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Center for Law and Economics and Economics of Institutions Siena

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We focus on the growing policy debate concerning access to valuable contents ... the risk of post-contractual opportunism (hold up) in incomplete contracts; ... – PowerPoint PPT presentation

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Title: Center for Law and Economics and Economics of Institutions Siena


1
Center for Law and Economics and Economics of
Institutions Siena
Access to Contents, Exclusivity and Anti-Commons
in New Media Markets Antonio Nicita Maria
Alessandra Rossi Riccardo Vannini
Seville 25-27 March 2007
  • University of Siena

2
Introduction
  • We focus on the growing policy debate concerning
    access to valuable contents (premium content) in
    the evolution of European pay-tv markets and in
    the development of new media platforms and
    services.
  • European Directives (mandatory acess to
    incumbents essential facilities)
  • Access to network and access to contents

3
Introduction
  • The process of technical convergence variable to
    compete in the market.
  • Exclusivity contractspremium contents as
    bottleneck. Effect of foreclosure and inhibition
    to convergence processes.
  • Important antitrust decisions in this respect
    include BskyB/OFT, Vodafone/Vivendi/Canal Plus,
    Vivendi/Canal Plus/Seagram, Sogecable/CanalSateli
    te/ViaDigital, NewsCorp/CanalPlus.

4
Introduction
  • The remedies implemented in those cases remarked
    how operators competitive advantage should not
    necessarily rely only on having exclusive access
    to most valuable contents, the so-called premium
    contents rather it could be based on the quality
    of services, on technological innovations, on
    pricing and packaging strategies and on other
    product dimensions. The existence of exclusivity
    clauses in a potential area of competition can
    distort the innovation race in the technology
    domain, inhibiting the development of alternative
    platforms and thus preventing the possibility of
    reaching the optimal allocation of resources in
    the longer term.
  • It seems necessary to start a new European
    regulatory wave explicitly devoted to the issue
    of access to contents and of its impact on the
    process of converge in the media sector.

5
Pay-tv In the era of Convergence
  • Pay-tv and communication industries changes
  • The structure of the Pay TV sector as a whole can
    be represented by two layers that pertain two
    different markets 1) the production of contents
    2) the retailing and the distribution (the
    delivery) of programming to the consumers.
  • By looking at the demand side it becomes clear
    that consumers perceive the different systems of
    audio-visual information delivery as substitute
    so that it would be inappropriate to identify
    different relevant markets.

6
Pay-tv In the era of Convergence
  • Convergence the melding of the computer, the
    television, the telephone, and satellites into a
    unified system of information acquisition,
    delivery, and control (Parsons and Frieden, 1998
    116).
  • Thus, even if at present significant
    technological differences exist, it is reasonable
    to expect in the near future their strong
    leveling by means of technological change.
    Accordingly, from the competition policy
    perspective, it is important to consider also to
    the potential competition. In absence of barriers
    to entry the pay TV market will be soon contended
    by Internet and telephones companies.

7
Pay-tv In the era of Convergence
  • Two principal commercial strategies
  • A) a flat subscription rate for a bundle of n
    channels/titles (this is the case frequently but
    not uniquely occurring in cable TV)
  • B) multipart tariff including a small membership
    fee and a per unit price (this is the case
    occurring in pay per view or in video on demand).

This second pricing technique offers a more
suitable tool to extract consumer surplus in case
of consumers with heterogeneous preferences. In
many case it is equally possible to find a mix of
the previous techniques, for instance a
subscription rate for a package of channels/items
and a per unit charge for additional premium
events. (Adams and Yellen,1976 Bakos and
Brynjolfsson, 2000).
8
Exclusivity
  • In European and international law, there is a
    general favor towards exclusivity agreements,
    since they are accorded the presumption of being
    a pro-competitive device (Nicita and Ramello,
    2005). This favor is based on the assumption
    that, with the exception of a few isolated cases,
    exclusivity agreements can improve overall
    efficiency.
  • Among the traditional economic reason supporting
    the presunption of efficiency of verticl
    agreement we mention
  • Transaction cost minimization generated by
    asymmetric information
  • the remuneration of sunk investments
  • the ex-ante protection of specific investments
    against the risk of post-contractual opportunism
    (hold up) in incomplete contracts
  • the protection of brand name (selective
    distribution)
  • the existence of a self restraint mechanism
  • the inefficiency of a leveraging strategy in
    vertically linked markets
  • The relationship that exists between intrabrand
    competition and interbrand competition.

9
Exclusivity
  • Lenient stance of commission
  • statement made by A.M. Wachtmeister, of the EU
    Media Unit

the sale of exclusive rights to broadcast sports
events is an accepted commercial practice. For
sports organizers, the sale of exclusive rights
is a way of ensuring the maximum short-term
profitability of the event organized, the price
paid for the exclusivity by one broadcaster
probably being higher than the sum of the amounts
which would be paid by several broadcasters for
non-exclusive rights. For the broadcaster, sports
programmes are considered as particularly suited
to attracting a large number of viewers
10
Exclusivity
  • For them it can be said that exclusivity
    represent
  • the only way to guarantee the value of a given
    sports programme
  • the broadcasting company may get more value from
    the rights if it can sub-license to competitors
  • a way to build up audience, in the short as well
    as in the long term (consolidation of audience
    base, fostering loyalty, improvement of image)
  • a substantial increase in advertising or
    sponsorship revenue as sports programmes are a
    means of targeting a specific audience, often in
    large numbers
  • a degree of prestige in being the only
    broadcaster showing a particularly popular sport
  • for pay-TV channels, exclusivity of rights to
    very popular sports events is fundamental in
    order to attract new subscribers this is
    especially true for sports theme channels
    persuading viewers with specialised tastes to pay
    for specialised channels is the only way that
    many such channels could be financed, since the
    number of interested viewers would be too small
    to attract enough advertising revenue
  • it may also be vital to re-coup investment in
    infrastructure the revenue may be needed by a
    broadcasting company which wants to invest in
    cable, decoders and/or satellites.

11
Exclusivity
  • Efficiency of exclusivity
  • exclusivity represents the only way to guarantee
    the remuneration of investments in content
    production (thus preserving ex-ante incentives to
    invest in content production)
  • b) the only way to guarantee the remuneration
    of investment in the building of infrastructures
    (thus preserving the associated investment
    incentives).

Duration have to be not excessive in lenght or
scope
12
Exclusivity
  • Competition for the market
  • Role of the first mover and position of
    competitor
  • The rationale underlying this approach implies
    that, in order to improve competition for the
    market it might be sufficient to reduce
    exclusivity duration and to allow for frequent
    bids.

13
Exclusivity
  • Competition for the market
  • in presence of exclusive contracts, new entrants
    will not have any incentive in the first place to
    make sunk and/or specific investments to gain
    access to a given delivery platform and/or to
    build its own infrastructure if you have not
    contents, why investing in delivery platform? At
    the same time absent any access to competitive
    delivery platforms, there are no sufficient
    incentives to invest in content exclusivity.
  • competition model based on competition for the
    market has soon led from one side to monopolistic
    markets
  • extraordinary growth of programming costs

14
Exclusivity
  • Incumbent strategies Since the only way to
    compete was to bid for content exclusivity,
    incumbent operators raised their offers as a
    raising rivals costs strategy in order to
    preserve their market power and their client
    base.
  • Because of such effects, Competition Authorities
    have recently revised their original position in
    favour of content exclusivity and started
    imposing special obligations on the first movers.
  • Policy shift favouring access to content

15
Policy favouring access to content
  • Network effect
  • Pre-emptive nature and the market foreclosure
    effects of exclusivity when there are effects
    produced by vertical or conglomerate integration
    on multimedia convergence.
  • European Commission (EC) decision of 13th
    October 2000 in the Vivendi/Canal Plus/Seagram
  • The Decision of the Commission 94/922/CE in the
    case MSG Media Service makes reference to this
    the grouping of individual programs in single
    packages is a key factor in having success in the
    pay TV market. (point 78),

16
Models for access to contents
  • Prohibition of exclusive selling/purchasing
  • Multi-Platform Exclusivity with mandatory
    wholesale offer
  • Platform Exclusivity and Prohibition of hold-back
    clauses
  • Time Windows exclusivity
  • Content sharing and purchasing pools
  • Selling partitioning

17
Models of access to contents
18
Aggregation vs Fragmentation of Property Rights
  • The term anticommons refers to a property
    regime characterized by features opposite to a
    commons property regime. The identification of
    the consequences of commons property regimes
    has a rather longstanding tradition in economics
    and dates back at least to the work of Gordon
    (1954). Attention towards the possibility of
    anticommons problems is much more recent. The
    hypothesis has been advanced by Michael Heller
    and Rebecca Eisenberg in a rather influential
    article appeared in 1998 on Science and it then
    referred to the possibility that the extension of
    patentability to genes, genetic material and DNA
    fragments could generate an excessive degree of
    fragmentation of intellectual property rights
    that would hamper subsequent research because of
    the substantial transaction costs involved in the
    attempt to reach a more coherent aggregation of
    rights.

19
Aggregation vs Fragmentation of Property Rights
  • More precisely, an anticommons arises because
    of a lack of conformity between the right to use
    and the right to exclude from access. To put it
    differently, the emergence of an anticommons
    and of the ensuing underutilization of the
    resource follows from two factors
  • (a) the incoherent nature of the fragmentation of
    the exclusive right which opens up possibilities
    for overlap in the exercise of the right and
  • (b) the negative externality that follows from
    the independent exercise of the right to exclude
    from the fragmented rights by right-holders.

20
Aggregation vs Fragmentation of Property Rights
  • The problem with such an outcome resides
  • effective entry by competing platform operators
    in any platform depends on the operators ability
    to secure access to a significant bundle of
    premium contents. The fragmentation and
    heterogeneity of the rights granted by content
    providers to different market players may
    constitute an additional hurdle to this end
    because of the transaction costs that need to be
    incurred to aggregate the rights corresponding to
    the minimum bundle necessary for accessing the
    market. Moreover, rights fragmentation might also
    be an obstacle to an efficient integration of
    transmission modes, in cases in which a single
    operator may want to exploit sinergies from the
    joint offer of different services to consumers.
  • The point here is just that it might be opportune
    for regulators to devote their attention not only
    to granitic exclusivities accorded to single
    operators (and to single buyer and single
    seller issues) but also to the consequences of
    the observed tendency towards sub-optimal
    fragmentation of the rights to valuable content.

21
conclusion
  • We would like to point out that the recent
    evolution of the issue of access to premium
    content (including the question of increasing
    property rights fragmentation) might be taken to
    suggest the opportunity to develop a European
    regulatory model. This would surely have the
    advantage of reducing inconsistencies in a market
    that is global to a significant extent at the
    upstream level (i.e. at the level of production
    of premium contents such as blockbuster movies)
    and has been so far disciplined through scattered
    antitrust interventions. While we are aware of
    the difficulties of devising sector-specific
    regulatory models in contexts characterized by
    rapid technological evolution and change of
    business models, it seems nonetheless important
    to stimulate debate on the opportunity to
    confront a broad set of issues related to the
    question of access to content in an informed and
    technically competent arena.

22
Center for Law and Economics and Economics of
Institutions Siena
Thank you for your attention
  • University of Siena
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