The Commerce Commission has announced that it will not give clearance to the proposed merger between Sky TV and Vodafone. The full reasons for the decision have not yet been released, but there is already a deluge of "hot takes" from media commentators. That's probably quite understandable, as this is a particularly high-profile matter for the Commission, with real implications for the commercial sector. At one stage today, Sky TV's share price had dipped around 17% as a result of the Commission's decision.
I'm a competition lawyer, and this post will adopt that perspective. But if this is something that interests you I encourage you to the myriad of views on the decision including:
Despite what some of those commentators have said, the decision was not really a surprise to those of us that follow these matters. Competition lawyers are traditionally quite cautious about using words like "dominant", but its fair to say that Vodafone has a significant degree of power in some telecommunications markets and Sky has exclusive rights to some very compelling content. It was always going to be a big ask to convince a regulator that combining these features wouldn't impact on competition in some meaningful way.
In the event, that big ask was too much for the applicants. The Commission was quite clear that content and telecommunications markets are going to evolve in uncertain and unpredictable ways in the future. And its that unpredictability that has undermined the applicants' argument this time around. To get clearance, the applicants need to positively satisfy the Commission that there will be no significant competitive detriment. In a boring, commodity sector like insurance that might be possible, but where content (think: Netflix) and telco (think: fibre) markets are in a major state of flux, the Commission just couldn't find the certainty it needed to give the okay.
We haven't seen the full reasoning for the decision just yet, but in its public statements today the Commission placed a strong emphasis on "premium sports rights" (read: rugby). Some reports went as far as saying that the Commission considered that the merger would likely have been cleared if premium sports rights weren't a factor. That's interesting because it leaves open the possibility that the parties reapply for clearance in a way that specifically addresses that issue. The big question in that case will be whether Vodafone sees enough value in Sky if it can't bring with it some or all of the premium content rights that it currently uses to make money. At first blush that might seem a big ask, but I think its worth considering whether divesting Prime and giving up free-to-air rights to major sports might be enough to get the Commission across the line. We won't know either way until the Commission issues the full reasoning to support its decision.
There has also been a lot of comment about this decision pointing the way to the result in the NZME-Fairfax merger. It simply doesn't. The Commission itself was at pains to point out that each application is being considered on its own facts, and one does not set a precedent for the other. I think it is worth adding two points. First, the markets are very different in each case despite both involving the 'media' in a loose sense. Newspapers, in either their traditional or on-line formats, are very different from live sports coverage and telco networks. Second, the applications are very different. Vodafone and Sky TV argued that their merger would not adversely affect competition. NZME and Fairfax have argued that their merger would likely affect competition in an adverse way, but that there are other benefits from the merger that mean it should proceed in any case. Those are very different types of argument, and the Commission will be considering each on its own merits.
Finally, did the Commission make the right decision? We can't know for sure until we see the full reasoning, but my gut says that it did. This was a careful decision reached after 9 months of analysis, with ample opportunity for the applicants to address the Commission's concerns. Even aside from those points of process, the orthodox experience internationally is that premium content (live sport) tied to one distribution network (Vodafone) affects the way consumers choose their telco provider in ways that we would struggle to reconcile with competitive markets. If there is a convincing counter-argument to this experience, it seems that both I and the Commission are yet to hear it.