Comcast’s bid to acquire Sky and its effects on competition in the EU

On 30 April 2018, the trial over the US Department of Justice (DoJ)’s lawsuit to block AT&T’s $85 billion purchase of Time Warner concluded, after three weeks of courtroom action which has seen heated battles between experts (Carl Shapiro for the DOJ and Dennis Carlton/Michael Katz for AT&T) and executives under cross examination. The focus has been on how the merger would change the incentives of Time Warner to supply its flagship channels (such as Turner’s huge portfolio of premium content) under AT&T’s ownership — to the detriment of other distribution platform and ultimately consumers. The weight that should be given to bargaining models predicting adverse price effects when pitted against executive testimony that nothing would change in the negotiations is a major area for Judge Leon’s deliberations (especially when the output of such models can depend so finely on small differences in assumptions, as was shown at trial in this case) who plans to issue its judgment on 12 June 2018.

This deal fits of course into a broader landscape of consolidation in the media industry between content companies and platforms — with distributors acquiring content producers and media companies integrating forward into distribution with the aim to compete with over-the-top (OTT) and global players. 21st Century Fox (21CF) has been engaged in a long process with the UK authorities in seeking to acquire the 61% that it does not already own of Sky, Europe’s largest broadcaster (which is the main pay TV platform in UK/Ireland/ Germany/Italy/Austria and OTT in Spain). Having been cleared by the European Commission (EC) in April 2017 it is now navigating the last mile of the lengthy approval process on UK public interest grounds (media plurality and commitment to broadcasting standards). In the meantime, 21CF has agreed a merger with Disney which, when completed, will create an entity including two Hollywood Studios integrated with Sky in Europe and Hulu in the US (the OTT platform currently jointly owned by 21CF, Disney and Comcast)

But the plot thickened. Integration further into distribution globally has also been the motivation for Comcast’s recent high-profile bid to buy Sky. Comcast is a cable giant in the US, also vertically integrated with another studio (Universal) as well as NBC’s channels. They are not new to regulatory complications. In 2014, when Comcast and Time Warner Cable merged their cable network and their content business, the transaction was cleared following a 14-month investigation of Comcast’s practices. It is regularly said that the analysis made in that case provided the blueprint on vertical mergers in the sector also in Europe. In April 2015, the DoJ and the Federal Commission (FCC) notified Comcast that, based on the investigation they had conducted, they would oppose the acquisition as contrary to the public interest and the antitrust laws. Comcast then abandoned the transaction.

The DoJ and FCC sought evidence from a variety of sources knowledgeable about Comcast’s business practices, including but not limited to the restrictions it imposed upon online video distributors, content companies, and studios, its approach to nascent competitors, and its compliance with the undertakings it had provided to the U.S. Government in seeking approval of its earlier acquisition of NBC Universal. The DoJ and FCC discovered that in breach with these undertakings Comcast was using its dominant position as a gatekeeper to tens of millions of consumers to engage in anticompetitive behaviour and that the Comcast and Time Warner Cable merger threatened to put tens of millions more consumers under Comcast’s control and make it even more critical gatekeeper.

Comcast appears Panglossian about their Sky bid facing no regulatory hurdles in Europe, but one wonders. First, the AT&T/Time Warner trial is clearly symptomatic of a keen interest by regulators to explore vertical issues in these deals. Concerns about foreclosure of rival content producers from the integrating platform in favour of own content, and restriction of content to rival platforms, are indeed legitimate issues in these cases. The European Commission has been very alert to these concerns — they were at the heart of the review in Liberty Global/De Vijver Media, and more recently in relation to Discovery/Scripps. The Court’s reversal of the approval of Liberty Global/Ziggo on ground that vertical issues had not been properly laid to rest has no doubt heightened the Commission’s sensitivity further.

Second, Comcast’s offer has a 50% acceptance condition. This means that the EC would need to consider a scenario where Comcast acquiring 61% without being able to exclude that Fox (and potentially Fox plus Disney) would remain as 39% owner of Sky. This would lead to the highly unusual situation of having Europe’s largest pay TV platform simultaneously integrated with three major studios. One can only anticipate that the review will be complex and extended, and the EC would need to consider how this unprecedented combination of potentially 3 studios and a leading pay TV platform would affect the incentives and behaviour of all parties involved.

There is also Comcast’s notorious track record reneging on vertical commitments in the US (such as those it previously agreed to in the Comcast-NBC Universal consent decree). And Sky News is such an institution in the UK that voices are emerging for a referral to Ofcom. As recently reported in the Financial Times, Lord Grade, former Chair of the BBC has called for “the secretary of state to refer it to Ofcom in the same way that Sky was referred”, as “there is a case for them to be looked at as the potential owner of an influential piece of British media,” because “little is known in this country about Comcast.” We certainly live in interesting times.

Damien Geradin is a Professor of Competition Law & Economics at Tilburg University and a visiting Professor at University College London. He is the co-author of Global Antitrust Law & Economics (3rd Ed. 2018) and the Founding Editor of the Journal of Competition Law & Economics. He is not involved in the transactions referred to in this post in any capacity.