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www.eui.eu/RSCAS
Market definition, dominant positions and
pluralism in Media
Prof. Pier Luigi Parcu
Director, Centre for ...
www.eui.eu/RSCAS
STRUCTURE OF THE PRESENTATION
1. Competition legislation and pluralism regulation
2. Competition: assessm...
www.eui.eu/RSCAS
1. Competition legislation and pluralism
regulation
3
www.eui.eu/RSCAS
“The marked trend towards concentration in the European
communications and media sectors during recent ye...
www.eui.eu/RSCAS
The EC exerts a market-related
control toward mergers and the
possible distortions of competition
and do...
www.eui.eu/RSCAS
6
Two levels of media legislation
Competition regulation is provided on a European level,
aside of the na...
www.eui.eu/RSCAS
7
Two levels of media legislation
Specific regulation to protect media pluralism is needed,
as the compet...
www.eui.eu/RSCAS
2. Competition: assessment of relevant
product market and geographical market:
essentially an economic de...
www.eui.eu/RSCAS
Market: the place (actual or nominal) where economic agents -
(potential) buyers and sellers - interact g...
www.eui.eu/RSCAS
Market forms: tassonomy
MARKET FORMS CHARACTERISTICS
Firm’s size Number of firms Product’s type
Barriers ...
www.eui.eu/RSCAS
Official Definition
EU Commission:
• A relevant product market comprises all those
products and/or servic...
www.eui.eu/RSCAS
Notion of relevant market
To identify boundaries of competition between firms
Three types of constrains:
...
www.eui.eu/RSCAS
Main criteria used by the Commission
• Demand-side substitution (cf. segmentation
fixed/mobile)
• Price d...
www.eui.eu/RSCAS
• Two main types of markets
– Services to end users (retail)
– Services supplied to undertakings so as to...
www.eui.eu/RSCAS
• Other fixed lines markets (wholesale and retail
level)
• Other mobile markets (wholesale and retail lev...
www.eui.eu/RSCAS
Definition of geographic markets
A relevant geographic market comprises the area in
which the firms conce...
www.eui.eu/RSCAS
Notion of geographic markets
• Past evidence of orders to other areas
• Basic demand characteristics (i.e...
www.eui.eu/RSCAS
Geographic market: TLC and media
In network and media industries most of the markets
remain national beca...
www.eui.eu/RSCAS
3. Market power and dominance -
Media ownership and concentration
19
www.eui.eu/RSCAS
Basic notion
Legal approach:
• Dominant position → Position of economic strength
affording it the power t...
www.eui.eu/RSCAS
Market power
The power of a firm to increase the price over the marginal
cost
Price is equal to marginal ...
www.eui.eu/RSCAS
• Dominance “relates to a position of economic strength
enjoyed by an undertaking, which enables it to pr...
www.eui.eu/RSCAS
Media industry tends to concentration
The media industry is characterized by:
 High initial costs (barri...
www.eui.eu/RSCAS
Entry barriers
Entry and expansion barriers contribute to define the extent to
which a firm is dominant:
...
www.eui.eu/RSCAS
Entry barriers
Concentration in media markets can lead to two different and
opposite firms behaviors, bot...
www.eui.eu/RSCAS
Tools: market share
First look at the market share (usually it is better in value rather than in
volume)
...
www.eui.eu/RSCAS
Other criteria/1
Low marginal costs:
- For press media marginal costs are low, as additional
cost is rela...
www.eui.eu/RSCAS
Other criteria/2
• Overall size of the undertaking
• Cost and barriers to switching
• Control of infrastr...
www.eui.eu/RSCAS
Other criteria/3
• Economies of scale and economies of scope
• Vertical integration
• Highly developed di...
www.eui.eu/RSCAS
Demand characteristics/1
Consumers concentration affect a firm’s market power:
Aggregated consumers have ...
www.eui.eu/RSCAS
Demand characteristics/2
Technological development is deeply influencing the media
markets:
 On the one ...
www.eui.eu/RSCAS
Criteria
• High proportion of the producer’s total output
bought by a certain customer
• High portion of ...
www.eui.eu/RSCAS
4. Pluralism regulation in the main EU
countries: essentially an ad hoc definition
33
www.eui.eu/RSCAS
General principles of freedom of expression and freedom of
speech are clearly stated in the article 10 of...
www.eui.eu/RSCAS
Each EU country has a specific pluralism legislation, focusing particular
aspects of media pluralism.
35
...
www.eui.eu/RSCAS
Television
 Maximum holding of 49% of a national terrestrial TV service exceeding 2.5% of TV audience sh...
www.eui.eu/RSCAS
Television
 30 per cent rule: a broadcaster can not exceed 30% of TV audience share during a given
year....
www.eui.eu/RSCAS
Television
 A broadcaster can not have more than 20% of the total National TV channels
 Incumbent opera...
www.eui.eu/RSCAS
Television
 Any merger in the TV market, if relevant for the public interest, can be assessed by the
Sec...
www.eui.eu/RSCAS
In 2003, the Federal Communication Commission opted for a relaxation in the media
ownership rules. This d...
www.eui.eu/RSCAS
Conclusion
41
www.eui.eu/RSCAS
Conclusion
• The instruments of competition are not fit for pluralism
but they can help!
• The EU Member ...
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Market definition, dominant positions and pluralism in Media

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Prof. Pier Luigi Parcu
Director, Centre for Media Pluralism and Media Freedom
pierluigi.parcu@eui.eu @PLParcu

CMPF Summer School 2013 for Journalists and Media Practitioners
http://cmpf.eui.eu/training/summer-school-2013.aspx

Published in: Education, Business
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Market definition, dominant positions and pluralism in Media

  1. 1. www.eui.eu/RSCAS Market definition, dominant positions and pluralism in Media Prof. Pier Luigi Parcu Director, Centre for Media Pluralism and Media Freedom pierluigi.parcu@eui.eu @PLParcu 14 May 2013 - EUI, Fiesole Centre for Media Pluralism and Media Freedom 1
  2. 2. www.eui.eu/RSCAS STRUCTURE OF THE PRESENTATION 1. Competition legislation and pluralism regulation 2. Competition: assessment of relevant product market and geographical market 3. Market power and dominance – Media ownership and market concentration 4. Pluralism regulation in the main EU countries 5. Conclusion 2
  3. 3. www.eui.eu/RSCAS 1. Competition legislation and pluralism regulation 3
  4. 4. www.eui.eu/RSCAS “The marked trend towards concentration in the European communications and media sectors during recent years in our view entails two dangers. The first danger is the creation of significant market power of undertakings, or even monopoly, that significantly impedes competition, ultimately to the detriment of consumer welfare. This very often coincides with the second danger, which by the way, as competition authorities, we have no remit to control, namely the possibility for a limited number of media companies to curtail media pluralism, diversity and freedom of information.” (Philip Lowe , Director General for Competition, European Commission Convention 2004) 4 Two levels of media legislation
  5. 5. www.eui.eu/RSCAS The EC exerts a market-related control toward mergers and the possible distortions of competition and dominant positions eventually resulting from them However, the control on media pluralism rests primarily within national regulators 5 Two levels of media legislation
  6. 6. www.eui.eu/RSCAS 6 Two levels of media legislation Competition regulation is provided on a European level, aside of the national applications. Example the Telepiù/Stream merger in Italy. It is used in the media field, as in any other economic sectors. Competition regulation can be used also to protect pluralism, though it is not its main purpose.
  7. 7. www.eui.eu/RSCAS 7 Two levels of media legislation Specific regulation to protect media pluralism is needed, as the competition regulation could be non sufficient to secure freedom of expression and information. Media pluralism regulation relies on national legislation, as there is not a European common legislation in this matter. Each EU country has a specific regulation, often focusing on particular aspects of media pluralism.
  8. 8. www.eui.eu/RSCAS 2. Competition: assessment of relevant product market and geographical market: essentially an economic definition 8
  9. 9. www.eui.eu/RSCAS Market: the place (actual or nominal) where economic agents - (potential) buyers and sellers - interact generating exchange opportunities Industry: the system of firms producing same or similar products in a defined productive field Relevant market: the market in which one or more products compete → instrumental for the analysis of market power 9 Definition of product markets
  10. 10. www.eui.eu/RSCAS Market forms: tassonomy MARKET FORMS CHARACTERISTICS Firm’s size Number of firms Product’s type Barriers to entry/exit Perfect competition Small (a single firm’s production is negligible w.r.t. the overall quantity exchanged on the market) High (tending to infinite) Homogeneous None Imperfect competition Monopoly Big (a single firm’s production is the all quantity exchanged on the market) One firm ---- No possibility of entry Oligopoly Big (a single firm’s production is a large part of the quantity exchanged on the market) Few firms Homogeneous Barriers may exist Monopolistic competition Small (a single firm’s production is negligible w.r.t. the overall quantity exchanged on the market) High Differentiated None 10
  11. 11. www.eui.eu/RSCAS Official Definition EU Commission: • A relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use* • *Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law, Official Journal, C372, 9/12/1997 11
  12. 12. www.eui.eu/RSCAS Notion of relevant market To identify boundaries of competition between firms Three types of constrains: • Demand-side substitution: ability of consumers to switch • Supply-side substitution: ability of suppliers to switch in the short term, cf. entry barriers • Potential competition: ability of suppliers to switch in the long term ( but during the dominance analysis) 12
  13. 13. www.eui.eu/RSCAS Main criteria used by the Commission • Demand-side substitution (cf. segmentation fixed/mobile) • Price differentials between products (cf. segmentation fixed/mobile) • Different payment structures (cf. segmentation cable/satellite television) • Different product characteristics (cf. segmentation pay- TV and free TV) • Existence of specific customer groups (cf. segmentation enhanced telecommunications for international corporations) Product market: TLC and media/1 13
  14. 14. www.eui.eu/RSCAS • Two main types of markets – Services to end users (retail) – Services supplied to undertakings so as to provide retail services (wholesale) • Five platforms – Fixed narrowband – Fixed broadband – Fixed leased lines – Mobile – Broadcasting Product market: TLC and media/2 14
  15. 15. www.eui.eu/RSCAS • Other fixed lines markets (wholesale and retail level) • Other mobile markets (wholesale and retail level) • Other Internet markets • Other broadcasting markets • Satellite markets • Equipment markets • Bundled Products Product market: TLC and media/3 15
  16. 16. www.eui.eu/RSCAS Definition of geographic markets A relevant geographic market comprises the area in which the firms concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbor areas because the conditions of competition are appreciably different in those area * *Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law, Official Journal, C372, 9/12/1997 16
  17. 17. www.eui.eu/RSCAS Notion of geographic markets • Past evidence of orders to other areas • Basic demand characteristics (i.e. national preferences, preferences for national brands, language, culture and lifestyle, need for local presence) • Views of customers and competitors • Current geographic pattern of purchases • Barriers to entry and the costs associated with switching to companies located in other areas • Movements of consumers across areas in response to (relative) price variations or changes in other relevant variables • Characteristics of the goods (ex. soft goods) 17
  18. 18. www.eui.eu/RSCAS Geographic market: TLC and media In network and media industries most of the markets remain national because: • physical characteristics or capacity of a network (i.e. the area covered by the network) • regulatory reasons (i.e. the area in which operators are authorised to operate or to use share facilities such as spectrum) • national or regional restrictions on the cross-border provision of services at least as far as the control of editorial content is concerned • characteristics of the viewers and the homogeneity of linguistic areas that cross national borders 18
  19. 19. www.eui.eu/RSCAS 3. Market power and dominance - Media ownership and concentration 19
  20. 20. www.eui.eu/RSCAS Basic notion Legal approach: • Dominant position → Position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers Economic approach: • Market power → Power on price → Dominant position exists if market power is high 20
  21. 21. www.eui.eu/RSCAS Market power The power of a firm to increase the price over the marginal cost Price is equal to marginal cost in perfect competition (very high number of competitors, homogeneous product, …) In the real world fix costs exist, and products very unlikely are perfectly homogenous and substitute → single firms always have market power to a certain extent The issue is to measure how large this is 21
  22. 22. www.eui.eu/RSCAS • Dominance “relates to a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on a relevant market, by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.” (ECJ, Hoffmann-La Roche, 1979) • Three type of constraints are important: – by actual competitors – by expansion of actual competitors and potential entrants – by customers Definition of dominance 22
  23. 23. www.eui.eu/RSCAS Media industry tends to concentration The media industry is characterized by:  High initial costs (barriers to entry)  Low marginal costs  Relevant economies of scale (horizontal vertical and diagonal integration) The digitalization process however is bringing profound changes:  Lowering of barriers to entry  Long tail effect  Audience fragmentation  Products customization 23
  24. 24. www.eui.eu/RSCAS Entry barriers Entry and expansion barriers contribute to define the extent to which a firm is dominant: • Legal and regulatory: causing State intervention E.g.: limitation due to scarcity of resources such as spectrum • Structural: due to market structure E.g.: scale and scope economies when fixed costs are sunk, control of essential facility of important distribution network, network effects • Strategic: due to firms behaviors Long term contracts with exclusionary effect on competitors, excessive investment, predatory prices strategies 24
  25. 25. www.eui.eu/RSCAS Entry barriers Concentration in media markets can lead to two different and opposite firms behaviors, both increasing barriers to entry:  with few contestants, prices can grow up, thus narrowing the access of new entrants (e.g. the TV sports rights)  dominant firms can keep the prices low (predatory prices), making the market not profitable for potential entrants, especially because of the high initial costs 25
  26. 26. www.eui.eu/RSCAS Tools: market share First look at the market share (usually it is better in value rather than in volume) However, a high market share does not imply necessarily market dominance → a firm could be unable to increase the price if the market is contestable (i.e. barriers to entry are absent). Market share thresholds should be used as attention levels: • More than 50%: rebuttable presumption of dominance • Between 40 and 50%: may be indication of dominance, see size of competitors, evolution over time, other factors • Between 30 and 40%: generally not considered as dominance • Less than 25% : presumption of no-dominance 26
  27. 27. www.eui.eu/RSCAS Other criteria/1 Low marginal costs: - For press media marginal costs are low, as additional cost is related to just a part of the product (paper, distribution…) - For broadcasting media the marginal cost is zero, as any new viewer/listener does not have any additional cost. But Switching to internet as the new distribution mean, through streaming videos, this paradigm is changing, because more viewers/listeners mean more bandwidth, and more costs 27
  28. 28. www.eui.eu/RSCAS Other criteria/2 • Overall size of the undertaking • Cost and barriers to switching • Control of infrastructure not easily duplicated • Technological advantages or superiority • Easy or privileged access to capital markets/financial resources • Product/services diversification (e.g. bundled products or services) 28
  29. 29. www.eui.eu/RSCAS Other criteria/3 • Economies of scale and economies of scope • Vertical integration • Highly developed distribution and sales network • Absence of potential competition • Barriers to expansion • Ease of market entry • Absence of or low countervailing buying power 29
  30. 30. www.eui.eu/RSCAS Demand characteristics/1 Consumers concentration affect a firm’s market power: Aggregated consumers have stronger bargaining power, because they constitute an attractive group and so stimulate tighter competition (in particular when customer are well informed) Moreover: • If consumers are homogeneous and aggregated they attract possible new entrants (and this reduces the incumbent market power) • If consumers are dispersed, fixed costs make entrance into the market unattractive (the entrant will probably deal only with a small proportion of consumers) • Audience fragmentation in media markets could impede the access of new entrants 30
  31. 31. www.eui.eu/RSCAS Demand characteristics/2 Technological development is deeply influencing the media markets:  On the one hand it lowers entry barriers, reducing dominance, with positive effects on market plurality  On the other hand it contributes to fragment the audience, dispersing consumers and thus making the market less attractive for new entrants. 31
  32. 32. www.eui.eu/RSCAS Criteria • High proportion of the producer’s total output bought by a certain customer • High portion of the costs for a service in relation to their total expenditure of the customers • Well informed customers •Countervailing buyer power is more meaningful in wholesale markets because wholesale customers are in general more visible and powerful than retail customers Demand characteristics/3 32
  33. 33. www.eui.eu/RSCAS 4. Pluralism regulation in the main EU countries: essentially an ad hoc definition 33
  34. 34. www.eui.eu/RSCAS General principles of freedom of expression and freedom of speech are clearly stated in the article 10 of in the European Convention of Human Rights. Specific rules about media pluralism can be considered the ones provided by the AVMS Directive (Audiovisual Media Services, following the TV Without Frontiers Directive), in the broadcasting sector, that prescribes some specific quotas: - Broadcasters should reserve a majority of the transmission time to EU audiovisual works - Broadcasters should reserve a 10% of the transmission time to audiovisual works provided by independent producers. 34 Two stages of media ownership control at European level
  35. 35. www.eui.eu/RSCAS Each EU country has a specific pluralism legislation, focusing particular aspects of media pluralism. 35 Overview TV Newspapers Crossmedia France 49% of a single TV licence owner 30% share of the national circulation Several measures to avoid strong positions in TV, radio adn newspapers at the same time Germany Max. 30% of TV audience share Federal Cartel Office intervenes for big mergers Undue influence if more than 25% of TV audience share and dominant position in related market Italy 20% of the total TV market (TV licences and programs) 20% of the total newspapers market 20% of the total communications market revenues (SIC) United Kingdom Secretary of State asks the advice of Ofcom and CC for main mergers Mergers are submitted to public interest test Several measures to avoid strong positions in TV, radio adn newspapers at the same time USA Max. reach of 45% of TV households for local TV stations - Cross-ownership allowed according to the number of TV stations that operate in a market
  36. 36. www.eui.eu/RSCAS Television  Maximum holding of 49% of a national terrestrial TV service exceeding 2.5% of TV audience share in a given year  Maximum holding of 33% of a local terrestrial TV service exceeding 2.5% of TV audience share in a given year  If one holds more than 15% in a national terrestrial TV service, may not hold an interest of more than 15% in another TV service. If one holds more than 5% in two national TV services can’t hold more than 5% of a third national TV service  Prohibition on the holding of more than seven licenses for national DTT services;  Prohibition on the holding of more than two licenses for satellite services. Print  Prohibition to exceed the threshold of 30% of the national daily circulation Cross media No person may hold more than two of the following positions at national level:  holder of licences for television services with audience reach exceeding 4 million;  holder of licenses for cable TV services with audience reach exceeding 6 million;  holder of licences for television services with audience reach exceeding 30 million;  editor or owner of daily newspapers with a national share of circulation in excess of 20%. 36 France
  37. 37. www.eui.eu/RSCAS Television  30 per cent rule: a broadcaster can not exceed 30% of TV audience share during a given year.  25 per cent rule: if a broadcaster holds a dominant position can not exceed 25 % of TV audience share in a given year Press  Mergers: if one of the companies involved in a merger has a turnover of more than 25 million Euros, the filling of the Federal Cartel Office is required  When printed media companies merge, a maximum share of 24.5% is permitted. Cross media A company is considered having an undue influence on public opinion when it holds 25% of the TV audience share and market or a 30% of the TV and media market dominant position in a related media market 37 Germany
  38. 38. www.eui.eu/RSCAS Television  A broadcaster can not have more than 20% of the total National TV channels  Incumbent operators (= operators having more than one national TV licence) in the passage to digital multiplexes must cede 40% of their network capacity to new entrants Press  Any owner cannot control more than 20% of the national daily newspapers Cross media  SIC (integrated system of communications). One media company can not control more than 20% of the total communications market (advertising, pay-tv subscriptions, many other things…).  If one company has more than 40% in the telecommunications market, it can not control more than 10% of the SIC.  If a company controls more than 8% of the SIC, it can not hold shares in any newspaper. This rule was expected to expire in 2010, but it has been extended. 38 Italy
  39. 39. www.eui.eu/RSCAS Television  Any merger in the TV market, if relevant for the public interest, can be assessed by the Secretary of State, who can ask Ofcom and the Competition Commission to investigate Press  Cross media mergers involving press companies should be submitted to a public interest test. Cross media  In every local area at least three separate media companies for TV, radio and newspapers  If one controls more than 20% of national newspapers circulation, cannot hold more than 20% of an ITV licence  If one controls a regional ITV licence, cannot control more than 20% of the newspaper circulation in that region  If one controls a regional ITV licence, can not control a radio station with an audience exceeding 45% of in that region  If one controls a newspaper accounting for more than 50% of the circulation in a given region, cannot control a radio station 39 United Kingdom
  40. 40. www.eui.eu/RSCAS In 2003, the Federal Communication Commission opted for a relaxation in the media ownership rules. This decision has been strongly opposed New rules foresee: Television  A TV network can operate local TV station with a maximum reach of 45% of US TV households. The previous threshold was 35%.  A company can own 3 TV stations in those market with more than 18 TV stations, or 2 TV stations where there are more than 5 TV stations. Cross media  If in one market there are 9 or more TV stations, cross-ownerships (newspapers- broadcast, and television-radio) are allowed  If in one market there are between 4 and 8 TV stations, cross-ownerships (newspapers- broadcast, and television-radio) are subject to some restrictions.  If in one market there are less than 4 TV stations, cross-ownerships (newspapers- broadcast, and television-radio) are prohibited 40 USA
  41. 41. www.eui.eu/RSCAS Conclusion 41
  42. 42. www.eui.eu/RSCAS Conclusion • The instruments of competition are not fit for pluralism but they can help! • The EU Member States however have not a common line on pluralism preservation • The world of internet presents different issues and prima facie seems less manageable and maybe less in need of traditional regulatory instruments • However, the Google, the Apples, the Facebooks…may create new concerns both for competition and pluralism… 42

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