television.

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4. United

(a) United's pre-eminence off the field

(i) Supporters

4.1 United is a pre-eminent football club, both in England and elsewhere. This is evident from its (arguably) unrivalled following in the world of football. United is estimated to enjoy the support of 18% of all British fans. A survey of 14 million homes in the UK by the promotions group Team Marketing during 1996-7 showed 10% of the population (ie including those who do not regard themselves as "football fans") support United.

4.2 United has over two hundred supporters clubs. Although these clubs are mainly located in Britain (104) and Ireland (74), a significant number are still to be found overseas (24), including in Australia, Canada, Germany, Hong Kong, Japan, Malaysia, Mauritius, New Zealand, South Africa and the USA, as well as in Scandinavia. This geographic spread illustrates the unique global nature of United's following. In contrast, Arsenal has only a hundred supporters clubs.

4.3 Furthermore, United is Britain's biggest selling monthly sports publication with average monthly sales of between 120,000 and 140,000. In contrast, Arsenal's equivalent magazine sells only around 50,000 copies -- less than half as many as United. Moreover, around 40,000 copies of United are sold in Thailand (in Thai) each month, and a Malay version is available in Malaysia.

(ii) Attendance levels

4.4 Attendance levels for matches at Old Trafford also illustrate the size of United's following. United have enjoyed the highest average home crowds in 25 of the last 30 seasons (since 1968). In two of the remaining five seasons (1971-72) and (1992-93) ground capacity was badly restricted by rebuilding work.

4.5 United still managed to attract the highest crowds even during the season they were relegated (1973-74) and during the following season (1974-75) in the second division, when the highest average home gate of 48,389 was 2,000 higher than the next best in the entire league, Liverpool.

4.6 In the 1996-97 season United became the first side in English football history to attract at least 50,000 to every home game. In 1997-98 they became the first side to attract at least 55,000 for every home match.

4.7 Of United's current capacity of just over 55,000, 40,000 is held by season-ticket holders. The remaining 15,000 seats are typically sold out within two days, and the ticket office regularly rejects about 5,000 applications. However, this greatly understates the level of demand, since a lot more people would probably apply if tickets were on sale for longer, or if they expected to be successful.

4.8 Effectively every league game at Old Trafford has been sold out for the last five years. The same is thought to be true for away games.

4.9 United attendance figures now greatly understate the level of demand for tickets for home games, since effectively Old Trafford is always full for league fixtures. Last season's figures, for example, ranged from 55,008 (Southampton) to 55,306 (Wimbledon). In all probability, in the absence of capacity limitations, Old Trafford could easily achieve crowds of 70,000 or 80,000, even for less attractive fixtures.

4.10 For instance, even a third round league Cup tie against Swindon in 1996, when United effectively fielded a reserve team - and it was predicted they would do so - attracted a crowd of 49,300.

4.11 The relative "pulling-power" of United is illustrated by the fact that when United played Birmingham City in a pre-season friendly in July 1998, the crowd was 20,700, compared with just 6,000 when Spurs played a friendly at Birmingham three days before.

4.12 The increase in ground capacity to 67,000, with the construction of two new stands, will enable United to smash the previous average home attendance record for English league clubs - of 57,759, held by United in 1967-68.

(iii) Financial performance

4.13 Deloitte & Touche, in its "Annual Review of Football Finance" (August 1998), stated that:

"Manchester United could claim to be the biggest club in the world in financial terms".

4.14 At the domestic level, Deloitte & Touche concluded that:

"Manchester United dominated the financial performance of all clubs; their pre-tax profits exceed the whole turnover of Division Three, and the club's operating profit is about 30% of all total Premier League operating profits".

4.15 The information set out in the table below is extracted from the financial information collated by Deloitte & Touche. This information demonstrates that on virtually any selected financial measure, United significantly out-performs its Premiership rivals.

  Turnover (excl. Transfers)
'000
Operating Profit
'000
Net Assets
'000
Net Worth
'000
Average Attendance
United 87,939 26,201 72,418 71,514 55,081
Next Best 41,134
(NewcastleUnited)
15,233
(Liverpool)
47,920
(Chelsea)
53,142
(Chelsea)
39,777
(Liverpool)

4.16 A major contributor to United's financial success is its revenue from merchandising. In the last financial year, United's merchandising wing had turnover of over 28.5 million. The level of merchandising revenue is such that United has taken direct control of the production of merchandise and constructed several shops adjacent to Old Trafford. It also runs a highly successful mail order business, maintains a permanent office in Hong Kong and has a department which devotes its time solely to developing new products and services to be marketed under the United "brand". In all, one hundred and fifteen people are employed to run United's commercial operation. The high level of revenue that United derives from merchandising activities is another strong indication that United enjoys a very strong following.

4.17 The strength of this following has made United into a very powerful "brand" in its own right, as is evident from the remarkable merchandising deal that United has managed to secure with Umbro, the sportswear manufacturer. This deal is rumoured to be worth an unprecedented 40 million over six years. The strength of the United "brand" has also led:

  • Sharp, the electronics company, to sign up to a sponsorship agreement worth 10 million and

  • VCI, the media group, to acquire the rights to United's videos and fan magazines for 10 million, at the same time guaranteeing United annual royalties of 350,000

  • 4.18 The development of United as a "brand" is reflected by the fact that United has registered 168 new trademarks since 1991, as compared to having only the club crest registered as a trademark between 1970 and 1985.

    4.19 Birthdays are a nationwide chain of 450 card-shops, who also sell football merchandise in their bigger stores. The chairman's office of Birthdays confirm that 40% of this football merchandise is related to United.

    4.20 In summary, therefore, the strength of United's following (and the United "brand") is almost certainly in a league of its own when compared to rival clubs.

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    (b) United's pre-eminence on the field

    4.21 United has been extremely successful on the field. In six seasons since the start of the Premiership in 1992, United has been by far the most successful club in English football, winning the Premiership four times and finishing runners-up by only one point in both the other two seasons. In both 1993-94 and 1995-96 they also won the historic Double of League and FA Cup - achieved on only six occasions this century - and became the first English club in more than a hundred years of professional football to win the Double twice. In 1993-94 they only failed to win an unprecedented domestic Treble by one match when they lost the League Cup final at Wembley.

    4.22 Allowing for different points systems and numbers of matches played this is the most consistent period of league success by any side in English history. United's dominance in English football is obvious when their record in domestic competitions is compared with other major clubs since the start of the Premiership:

    Competition United Liverpool Arsenal Spurs
    League Titles 4 0 1 0
    FA Cups 2 0 2 0
    League Cups 0 1 1 0

    4.23 The unparalleled strength of United's following, coupled with its success on the field in recent times, means that United is unquestionably the major force in domestic football at present.

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    (c) United's influence

    4.24 It is apparent from the previous discussion of United's pre-eminence that United wields significant influence.

    4.25 Not surprisingly, the Premier League attaches great weight to United's viewpoint when deciding upon its commercial strategy.

    4.26 For example, a few years ago the Premier League was proposing to sell some of the rights to advertise round the perimeter of pitches jointly on behalf of all Premiership clubs. United resisted -- presumably because it expected to generate more revenue from selling its own advertising rights -- and the proposal was abandoned.

    4.27 Similarly, the regulators of football also pay heed to United's pre-eminence. For instance, since 1993, United has always fielded what is virtually their second team in the early rounds of the League Cup (previously known as the Coca Cola Cup and now the Worthington Cup). Football League rules insist clubs must field their strongest side, but the Football League (which runs the competition, not the FA) has been powerless to stop the practice, notwithstanding that, with the exception of 1993-4 when United actually reached the final (having resorted to full-strength teams after the opening game), this practice has led to United suffering early exits from the competition every season.

    4.28 Moreover, United's influence over the Premier League, and indeed the FA and UEFA, has been greatly strengthened by Media Partners' proposal for a new European Super League. This proposal would enable United to leave the Premiership and to join a separate European football league comprising other major European clubs such as Juventus, Ajax and Bayern Munich. Since Premiership football would lose much of its appeal if United were no longer involved, the Premier League almost certainly has the need to keep United on-side at the forefront of its mind -- especially in light of the fact that United would inevitably be joined in such a breakaway by other major Premiership clubs such as Arsenal and Liverpool.

    4.29 Breakaway super leagues (whether domestic or European) have in fact been discussed by the major clubs for some time, mostly as a bargaining tool for their dealings with the football regulators. Media Partners have merely crystallised the threat of a European super league by putting forward a concrete proposal for its implementation.

    4.30 In practice, United has mostly refrained from exerting its power unilaterally, preferring instead to enlist the support of other major clubs with the potential to participate in the breakaway super league of the moment, thereby fully exploiting the pressure to be applied as a result of this threat in order to force through significant changes in the administration of football. For example, led principally by United, the major domestic clubs have forced through the following domestic changes to their own advantage:

    1. in 1983, away teams were deprived of any share of gate receipts in league matches, to the obvious advantage of those, like United, who attract large home crowds

    2. in 1988, a tv deal with ITV was agreed which gave the bigger clubs a much greater share of tv revenue

    3. in 1992, the Premier League was formed by the FA

    4.31 Such changes have generally been forced through at United's instigation. It is not thought that the other major domestic clubs have sought to force through any major changes with which United disagreed.

    4.32 As the gap in financial clout wielded by United as compared to other domestic clubs increases, including as compared to the major clubs (United's turnover is now more than that of Liverpool and Arsenal combined) so too will United's, already significant, influence over those clubs.

    4.33 Equally, at a European level, United has been successful, in concert with other major European clubs such as AC Milan and Barcelona, in obtaining a series of concessions from UEFA. For instance:

    1. Leading nations have been permitted to enter a second team in the European Cup, thereby giving countries such as Italy, Spain, England and Germany the chance to enter teams such as AC Milan, Real Madrid, United and Bayern Munich even when they have not won their domestic championship

    2. The "three plus two foreigners" rule, which limited the number of overseas players allowed in European competition, has been abandoned. Maurice Watkins, United's solicitor and one of its directors, personally attended the meeting at which this decision was made in order to force through the change. United's interest in having this rule abandoned was clear from his comment on its impact on United:

      "We have been unable to field the team we wanted in Europe"

    3. First round losers in the European Cup are now automatically granted a place in the UEFA Cup

    4.34 In summary, therefore, United is a leading force in both domestic and European football.

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    5. Potential impact on competition

    5.1 BSkyB is the dominant player in the pay-tv sector. United is a leading force in the Premiership and the Premiership provides programme content of crucial importance to the commercial success of pay-tv in the UK. Therefore, BSkyB's bid to acquire control of United raises questions about the potential adverse impact on competition within the pay-tv sector of BSkyB extending its vertical integration downstream.

    5.2 The adverse consequences that could potentially result are described below by reference to particular markets.

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    (a) the market for Premiership broadcasting rights

    5.3 In the 1996 Report, it is stated that:

    "we were satisfied that there were no close substitutes for live Premier League rights. On a hypothetical monopolist test live Premier League football would constitute a separate market."

    5.4 This conclusion simply reflects that consumers much prefer to watch sports as it happens, and that other sports do not provide an effective substitute for football. Moreover, football from other leagues -- lower English leagues or foreign leagues -- is no substitute for Premiership football.

    5.5 Therefore, exclusive control of live rights to Premiership football forecloses a relevant market because live Premiership football constitutes a discrete market.

    5.6 At present, the rights to broadcast Premiership football are awarded on a collective basis by the Premier League. In 1992, BSkyB was awarded exclusive live rights to broadcast Premiership football. BSkyB currently holds them until 2001. However, BSkyB argues that this does not constitute a barrier to entry into the market for live rights to Premiership football (and thus foreclosure of the market) on the basis that rights are awarded through a bidding competition open to all broadcasters.

    5.7 The merit of such an argument is debatable. The dominance that BSkyB enjoys over the UK pay-tv sector, at both the retail and wholesale levels, means that BSkyB already enjoys revenue streams significantly beyond those of rival broadcasters. BSkyB, if need be, could also raise additional revenues by increasing its retail and wholesale prices for programming. This enables BSkyB to bid for sports and movie rights at prices which rival broadcasters cannot readily match. In these circumstances, it is questionable whether bidding competitions for rights are truly meaningful.

    5.8 If BSkyB were to acquire United, the balance of power in negotiations for Premiership rights would change in a way that could only reinforce BSkyB's position of strength when seeking to secure exclusive live rights, thereby reinforcing BSkyB's dominance throughout the pay-tv sector.

    5.9 It is self-evident that a BSkyB-controlled United would object to live Premiership rights being awarded to any broadcaster other than BSkyB. Although Premiership rights are at present negotiated on a collective basis by the Premier League and United is but one of twenty clubs in the Premiership, the Premier League (for the reasons explained in section 4) would in practice be most unlikely to award live rights to a particular broadcaster against the wishes of United.

    5.10 It has recently been reported that Rupert Murdoch, in partnership with Prince Alwaleed bin Talal and the Italian company Mediaset, is intending to acquire up to 25% of Kirch, the German group, as a basis for pan-European expansion. Rupert Murdoch has already been linked with Media Partners' proposals for a European super league and Media Partners is linked to Silvio Berlusconi who in turn controls Mediaset. Against this background, the Premier League could be expected to become even more wary of the risk of a BSkyB-controlled United withdrawing from the Premiership.

    5.11 Other broadcasters would therefore be at a significant competitive disadvantage when seeking to secure live Premiership rights from the Premier League if BSkyB controlled United.

    5.12 The negotiating process would be distorted in BSkyB's favour simply by virtue of the fact that BSkyB would effectively find itself on both sides of the negotiating table if it controlled United. United would be in a position to help ensure that BSkyB's bid was more competitive than those of other broadcasters. The manner in which BSkyB secured the Premiership rights in 1992 would seem to illustrate this point. According to David Conn (in his book "The Football Business") Alan Sugar, Chairman of Spurs, informed BSkyB of ITV's offer, thereby enabling BSkyB to put in a higher offer and to secure the rights.

    5.13 Even if BSkyB's offer for Premiership rights was higher than the offers of other broadcasters, competition could nonetheless be distorted if BSkyB controlled United. United is (arguably) the most commercially sophisticated of the Premiership clubs, to whom many Premiership clubs look for commercial leadership. A BSkyB-controlled United would not look to extract as high an offer as possible from BSkyB, but simply to ensure that BSkyB secured the rights. It is conceivable, therefore, that if it controlled United, BSkyB would be able to secure Premiership rights for less money than if United was acting independently.

    5.14 Moreover, if BSkyB owned United, it would make it difficult to maintain the quota system which helps the smaller less popular clubs by limiting the number of times any club can be shown live in any season.

    5.15 Therefore, competition in the market for live Premiership broadcasting rights would be (even further) significantly distorted in favour of BSkyB if United were to be controlled by BSkyB.

    5.16 The collective basis on which the Premier League negotiates rights is due to be considered by the Restrictive Practices Court ("RPC") in the early part of 1999. It is possible that the RPC will find that this practice is illegal. If so, clubs will then be free to negotiate rights to their home games independently.

    5.17 It is submitted, however, that the decision on whether to refer BSkyB's bid to the MMC should be based upon the current situation of collective bargaining. Merger policy should not anticipate the findings of another tribunal, in this case the RPC.

    5.18 In any event, even if live Premiership rights were negotiated on an individual basis, competition would still be significantly distorted:

    • BSkyB would, it can reasonably be assumed, automatically secure the rights to United's home games, which in themselves are amongst the most lucrative of Premiership rights -- unlike most Premiership rights, they could be used on a pay-per-view basis

    • given United's commercial sophistication, United could be expected (if acting independently) to obtain full market value for its rights, such that other less commercially sophisticated clubs would be able to use United's deal as a comparative benchmark when seeking to negotiate full market value for their own rights -- without United's commercial leadership, other clubs would be less able to bargain effectively with BSkyB (and other broadcasters)

    • BSkyB could make use of United's influence when negotiating with other clubs

    • other major clubs, such as Arsenal and Liverpool, would have in mind the desirability of being aligned with the same broadcaster as United if the break away European Super League came to fruition

    • the revenue stream from United's home games would enable BSkyB to offer prices for other rights that rival broadcasters could not match

    5.19 Therefore, whilst BSkyB control of United would not necessarily lead to total foreclosure of the market if there were individual negotiation of Premiership rights, it would nonetheless lead to a significant and potentially harmful level of foreclosure. If collective negotiation remains, the foreclosure effects are greater and more certain.

    5.20 Foreclosure of the market for Premiership rights can be expected to have a significant adverse impact on the retail (and wholesale) supply of pay-tv packages.

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    (b) the market for the retail supply of pay-tv packages

    5.21 Movie and sports channels are the main reasons why consumers are willing to make the investment (in both receiving equipment and/or subscriptions) to receive pay-tv. The 1996 Report recognised that:

    "...BSkyB's premium [sports and movie] channels had been the driving force behind most consumers' decisions to subscribe to Pay TV, be it through satellite or through cable."

    5.22 Premiership football is the most important type of sports for a broadcaster to be able to show in order to persuade consumers to subscribe for its pay-tv package. The 1996 Report stated that:

    "The most important [sports rights] were the exclusive rights to show live Premiership League football."

    5.23 Moreover, United's games account for a significant share of total viewing of Premiership games. Appendix 1 summarises an analysis by the newsletter TV Sports Markets of BSkyB's viewing figures for Premiership games during the 1997-8 season. The following conclusions can be drawn from this information:

    • 20% of all Premiership games shown live by BSkyB involved United

    • these United games accounted for 26.6% of total viewing of live Premiership games and

    • average viewing of United games was 33% greater than average viewing of Premiership games generally

    5.24 It should be noted that these figures in all probability under-state the attraction to viewers of United games as compared to games involving other clubs because the quota system relating to the broadcast of Premiership games imposes a cap on the number of live United games that can be shown live in a season. Absent this cap, United games would most likely account for an even higher shares of all games shown live.

    5.25 The relative attraction of United's games to viewers is demonstrated by the fact that seven of the ten most watched live football games (on both free and pay-tv) in 1997-8 involved United.

    5.26 The strength of United's following means that United is one of the few clubs in the Premiership who could expect to broadcast its home games on a pay-per-view basis profitably. If BSkyB acquired control of United, therefore, it would be able to broadcast United's home games exclusively on a pay-per-view basis. The mere fact that rival broadcasters, unlike BSkyB, would be unable to offer United's home games as part of their pay-tv package would put them at a competitive disadvantage as compared to BSkyB when marketing their services to consumers.

    5.27 Competition in the retail market would potentially be distorted even if BSkyB did not retain United's home games solely for its own satellite service. The importance of Premiership football to consumers means that a broadcaster would be at a severe competitive disadvantage if it could not offer live Premiership football as part of its pay-tv package. This means that if BSkyB holds exclusive live rights to Premiership football, then its competitors (Ondigital and the cable operators) are in practice forced to buy BSkyB's premium sports channel(s) in order to market their pay-tv packages against BSkyB's satellite service effectively -- assuming BSkyB does not sell/broadcast live Premiership programming separately.

    5.28 Consequently, competition would also be distorted in respect of the retail supply of pay-tv packages if BSkyB is permitted to acquire control of United because the resulting foreclosure effect on the market for Premiership rights would mean that rival broadcasters would have to buy BSkyB's premium sport(s) channels indefinitely, thereby making them heavily dependent upon BSkyB.

    5.29 This would be the case even if Premiership rights in future fall to be negotiated by clubs individually, rather than collectively as at present. For the reasons set out in paragraphs 5.17 and 5.18 above, the market for Premiership rights would still in practice be significantly foreclosed such that the live Premiership rights which rival broadcasters could realistically expect to acquire would not be as attractive to consumers as the live Premiership rights forming the basis of BSkyB's offering.

    5.30 Moreover, BSkyB enjoys control not only of Premiership rights, but also over most, if not all, other major sports events of significant interest to UK consumers. Therefore, even in a world of individual bargaining of Premiership rights, rival broadcasters would find it virtually impossible to create a premium sports channel with content capable of competing effectively with BSkyB's offering. As a result, rival broadcasters would in practice still be forced to buy BSkyB's premium sports channels.

    5.31 The ability of BSkyB's competitors to mount a serious long term competitive challenge to BSkyB in the retail market would be significantly undermined if they are dependent upon BSkyB for the supply of premium sports channel(s). BSkyB would be able to take steps to head off any significant challenge from a competitor at the retail level; for instance:

    • BSkyB could refuse to supply its premium sports channel(s) -- thereby precluding its competitor from being able to offer a pay-tv package attractive to consumers

    • BSkyB could charge high prices for its premium sports channel(s) -- in effect forcing its competitor either to pass the extra cost onto its consumers (thereby making its offering less attractive than BSkyB's satellite service) or to absorb the extra cost itself (thereby reducing its profitability)

    • BSkyB could make supply of its premium sports channel(s) conditional upon its competitor also buying other BSkyB channels (eg basic channels)

    5.32 The potential abuses open to BSkyB discussed above are, of course, extreme examples. In reality, BSkyB would not need to implement such clear-cut cases of abuse in order to put its competitors at a competitive disadvantage. Given BSkyB's current dominance of the pay-tv sector, any potential competitive disadvantage to its competitors is cause for concern.

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    (c) the market for the wholesale supply of pay-tv programming

    5.33 The wholesale market for the supply of pay-tv programming is driven by consumer demand at the retail level. Therefore, the most lucrative types of programming to be able to supply at the wholesale level are those which are used to make up premium channels, in other words sports and movie programming.

    5.34 On the basis that live Premiership football is the most important type of sport for a broadcaster to be able to offer consumers, foreclosure by BSkyB of the market for live Premiership rights would also have an adverse impact upon BSkyB's competitors in the wholesale market because it would deny them access to the rights required to be able to provide an important type of sports, and therefore pay-tv, programming at the wholesale level.

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    6. Conclusion

    6.1 If BSkyB were to be permitted to acquire control of United, detrimental effects on competition would potentially be felt in a number of markets; namely those for:

    1. Premiership rights
    2. retail supply of pay-tv packages
    3. wholesale supply of pay-tv programming

    6.2 More generally, BSkyB's dominance over the pay-tv sector, and in particular as a provider of programming, would be sufficiently reinforced to enable BSkyB to all but eliminate the long term competitive threat posed by digital terrestrial television and cable. The scope that BSkyB would have to abuse its position of dominance, when freed of any constraint on its behaviour exerted by such a long term threat, is cause for great concern.

    6.3 BSkyB's bid for United gives rise to complex and difficult issues which warrant in-depth consideration; in particular:

    • the potential competition concerns that arise from further vertical integration by BSkyB in the pay-tv sector

    • the unique nature of football as a business

    6.4 It would not be appropriate to accept undertakings in place of a reference to the MMC in light of the degree of uncertainty currently surrounding:

    • the structure of the domestic game
    • the structure of European club competition
    • the outcome of the RPC's investigation
    • the onset of digitalisation

    6.5 First, it would be virtually impossible to be confident that a behavioural undertaking would continue to remedy a particular concern in the future when so much uncertainty exists. Secondly, it would be very difficult in practice to monitor any undertakings to check that they continued to be effective.

    6.6 For these reasons, it is submitted that BSkyB's bid for United should be referred to the MMC.



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    Independent Manchester United Supporters Association (IMUSA)
    28 September 2020

     


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