21 September 2011: Broadcasting - pay television

The Autorité de la concurrence finds that Canal Plus Group did not comply with several commitments subscribed
– including key ones – when it took over TPS.

The Autorité withdraws the decision authorizing the merger, thus requiring from the parties to renotify the transaction within one month. Moreover, Canal Plus Group is fined 30 million euros.

> Version française  

The Autorité de la concurrence has just issued a decision in which it establishes that Canal Plus Group did not fulfill several commitments – including key ones – that were attached to the decision¹ authorizing in 2006 the acquisition of TPS and CanalSatellite by Vivendi Universal and Canal Plus Group.

The Autorité de la concurrence therefore withdraws the decision authorizing the merger. Unless they restore the previous situation (before the merger), Vivendi and Canal Plus Group will have to renotify the transaction to the Autorité within one month.

The Autorité noted the seriousness of the breaches established – that are the result of some negligence and, generally speaking, of a repeated lack of diligence and ill will from Canal Plus – as well as the harm to competition that may be generated by these breaches to the commitments. Therefore, the Autorité imposed Canal Plus Group a financial penalty amounting 30 million euros.
 

THE MERGER BETWEEN CANAL PLUS AND TPS: A MAJOR TAKEOVER THAT REQUIRED MANY COMMITMENTS FROM THE CANAL PLUS GROUP

The transaction, which led to the creation of the Canal+ France company, led to the merger of the two main operators on the pay-TV market, and in particular led to the creation of a monopoly in channel publishing and the distribution of premium pay-TV offerings and had the effect of strengthening Canal Plus Group’s dominant position on the downstream market for the retail distribution of pay-TV. Due to the numerous risks of anticompetitive effects, the merger clearance decision issued by the Minister of the Economy after advice by the Conseil de la concurrence had been subject to the implementation of 59 commitments by Vivendi Universal and Canal Plus Group, aiming at addressing the competition concerns identified.

The objective of this whole set of commitments was to grant pay-TV distributors that would still remain after the transaction (mainly internet access providers) the access to programmes/channels that are sufficiently attractive to enable them to constitute competitive pay-TV channels packages, which would help to make competition livelier on the downstream market of subscription based pay-TV.

The commitments aimed to facilitate, on the upstream markets², the acquisition of broadcasting rights by Canal Plus Group competitors and to enable them, on the intermediate market of channel production³, to purchase the rights to broadcast thematic channels, which prove necessary to constitute attractive pay-TV channels packages.

The unbundling (i.e. a granted access to these channels for all distributors) of 7 TV channels (TPS Star, Cinéstar, Cinéculte, Cinétoile, Sport+, Piwi and Télétoon) was central in the set of commitments subscribed. This unbundling was linked with requirements covering the continuity of quality standards of the channels, and in particular of the premium character of TPS Star. The latter, which had “a pivotal role in the development of competition on the downstream market”, was supposed to take the lead in the pay-TV packages of Canal Plus Group competitors on the retail market.

> For more details on the decision of 2006 and on the commitments subscribed, refer to File Nr 1.

 
THE BREACHES OF COMMITMENTS ESTABLISHED

 

1) Canal Plus Group was late in giving third party distributors access to the 7 TV channels it had to unbundle, the consequence of which was to give an advantage to its new offer “Le Nouveau CanalSat”

Canal Plus Group did not give access to the 7 TV channels on schedule with the commitments (breach to commitment Nr 56).

On 21 March 2007, Canal Plus launched on its platform a new offer named “Le Nouveau CanalSat”, prior to providing third party distributors access to the TV channels, and even prior to the communication of the technical specifications for having access to these channels, which were transmitted on 2 April 2007. This schedule slippage enabled Canal Plus to favor a customer migration from TPS’s bouquet to “Le Nouveau CanalSat”, through a commercial proposal including “new TV channels in the various thematic areas and exclusive content without price upgrade”, when at the same time DSL internet service providers were not yet in the capacity to retail a package including whole or part of the 7 TV channels subject to the mandatory unbundling. These facts give evidence of discrimination to the detriment of DSL providers’ platforms (breach to commitment Nr 20).

2) Canal Plus Group undermined the quality of the TV channels that were to be unbundled

The obligation to maintain, in metropolitan France (commitments Nr 18 to 33) as well as in overseas départements (commitments Nr 34 and 35), quality standards of the unbundled TV channels, and in particular the premium character of TPS Star (commitment Nr 21), has to be interpreted in close conjunction with the unbundling obligation itself: the aim is to prevent the TV channels whose access is granted to third party distributors from being deprived of their attractive programmes.

• Declining quality of TPS Star and loss of its “premium” character

Since 2007, a fast, significant and lasting deterioration of the quality of TPS Star has been noted, both in terms of programming and innovation. (breach to commitment Nr 22, §1 – quality standards). This finding was established through objective, measurable and verifiable criteria. Among others, the Autorité observed a lasting and continuous drop in the costs of programming, a poorer movie programming, the loss of broadcasting rights for sports events, less attractive U.S. TV series broadcasted and the absence of technological innovation.

This degradation led to a significant decrease of the channel’s attractiveness towards TV viewers, as evidenced by a drop in audience ratings and a declining customer base. Moreover, a significant decrease of advertising expenditure of TPS Star demonstrates that Canal Plus Group did not go far in promoting this TV channel. (For more details, see pages 16 to 28).

Moreover, the Autorité established that Canal Plus Group did not meet the mandatory threshold levels regarding the programming of sports events. (breach to commitment Nr 20, §5) The sports events broadcasted were limited to football games played during the championship season and Canal Plus Group did not feed the channel with a number of “flagship games” that would have complied with the commitments. (For more details, see pages 28 to 31).

In the light of these facts taken as a whole, the Autorité considered that TPS Star could no longer be called a premium channel. (breach to commitment Nr 21)

• Declining attractiveness of the movies channels

Whereas the quantitative broadcasting requirements were complied with, the general obligations to maintain quality standards for the 3 movie channels TPS Cinéstar, TPS Cinétoile and TPSCinéCulte were not fulfilled. (breach to commitment Nr 22, §1). The modification of their status and positioning made them loose their attractiveness in terms of programming, the latter being mainly made up of old movies.
For example, in the case of TPS Cinéstar, which became CinéCinéma Star, before the transaction the channel focused on “exclusive first transmissions” of films. Since 31 March 2007, the channel does not broadcast any “first transmissions” nor “exclusive first transmissions”. Its programme schedule focuses exclusively on movies from the 1980’s and 1990’s, including French movies. It no longer broadcasts movies during Saturday prime time. Therefore, CinéCinéma Star does not have the same positioning and attractiveness as TPS Cinéstar had before the merger. (For more details, see pages 32 to 34)

• Declining quality of the channels to which Parabole Réunion had access

This decrease in quality was also noticed in the Réunion island, with respect to the activity of Parabole Réunion. TPS had granted Parabole Réunion exclusive distribution rights in the Indian ocean (including on the Réunion island) for various channels, including TPS Star, TPS Cinéstar and TPS Foot. Specific commitments were therefore imposed to guarantee that Canal Plus Group would renew the distribution contracts between TPS and Parabole Réunion and that the latter could continue to have access to attractive channels, under equivalent conditions to those in place before the merger. The attractiveness of TPS Star and TPS CinéStar (that became CinéCinéma Star) has clearly declined for the reasons explained above. As regards TPS Foot, the channel was deprived of its content (no more flagship game of major championship, no more live broadcasting, no more exclusive transmission). Parabole Réunion was not anymore in capacity to provide its customers with a pay-TV bouquet whose quality would be equivalent to the TPS bouquet as it was before the merger. As a consequence, Parabole Réunion lost many subscribers to the benefit of its direct competitor, Canal Plus Group. (breach to commitment Nr 34) (For more details, see pages 34 to 37)

3) Canal Plus Group did not comply with some of its commitments related to the relations with independent and third party TV channels

A certain number of commitments had been subscribed by the new entity to enable third-party distributors to enrich their TV bouquets with attractive independent channels. The autonomy of these channels vis-à-vis Canal Plus Group and their viability had to be protected.

The Autorité de la concurrence noted that Canal Plus Group kept several independent channel publishers (e.g. Equidia, Trace TV, Télémaison) in a situation of dependence, through relationships that remained opaque, non transparent and thus potentially discriminatory, in particular with regard to the determination of their fees (no services catalogue, no price list and remuneration scheme, no communication of criteria which could be used as a basis for a negotiation) and the duration of their contracts (breach to commitment Nr 42). Such a behaviour has contributed to reinforce the imbalance of the commercial negotiation – of which Canal Plus Group already took advantage –, to interfere with the smooth running of competition between the various distributors as well as between independent channels and channels controlled by minority shareholders of Canal+ France.

In addition, Canal Plus Group committed to determine the fees to be paid to independent channels "on terms and conditions that are comparable to those prevailing before the transaction". Despite this, several channels were switched, after the transaction, from a model of variable remuneration to a model of fixed remuneration. (breach to commitment Nr 41-b).

Moreover, Canal Plus did not comply, in a number of cases, with the requirement to conclude separate contracts for the commercial distribution and for the transport, without making the first service conditional upon the other. (breach to commitment Nr 44) (For more details, see pages 40 to 47)
 

CONCLUSION

The Canal Plus-TPS merger was characterized by many and significant risks of anticompetitive effects. The number and content of the commitments subscribed by Canal Plus Group in 2006 highlighted the scope of the difficulties raised by the transaction.

With regard to the essential character of some of the breaches established, Canal Plus Group cannot put forward, as a mitigating circumstance, the fact that the company complied with more than 80% of the commitments subscribed. Apart from the fact that this proportion is based on a questionable arithmetic formula (considering the 59 commitments on the same level, whereas their nature and scope varies significantly from one to another), it should be remembered that the clearance decision was issued in 2006 subject to the implementation of a whole set of 59 commitments, each remedy being required to prevent the risks to competition that had been identified.

The Autorité de la concurrence therefore decided to withdraw the decision authorizing the transaction in 2006 and imposed Canal Plus Group a financial penalty amounting 30 million euros. Unless they restore the previous situation (before the merger), Vivendi and Canal Plus Group will have to notify again the transaction within one month.


¹Décision du ministre de l’économie, des finances et de l’industrie du 30 août 2006, autorisant l’acquisition de TPS et CanalSatellite par Vivendi Universal et Groupe Canal Plus, after the opinion of the Conseil de la Concurrence was issued. At the date of the acquisition, mergers had to be submitted to the Minister of the Economy. From 2 March 2009, the Autorité de la concurrence has for its role to examine mergers. On 28 October 2009, The Autorité started proceedings ex officio regarding non compliance with commitments made binding by decision of the Minister.

²On the market of broadcasting rights acquisition (« upstream market »), the holders of rights to broadcast programmes (producers of cinematographic or audiovisual works, holders of sports rights, e.g. professional football league, …) meet the channel publishers, which role consist in aggregating audiovisual contents to constitute TV channels.

³On the pay-TV wholesale market (“intermediate market”), channel publishers (who purchased contents on the upstream market) sell the rights to broadcast the channels they have constituted to the distributors (“retailers”), so that the latter can offer these channels to customers, either individually or under a channels package (“bouquet”).

This press release translated into English is for information purposes only. Only the Decision 11-D-12 in French is deemed authentic.

 

> For more details, refer to the full text od Decision 11-D-12 of 21 September 2011 (in French) available on our website and to the press kit (in French)

File Nr 1 :Decision authorizing the transaction (30 August 2006)
File Nr 2 : Table summarizing the breaches to commitments
File Nr 3 :Reasons and consequences of the withdrawal of the clearance decision
File Nr 4 : French reform of merger control
File Nr 5 :The pay-TV sector - some figures
File Nr 6 : Glossary

> Press contact: André Piérard / Tél. : 01 55 04 02 28/ Mel