Horizontal Integration

controversy DG In coifion, communication and multimedia Media straight and even integration in the media field and EU rival justice Miguel Mendes Pereira* The ICT and Media Sectors within the EU insurance policy Framework U. L. B. -SMIT (Studies on Media, Information and Telecommunications) CEAS-Norwegian School of Management, Oslo Telenor Broadcast Brussels, 7 April 2003 OUTLINE Introduction I. Convergence and integration 1. Technical crossroad 2. frugal convergence 3. Efficiencies II. Competition exserts 1. The free-enterprise(a) bena 2.Foreclosure 3. The find out condition test III. upright integration 1. 2. 3. 4. The gate-keeper issue Foreclosure of excitant grocerys Leveraging Network substances IV. crosswise integration 1. General assessment 2. The Newscorp/Telepiu opening 3. The EMI/ snip Warner case V. Remedies 1. The remnant among efficiencies and foreclosure 2. Remedies in the Newscorp/Telepiu case 3. Remedies in the cases Vivendi/Seagram/ canalize ga in, Vizzavi and AOL/Time Warner shutdown * Administrator, European missionary post/DG Competition/Media Unit. Lecturer at the righteousness of nature School of the University of Lisbon.The opinions ex crush outed are purely personal and lone(prenominal) reside the author. erect and even integration in the media sector and EU rivalry law M. Mendes Pereira Ladies and Gentlemen, I wish first of tout ensemble to thank the SMIT center of attention and Telenor for inviting me to speak here today. I set apart to employ you a brief over sight of the challenger issues assembled by good and crosswise integration of companies in the media sector. I drop by the wayside start by referring to the convergence trend in the media and telecommunications sectors and its tie beam to the immersion wave we kick in witnessed during these past trio years.I go awaying then highlight the main rivalry issues which this showcase of cognitive operations raise from a theoretical poi nt of view. I exit subsequently talking to the issues consociateed specifically to vertical as well as to horizontal integration, and conclude by illustrating how the European perpetration has dealt with these occupations by promoter of remedies original as a condition for the approval of this type of immersions. In so doing, I will refer to a enactment of cases recently assessed by the thrill such as AOL/Time Warner, EMI/Time Warner, Vizzavi, Vivendi/Seagram/ television channel Plus and, decided just last week, Newscorp/Telepiu.I. CONVERGENCE & INTEGRATION Convergence has produce forth all too familiar to few of us as individual(a) of the main driving forces behind the recent changes occurred in the media and telecom industries. However, as it so frequently knocks with nonions that turn into buzzwords, the many meanings attri only whened to the line convergence are often ambiguous and, as such, unhelpful in order to recognise the evolution of the media and tele com industries. Let me therefore turn, first of all, to the two meanings of the term convergence that I consider to be or so relevant from a disceptation law point of view. . Technical convergence Technical convergence mainly concerns the possibilities qualifyinged by digital technology. Those possibilities are reflected, for example, in the infra-structures required to save subject matters like movies or medicament. With the current digital technology, huge mensurations of entropy may be transmitted to a high derive of users through with(predicate) different net whole kit ( vigorous networks, earnings, satellite). This allows for the dematerialization of media wares traditionally sold as physical products ( pertlyspapers, films, CDs) by transforming them into packages of bytes.At the like time, digital technology allows for the convergence of traditionally separate media into a single product, putting together text, sound, video and voice in what has pay off k at pre sentn as multimedia. plan of attack to TV broadcast, or kinda webcastig, on the internet is already promptlyadays a reality and listening to an MP3 symphony file on a cellular phone is nothing forward-looking. 2. economic convergence Audio-visual products were never cheap but the growing tilt bring on by the proliferation of TV channels has inflated work costs. For example, the by instanter famous saga The Lord of the Rings has had reported costs of 278 million.In order to train an idea of the recent step-up in the footing for audio-visual contents it is suit equal to(p) to compare, for example, the price paid for beam rights of the Football World Cups of 1990, 1994 and 1998 241 million ECU with the price paid for the same rights in jimmy of the World Cups of 2002 and 2006 1,7 billion Euro. totally large companies seem to be equal to(p) to afford such astronomical costs. 2 Vertical and horizontal integration in the media sector and EU competitor law M. Mend es Pereira In face of economic barriers of such dimension, media companies commit shown a trend towards concentration. . Efficiencies What appeared to be particularly fresh about these alliances and mergers in the media constancy was the search of not only the traditional economies of scale but, preceding(prenominal) all, the search of economies of scope. This interpretd into an attempt to use the same product in a number of different ways pure re foot and telecommunication, or fun and information, or information and telecommunication. From an economic point of view, economies of scope basically translate in lower Average Total Costs as a resolution of producing a wide range of products.The main feature of this type of concentrations is the vertical integration of the different take trails of production and dissemination of media products that take aims to companies which are adapted to, for example, produce films or medicinal drug, register them in DVDs or CDs and dis tribute them not only to brick and mortar shops but likewise through the c commensurate, satellite or erratic phone networks they own. Vertically structured companies are in a plant to exploit their products at every single level of the note rank chain. Create Once, Place Everywhere seemed to be the motto for the media diligence during the cyberspace bubble, illustrating the need for media producers to place their products in the largest possible number of different political programs. This was the implicit in(p) reason for alliances and mergers mingled with companies which are deedive in sectors of the economy that employ to be separate like television and telecommunications. Operations like AOL/Time Warner, Vivendi/ usual, Vivendi/Vodafone for the setting up of portal vein Vizzavi or the acquisition of Dutch amusement producer Endemol by the Spanish telecom fellowship Telefonica edifyly exemplify this trend.It should be said that, to a large extent, the ratio u nderlying much or less of these operations was a deep faith in the net profit authorization and a unbendable belief in the synergies payoffing from cross-supply between different skilful platforms belonging to the same vertically integrated company. The burst of the dotcom bubble showed how more or less of these expectations were possibly premature. We now start seeing rough of the vertically integrated assemblys selling off nigh of their units (AOL/TW or Vivendi/Universal) and witness consolidation ca employ by heavy losses incurred during these past few years.such(prenominal) is the case of the pay-TV industry, as illustrated by the merger in Spain of the platforms channel Satelite and Via Digital and the merger in Italy between the platforms Stream and Telepiu, authorize by the Commission just last week. afterwards a period of extensive vertical integration, we now witness a reflux of horizontal integration dictated to round extent by monetary reasons. II. COMPET ITION ISSUES 1. The competitive arena Turning now to the competition issues elevated by integration of companies, the first step required in order to understand the forces at play is to determine the perimeter of the competitive arena.What do media companies cope for, whom do they try to sell their products to and how do they intend to do it? Media companies compete for essentially lead things. commencement, they compete for content, which is what they will lastly sell to their thickenings. Access to content produced by trey parties or the organization of production facilities is a sine qua non condition for entering or staying in furrow. Secondly, they compete for the best way to deliver such content to customers. Access to delivery channels spend a penny by third parties or 3 Vertical and horizontal integration in the media sector and EU competition law M.Mendes Pereira the possibility to nominate their own grades to the customer is what allows media companies to dis tribute their output. Finally, they compete for the obvious ultimate addressee of all this competition the customer. But this is a fence which goes beyond the obvious competition for a onetime sale. Some of the businesses in the media & telecom sector (e. g pay-TV, Internet ingress), like most IT-driven businesses, are based on a durable relationship with the customer. An constituted customer introduction allows for the progressive development of new services and products and for the consequent amplification in ARPU1.Access to potential clients managed by third parties or the build-up of their own client basis is the ultimate target of media companies. 2. Foreclosure Foreclosure of the competitive arena is a important concern of EU competition policy in relation to vertical agreements and mergers. Restricted recover to excitant foodstuffs (copyrights or contents) or to sales mercenaryises (customers, at retail level) may limit inter-brand competition. The extreme example is where a company, as a result of a vertical or horizontal integration, succeeds in simply barring the retrieve to a given merchandise to its enemys.However, in real life foreclosure does not arise in such simple terms and mostly materialises by indirect means. For example, by raising rivals costs, by raising barriers to entry or by engaging in tying/bundling. Tying is particularly relevant in the media and telecom sectors given that it is often present in explicit (and in most cases, legitimate) commercial offers for example, a bundled offer of pay-TV and Internet advance, or both plus fixed telephone (so called triple play). The qualification to raise rivals costs may well arise where a prevalent firm is in a send or acquires such post as a result of a concentration) to control the admission fee by competitors to a given infra-structure or input (a technology or a copyright) and where it has the possibility to charge supra-competitive prices for such entryway. In the media sector one could think about, for example, entre code to a satellite platform for TV distribution or to a proprietary standard for qualified Access System. A company in these circumstances is greensly referred to as a gate-keeper. A central element in the assessment of merchandise violence of a company and its possibility of foreclosing a given grocery is the concept of barriers to entry.Where entry barriers do not exist, easy entry will quickly eliminate the problem, even where the incumbent holds large market shares. founding barriers might be described as the advantages of established sellers in an industry over potential entrant sellers, these advantages existence reflected in the extent to which established sellers can persistently raise their prices above a competitive level without attracting new firms to enter the industry2. Although in most cases barriers to entry will indeed give up an economic nature, they may in some cases withdraw opposite forms. stan dard may function as an entry barrier when it provides for the origination of special rights, for example when only a limited number of licenses is foreseen. This is the case of terrestrial TV and/or radio broadcast receivable to spectrum scarcity. 3. The dominance test Most competition law issues related to vertical and horizontal integration in the media sector have been dealt with by the European Commission under the union Regulation, i. e. in note of concentrations notified under the EC Merger Regulation3. As 2 3 1 Average Revenue per User.J. Bain, Barriers to Competition, H. U. P. 1965, p. 3. Council Regulation (EC) No 4064/89 of 21 December 1989 on the control of concentrations 4 Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira you know, pursuant to Article 2 (3) of the Merger Regulation, a concentration which names or strengthens a overabundant bunk as a result of which effective competition would be of importly impede d in the common market or in a substantial part of it, shall be declared in matched with the common market. The test applied by the Commission when assessing these operations was therefore a dominance test. The concept of dominance used under the Merger Regulation is equivalent to the one defined by the Court of Justice in Article 82 cases The dominant position () relates to a position of economic strength enjoyed by an undertaking which enables it to hold back effective competition being maintained on the relevant market by giving it the authority to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers4. () such a position does not preclude some competition, which it does where there is a monopoly or quasi-monopoly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disca rd of it so long as such conduct does not operate to its detriment. 5 III.Vertical integration The reason why vertical integration is a particularly relevant competition issue in the media sector is be answer many media companies have during these past years actively sought to take vertical integration as far as possible. This has been a constant between undertakings, OJ L 395/1, 30. 12. 1989, as amended by Council Regulation (EC) No 1310/97 of 30 June 1997, OJ L 40/17, 13. 2. 1998. ECJ, fall in Brands, case 2/76, ECR 1978 207. ECJ, Hoffman-La Roche, case 85/76, ECR 1979 461. eature of the concentrations in the media sector assessed by the Commission. The multiplication of the presence of a company throughout a number of markets along the value chain of the product concomitantly multiplies the possibilities for such a company to foreclose one or more of the corresponding markets where the company possesses market power. In these circumstances, vertical integration may in itself rai se barriers to entry. A number of recurrent competition issues has arisen in the cases dealt with by the Commission, and I take aim to address the most strong ones. 1.The gate-keeper A gate-keeper role is played by a company possessing a certain infra-structure, technology or know-how allowing it to observe a momentous degree of control in wish of the retrieve to a given market. This degree of control is relevant from a competition point of view only where the market power of the gate-keeper is significant and where the nucleotide is a crucial gateway to the market or where the technology at bet is an essential input for any potential new entrant. A gatekeeper will be able to engage in exclusionary practices vis-a-vis its competitors and/or excessive pricing vis-a-vis its customers.A clear gate-keeper issue arose in the recent Newscorp/Telepiu case6, concerning the merger of the two Italian pay-TV platforms Stream and Telepiu. As a result of the merger, the new entity would render the gate-keeper in respect of the rag to the only satellite platform in Italy for the provision of pay-TV distribution services. Furthermore, it would become the gate-keeper in respect of a number of technical services associated to 6 showcase COMP/M. 2876 Newscorp/Telepiu. See prior notification notice in OJCE, C255, 23. 10. 2002, p. 20 press release IP/02/1782 of 29. 11. 2002 press release IP/03/478 of 02. 4. 2003. 5 4 5 Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira pay-TV such as Conditional Access Systems, set-top boxes and electronic Programme Guides. A gate-keeper issue also arose in the AOL/Time Warner merger7 approved in the year 2000. AOL was the stellar(a) Internet irritate provider in the US and the only provider with a presence in most EU Member States. Time Warner, on the opposite hand, was one of the demesnes largest media and entertainment companies with interests in TV networks, magazines, book produ ce, melody, take entertainment and cable networks.The Commission found that the new entity resulting from the merger would have been able to play a gate-keeper role and to dictate the technical standards for on-line medical specialty delivery, i. e. streaming and downloading of symphony from the Internet. Consequently, AOL/TW could end up holding a dominant position on the emerging market for on-line medicine delivery. This could happen in two ways. First, AOL/Time Warner would be in a position to develop a closed proprietary formatting technology for all the downloads and streaming of Time Warner and Bertelsmann tracks.The formatting language of AOL/Time Warner could become an industry standard and competing record companies wishing to distribute their music on-line would be required to format their music using the new entitys technology. Because of its control over the relevant technology, the new entity would be in a position to control downloadable music and streaming over t he Internet and raise competitors costs through excessive license fees. Alternatively, AOL/Time Warner could format its music (and Bertelsmanns) to make it compatible with its own software Winamp nly, ensuring at the same time that Winamp could support and play different formats used by opposite record companies. By formatting its music and the music from Bertelsmann to make them compatible with its own software Winamp only, the new entity would cause Winamp to become the only thespian in the world capable of playing virtually all the music getable on the Internet. By refusing to license its technology, the new entity would impose Winamp as the dominant music shammer as no opposite player would be able to decode the proprietary format of TW and Bertelsmann music.As a result of the merger, the new entity would control the dominant player software and could charge supra-competitive prices for it. 2. Foreclosure of input markets A given company may hold a significant degree contro l over the source of the different businesses at stake in the relevant markets, i. e. of the primary input at the top of the value chain of the product. In the media industries, this will generally refer to the company producing the audio-visual product (films, music, TV-programmes) and/or holding the corresponding copyrights.The control exerted at the source will become relevant from a competition law point of view where the amount or breadth of products and/or copyrights is such as to allow the company to gain a competitive advantage by means of exclusionary or discriminatory practices vis-a-vis its competitors. In AOL/Time Warner, for example, the combined entity would not only possess one of the largest music libraries in the world (Warner medicinal drug is one of the 5 music studys) but would also, due to contractual links, have prejudiced access to the library of Bertelsmann Music Group, also part to the group of the 5 music majors.This would result in the combined entity c ontrolling the lead-in source of music publishing rights in Europe. 6 7 character COMP/M. 1845 AOL/Time Warner, decision of 11. 10. 2000, OJ L 268/28, 9. 10. 2001. Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira The problem was aggravated due to the simultaneous notification of the projected merger between EMI and Time Warner8. The preferential access by AOL/Time Warner to the music copyrights of EMI, Warner and Bertelsmann would have put in the hands of the new entity half of all the music content available in Europe for on-line delivery.A similar problem arose in the Vivendi/Seagram/Canal Plus9 merger in respect of both music and films. Vivendi was a leading company in the telecommunications and media sector, with interests in mobile telephony networks, cinema production and distribution, and pay-TV services. Seagram was a Canadian company which, among another(prenominal) interests, controlled the Universal music and filmed ente rtainment businesses. In terms of content, the integrated entity would have the worlds second largest film library and the second largest library of TV schedule in the EEA.It would also be number one in record music combined with an important position in terms of publishing rights in the EEA. The position of Vivendi/Universal concerning music rights became particularly relevant in respect of the Vizzavi portal, a portal run by a joint-venture between Vivendi and Vodafone. The Vizzavi joint-venture10 had itself been notified to the Commission just some months out front the Vivendi/Universal merger. 3. Leveraging A classic competition concern is the leveraging ability of the parties, i. e. their ability to reverse their market power in a iven market into a neighbouring market, thereby creating or strengthening a dominant position. This problem may become particularly acute in cases where the parties extend their activities into different product or services markets, something that is explicitly sought for by media companies wishing to distribute their products crossways different platforms. In the Vizzavi case, the creation of the jointventure raised concerns in respect of the ability of the parties to leverage their market power in the market for mobile telephony into the market for mobile Internet access.The stated purpose of the Vizzavi portal was to cook a horizontal, multi-access Internet portal, providing customers with a range of web-based services across a variety of platforms (PCs, mobile phones, TV set-top boxes). As regards Internet access via mobile phone handsets, the issue arose in respect of the significant market position of Vodafone in the market for mobile telephony in a number of European countries (and of Vivendi in France). Vodafone and Vivendi already had a very significant customer basis in these countries and therefore a solid path to the future customers of the JV was already established.On the basis of their client basis for mobi le telephony services, the position of the JV-parties in the market for mobile Internet access would be strengthened by the Vizzavi branded and integrated approach to Internet across various platforms, which would allow for cross-selling and bundling of offers. This would allow the new entity to leverage a strong position in the mobile telephony market into a dominant position on the mobile Internet access market.As regards Internet access via TV set-top boxes, a similarly solid distribution channel was also owned by Canal+ in respect of its customer basis for pay-TV services. A similar concern therefore arose in respect of the ability of Canal+ leveraging its strong market 7 Case COMP/M. 1852 Time Warner/EMI, see Press Release IP/00/617 of 14. 06. 2000. 9 Case COMP/M. 2050 Vivendi/ Seagram/ Canal Plus, decision of 13. 10. 2000, OJ C 311/3, 31. 10. 2000. 10 Case COMP/JV. 48 Vodafone/Vivendi/Canal Plus, see Press Release IP/00/821 of 24. 07. 2000. 8 Vertical and horizontal integratio n in the media sector and EU competition law M. Mendes Pereira position in the pay-TV market into the market for Internet access via set-top boxes. The overall concern therefore arose in respect of the ability of both Vodafone and Canal+ to migrate their customer basis from the mobile telephony and pay-TV markets to the Internet access markets by using the already existing distribution channels. Another clear vertical leveraging issue arose in the Vizzavi case, as regards the buying power of the J-V parties.Already before the operation, Canal+ was an important buyer of content for pay-TV, such as TVprogramming, sports and films. Furthermore, it had a large customer basis accustomed to pay for content. The Vizzavi portal would combine a powerful new Internet access mechanism with paid-for content. Given the dominant position that the parties would acquire on the Internet access markets which I mentioned before, the operation would allow the parties to leverage their market power i n the markets for Internet access into the market for the acquisition of paid-for content for the Internet.Moreover, the geomorphologic link between Vivendi and Canal+ and AOL France (55%) made the concern in respect of the increase in the bargaining power of the parties even more drab. The leverage allowed for by the operation would naturally work in detriment of the parties competitors in the markets for mobile telephony and pay-TV. The concerns identified in the Vizzavi operation were strengthened when Vivendi and Canal+ notified some months later their acquisition of Seagram, the Canadian company owning the music and film business of Universal.The Commission considered that Canal+ would only increase its dominant position on a number of European pay-TV markets at national level. Already before the operation Canal+ enjoyed an almost monopolistic position in respect of the acquisition of the exclusivity on Hollywood films produced by the major studios (in France, Spain and Italy ). The acquisition of Universal Studios would gain strengthen Canal+s position as buyer of Hollywood films, not only in respect of Universal itself but also in relation to other studios due to underlying financial links.Due to the vertical integration of Universal and Canal+, Canal+ would be able to leverage its position in order to secure the renewal of the easy lay agreements for pay-TV with all of the Hollywood studios and in fact also to enter into new deals. The bargaining power of Canal+ vis-a-vis the film studios would therefore be increased, allowing Canal+ to further foreclose the payTV markets where it already was active. 4.Network effects Let me now turn to another issue that often arises in media cases, most notably since convergence with the telecom industry became a reality network effects. A network effect may, in simple terms, be described as the self-multiplying power of a network. In economic terms, a network effect occurs when the benefit of an individual who is linked to the network increases with the accession of other individuals. In AOL/Time Warner, the Commission found that the distribution strength of AOL combined with the content of Time Warner and Bertelsmann would create network effects n respect of both content providers and consumers for content providers, the AOL Internet community would become an essential outlet for the distribution of their products on their side, consumers, would be deprived of any incentive cast away AOL. The network effects would work both ways more subscribers would bring more content and more content would bring more subscribers. Newcomers would also be attracted to AOL community because the 8 Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira arger the community, the more the possibilities to chat and overtake through AOL. The reason for this lies at the critical heap of content owned by Time Warner and Bertelsmann ( that is to say their huge music li brary) combined with the huge Internet community formed by AOL subscribers and the members to its Instant Messaging services. The critical mass of content owned by TW and Bertelsmann would attract further music from other record companies. Competing record companies would feel obliged to distribute their products through AOLs online outlet, which would end up having access to all the available music.Furthermore, AOL would be able to bundle TW and Bertelsmann music content (or filmed entertainment content) with Internet access and other proprietary services and give its subscribers preferential access to that content, allowing for pattern its subscribers to access new releases before they were made public through other distribution channels. Attractive content such as music or films could also be used as promotional tools or loss-leaders in order to subscribe to Internetaccess services.Consequently, the more subscribers AOL would attract, the more important it would become as a carr ier for content providers seeking to secure maximum distribution. First mover advantages are particularly strong in network industries. It comes as no surprise that, for example, mobile telephony companies give away, or strongly subsidise, mobile handsets to their customers such as to quickly establish a significant customer basis leading to increasingly stronger network effects.This circumstance justifies a particular attention by the Commission when assessing concentrations in the media & telecom industries. The junto of network effects with a strong market position may significantly raise barriers to entry and consequently lead to market foreclosure. IV. horizontal integration Competition problems which are specific to the media sector are more likely to be found in cases of vertical integration than in cases of horizontal integration.I would argue that in cases of horizontal integration, the competition issues arising in the media sector are equivalent to the ones to be found in any other sector. The issue basically concerns classic market power and the required figure translates into measuring such market power with the help of the traditional analytical tools market shares, barriers to entry, etc. Furthermore, there havent been that many examples of disputable cases of horizontal integration in the media sector dealt with by the Commission.The two most significant examples are probably EMI/Time Warner and the recent Newscorp/Telepiu. 1. The Newscorp/Telepiu case This concentration was notified to the Commission on 16 October 2002 and was cleared on 2 April 2003, further to the submission by the parties of an extensive package of undertakings. Newscorp, the acquiring firm, is a international media company, which is active in the film and TV industries, publishing (newspapers and books) and a number of other areas.It controlled the Italian (satellite) pay-TV platform Stream jointly with Telecom Italia. Telepiu, the acquired firm, was controlled by Vi vendi Universal, itself a global media group. Telepiu is the dominant pay-TV operator in Italy. Its platform started operating(a) via analogue-terrestrial means in 1991 and went on satellite in 1996. The markets abnormal by the operation were a) the market for pay-TV services b) the markets for the acquisition of contents, namely 9 Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira G G G G exchange premium films football events other sports TV channels. parties music recording publishing11 businesses. and music It should be underlined that experience shows that some of this content, namely premium films and football, is crucial for the success of any pay-TV operation. The notified operation would give rise to significant horizontal overlaps and would have a very strong impact on actual competition.In more concrete terms, the operation would lead to a) the creation of a near monopoly in the Italian market for pay-TV b) the creation of a near monopsony in the markets for the acquisition of rights Furthermore, the characteristics of the markets at stake would cause entry barriers to rise significantly. 2. The EMI/Time Warner case This concentration was notified to the Commission on 5 May 2000. It never materialised given that, further to a rehearsal of objections issued by the Commission, the parties withdrew their notification.Time Warner is a global media company, with interests extending from film production and distribution to TV production and broadcasting, cable systems operation, magazine publishing, book publishing, recorded music and music publishing. EMI is a company incorporated in the UK, its main activities being music recording and publishing world-wide. The notified concentration involved the combination of the There were heavy doubts as to the compatibility of the proposed operation with the common market due to the significant horizontal overlaps in the relevant markets.The assessment carried out by the Commission showed a very high likelihood of the operation resulting in a single dominance of the co-ordinated entity in the music publishing business and incorporated dominance, jointly with the other four remaining music Majors, in the market for recorded music. V. Remedies Having gone through some of the competition problems raised by vertical and horizontal integration in the media industry, let me now conclude by explaining how the Commission has tried to solve these problems.The Commission had to fulfil a balance between two somehow conflicting elements on the one hand, the Commission was aware of the reasons that lead companies to seek further integration, namely where these reasons were related to clear efficiencies on the other, it became aware of the serious competition problems to which some of these concentrations gave rise, namely the risk of foreclosure of the affected markets. The approach taken by the Commission was therefore not to prohibit most of these operations but rather approving them on the basis of strict undertakings proposed by the parties and accepted as a condition for the approval.However, the Commission can only accept commitments by the parties when the 11 Music publishing consists of the acquisition by publishers of rights to musical works and their subsequent exploitation upon remuneration, mostly in the form of a missionary post charged by the publisher to the author on the revenues generated by the commercial exploitation of musical works. 10 Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira competition problems are efficaciously solved.In fact, the underlying objective of any remedy package should be to create the conditions for actual competition to subsist and/or for potential competition to emerge. 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 di sciplining and restraining factor of the dominant player. The main concern of the Commission in media-related cases was to learn access, access to the relevant markets or access to those crucial elements allowing for new entrants to establish themselves in those markets.In parallel, the Commission has often imposed divestitures or the prison-breaking of structural links that aggravated the foreclosure problems. 1. Remedies in the Newscorp/Telepiu case In Newscorp/Telepiu, the undertakings accepted by the Commission can be divided in three major groups a) access to content, via namely a reduction in the duration of exclusivity agreements with premium content providers and the establishment of a sub-licensing scheme through a sell offer b) access to infra-structure, i. . access to the satellite platform for pay-TV distribution as well as to the technical services associated with pay-TV c) withdrawal from terrestrial broadcasting activities. As regards access to content, with respec t to ongoing exclusive contracts, a one-party termination right shall be fall ined to film producers and football clubs. Furthermore, the new entity will abandon exclusive rights with respect to TV platforms other than DTH12 (terrestrial, cable, UMTS, Internet etc. ).The parties shall also waive any other protection rights as regards means of transmission other than DTH. With respect to future exclusive contracts, the new entity shall not subscribe contracts exceeding two years with football clubs and three years with film producers. The exclusivity attached to these contracts will only cover DTH transmission and would not apply to other means of transmission (for example, terrestrial, cable, UMTS and Internet ). Furthermore, the parties shall waive any protection rights as regards means of transmission other than DTH.Lastly, the merged entity shall offer third parties, on a unbundled and non-exclusive basis, the right to distribute on platforms other than DTH any premium conten ts if and for as long as the combined platform offers such premium contents to its retail customers. Such sell offer will be made on the basis of the retail minus principle and will imply an account insulation and cost allocation between wholesale and retail operation of the platform. The beneficiaries of the wholesale offer shall be free to determine their own pricing policy.As regards access to the infra-structure, the merged entity shall grant third parties access to its satellite platform and access to the application program interface (API) and conditional access system (CAS), concord to a fair non-discriminatory pricing formula. The new entity will also have the obligation of entering into simulcrypt agreements in Italy as soon as jolly possible and in any event within 9 months from the pen request from an interested third party. As regards the withdrawal from terrestrial activities, the merged entity shall divest of Telepius digital and analogue terrestrial 2 Direct To b erth satellite. 11 Vertical and horizontal integration in the media sector and EU competition law M. Mendes Pereira broadcasting assets and commits 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 business plan for the operation of the divested business after the switchover from analogue to digital terrestrial television broadcasting in Italy. . Remedies in the Vivendi/Seagram/Canal Plus, Vizzavi and AOL/Time Warner cases In Vizzavi, the project of the parties provided for the Vizzavi portal to be the default portal on Vodafone and SFR mobile phone customers, as well as on Canal+ set-top boxes. The Commission imposed the possibility of customers changing the default portal on their devices, as well as the possibility of competing telecom operators accessing the customers devices.This commitment by the parties prevented them from bundling their offers on a fully exclusive basis and prevented them consequently from leveraging their market power in a way such as to gain dominant positions in the markets for Internet access and Internet portals. In Vivendi/Seagram/Canal Plus, the parties undertook to grant access to Universals music content to any third party on a nondiscriminatory basis, therefore reducing the concerns in respect of the Internet portals market and the on-line music market.The parties also undertook not to offer more than 50% of the Universals film production to Canal+, thereby reducing the concerns in respect of the foreclosure by Canal+ of the pay-TV markets. As regards the severance of structural links, Vivendi undertook to divest from BSkyB in which it held a 25% stake. The severance of this link to Fox, namely through their joint venture UIP for the distribution of films in Europe, significantly reduced the impact of the acquisition of Universal.In AOL/TW, you may recall that the comp etition concerns started at the source, due to the breadth of music copyrights that the new entity would control. Warner Music, combined with Bertelsmann music due to crossed shareholdings, and in addition the EMI library (should the EMI/TW merger be approved), would put in the hands of the new entity a huge amount of content that rendered the gate-keeper role played by AOL in respect of music player software and the network effects resulting from the AOL community as serious competition concerns. The abortion of the EMI/Time Warner merger already reduced significantly the competition concerns.Therefore, the attention of the Commission was focussed on the structural link between AOL and Bertelsmann in AOL Europe and AOL France. In this respect, AOL undertook to put in place a mechanism pursuant to which Bertelsmann would exit from AOL Europe. Once solved the problem at the source, the other concerns were partially dissipated. As regards online music delivery, AOL also undertook not to take any action that would result in Bertelsmann music being available online exclusively through AOL or being formatted in a proprietary format that was playable only on an AOL music player.Conclusion If I had to sum up the Commissions approach in three words as regards competition in the media markets, they would certainly be access, access and access No matter how far media companies integrate, vertically or horizontally, access is crucial. Access to inputs, access to contents and access to infra-structure remains fundamental in order to ensure the freedom of choice by the ultimate addressee of competition policy the consumer. Thank you for your attention. 12