Case Reference: BA 02/2002

Section 13(1) of the Broadcasting Ordinance (Cap.562)

Final Report of the Broadcasting Authority

Opinion and Decision of the

Broadcasting Authority dated 22 September 2004 on a

Complaint by Hong Kong Cable Television Limited regardi

Joint Acquisition of Sports Rights by Asia Television Limited

Television Broadcasts Limited*

* This is the non-confidential version of the Broadcasting Authority’s decon the complaint. Confidential Information and data has been redaRedactions are indicated by “[…]”.

ng

and

isioncted.

CONTENTS

1. The Complaint and the Role of the Broadcasting Authority ...................................... 3

2. The Facts..................................................................................................................... 4

3. The Broadcasting Ordinance....................................................................................... 7

4. The Investigation ...................................................................................................... 17

5. The Relevant Market................................................................................................. 19

6. Market Power............................................................................................................ 24

7. Assessment................................................................................................................ 25

8. Decision .................................................................................................................... 39

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1. The Complaint and the Role of the Broadcasting Authority

1.1 In July 2002, Hong Kong Cable Television Limited (“HKCTV”) lodged a

complaint of alleged anti-competitive conduct on the part of Asia

Television Limited (“ATV”) and Television Broadcasts Limited (“TVB”)

in breach of section 13(1) of the Broadcasting Ordinance (Cap.562)

(“BO”). The complaint concerns two agreements between ATV and TVB

for the joint acquisition of free-to-air (“FTA”) terrestrial television

broadcast rights for the FIFA World Cup and Olympic Games until 2012

( “the ATV-TVB Agreements”).

1.2 ATV and TVB will be regarded as being in breach of section 13(1) of the

BO if the Broadcasting Authority forms the opinion that the ATV-TVB

Agreements have the purpose or effect of preventing, distorting or

substantially restricting competition in a television programme service

market in Hong Kong.

1.3 In forming this opinion and deciding on the matters complained of, the

Broadcasting Authority is performing a statutory function. In discharging

this statutory function, the Broadcasting Authority must act within the

scope and policy of the BO, lawfully, rationally (not being Wednesbury

unreasonable) and ensure procedural fairness. “Wednesbury unreasonable”

is a common law concept covering a wide category of errors commonly

described as irrelevant considerations, mistakes and misunderstandings,

misdirections and addressing the wrong question. This Report contains

the final opinion and decision of the Broadcasting Authority on the matter.

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2. The Facts

2.1 In November 1999, HKCTV acquired the Hong Kong television broadcast

rights for 2002 World Cup from ISMM Investments AG under a licence

agreement (“ISMM Agreement”). The broadcast rights formerly held by

ISMM were subsequently taken over by Kirchmedia WM GmbH

(“Kirchmedia”). Kirchmedia entered into a supplemental and amendment

agreement with HKCTV dated 15 March 2002 (“Amendment Agreement”)

whereby, among others, Kirchmedia confirmed the terms of the ISMM

Agreement subject to certain variations set out in the Amendment

Agreement. Under the ISMM Agreement as amended by the Amendment

Agreement (“the Amended Agreement”), HKCTV undertakes and

covenants to ensure that the following would be broadcast on FTA

terrestrial television available throughout Hong Kong, namely:–

(a) the opening match and both semi-finals and the final (“the Core

Matches”), and the matches of the Hong Kong SAR team (if any);

and

(b) at least 20-minute highlights of each remaining match on a delayed

basis.

Further, HKCTV was obliged under the Amended Agreement to use its

best efforts to sub-license to ATV or TVB or both the rights to broadcast

(a) and (b) (“the Core Rights”).

2.2 On 16 November 2001, HKCTV sent to both ATV and TVB an invitation

to negotiate for the Core Rights individually but was confronted with a

joint bid as a result of the ATV-TVB Agreements. In the exchange of

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correspondence that ensued, TVB disclosed to HKCTV by letters dated 30

November, 4 December and 20 December 2001 the following

information:-

“ATV and TVB had entered into a legally binding and irrevocable

agreement to negotiate and secure jointly the broadcast rights to any or

all parts of either the FIFA World Cup or the Olympic Games from any

event sponsor or license holder, within or outside of the Asia-Pacific

Broadcasting Union. This agreement remains in effect through [2012].”

“The agreement that exists between ATV and TVB for jointly securing

rights to the FIFA World Cup and the Olympic Games is legally binding

and therefore irrevocable…[T]he mandatory as well as honorable thing

for TVB to do is to stick to both the spirit and letter of this joint acquisition

agreement…under the circumstances stated above… neither TVB nor ATV

is in a position to acquire such exclusive rights legally.”

“As obligated by that legally binding agreement, neither TVB nor ATV is

[in] a position to entertain any agreement other than a joint sub-license so

that both ATV and TVB could broadcast these events and matches.”

For these reasons, TVB hoped that they could enter into a “tripartite (i.e.

HKCTV-ATV-TVB)” agreement for the sub-licensing of the 2002 World

Cup to ATV-TVB jointly.

2.3 On 14 January 2002, HKCTV wrote to ATV and TVB offering

discussions on a tripartite basis. On 11 April 2002, the three parties

executed a sub-licensing agreement (“the Sub-licensing Agreement”).

2.4 Prior to the execution of the Sub-licensing Agreement, HKCTV was

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informed that ATV and TVB had arrived at an arrangement between

themselves for alternating the broadcasting of the licensed matches

(“alternating broadcasting arrangement”) to the following effect, namely:-

(a) ATV would broadcast live the opening of 2002 World Cup

exclusively;

(b) TVB would broadcast live the semi-finals exclusively; and

(c) both ATV and TVB would broadcast live the final.

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3. The Broadcasting Ordinance

3.1 Section 13 of the BO provides:-

(1) Subject to subsections (4) and (5), a licensee shall not engage in conduct

which, in the opinion of the Broadcasting Authority, has the purpose or

effect of preventing, distorting or substantially restricting competition in a

television programme service market.

(2) The Broadcasting Authority may consider conduct to fall within

subsection (1) as including, but not limited to –

(a) direct or indirect agreements to fix the price in a television

programme service market;

(b) conduct preventing or restricting the supply of goods or services to

competitors;

(c) direct or indirect agreements between licensees to share any

television programme service market between them on agreed

geographic or customer lines;

(d) limiting or controlling production, markets, technical development

or investment;

(e) applying dissimilar conditions to equivalent agreements with other

trading parties, thereby placing them at a competitive

disadvantage;

(f) making the conclusion of agreements subject to acceptance by the

other parties of supplementary obligations which, by their nature

or according to commercial usage, have no connection with the

subject of such agreements.

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(3) Subject to subsection (4), a provision in an agreement is void in so far as

it provides for or permits, whether directly or indirectly, conduct which

contravenes subsection (1).”

(4) The Broadcasting Authority may –

(a) on an application made to it in the specified form by a licensee;

(b) on a prescribed ground; and

(c) by notice in writing served on the licensee,

exempt conduct specified in the application from subsection (1) subject to

such conditions as the Broadcasting Authority thinks fit specified in the

notice.

(5) Subsection (1) shall not apply to –

(a) any restriction imposed on the inclusion in a television programme

service of a television programme produced wholly or

substantially by the licensee of the service; or

(b) any prescribed restriction.

(6) For the avoidance of doubt, it is hereby declared that nothing in this

section shall prejudice the existence of any rights arising from the

operation of the law relating to copyright or trademarks.

3.2 For the present purpose, it is necessary to consider the following

expressions in section 13(1) of the BO:-

(a) has the “purpose or effect” of;

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(b) “preventing, distorting or substantially restricting competition” in;

(c) “a television programme service market”.

The words must be understood in the context of the legislation as a whole;

their meaning not confused with the meaning their use was intended to

convey.

3.3 The experience of the European Community is helpful because section

13(1) of the BO, including the prohibitions on anti-competitive conduct,

has as its counterpart Article 81(1) of the Treaty Establishing the European

Community (“EC Treaty”). However, it is important to bear in mind that

there are important differences between the two pieces of legislation,

including that section 13(1) is confined to a “television programme service

market” within the meaning of the BO.

3.4 Article 81(1) of the EC Treaty provides:-

1. The following shall be prohibited as incompatible with the

common market: all agreements between undertakings, decisions

by associations of undertakings and concerted practices which

may affect trade between Member States and which have as their

object or effect the prevention, restriction or distortion of

competition within the common market, and in particular those

which:

(a) directly or indirectly fix purchase or selling prices or any

other trading conditions;

(b) limit or control production, markets, technical development,

or investment;

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(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with

other trading parties, thereby placing them at a competitive

disadvantage;

(e) make the conclusion of contracts subject to acceptance by

the other parties of supplementary obligations which, by

their nature or according to commercial usage, have no

connection with the subject of such contracts.

3.5 Key differences between these provisions of the BO and the EC Treaty

are:-

(a) the EC Treaty applies generally to all “agreements between

undertakings, decisions by associations of undertakings and

concerted practices which may affect trade”, and is applicable to

anti-competitive conduct of any persons affecting any markets. In

Hong Kong, the statutory restriction is considerably narrower.

Section 13(1) of the BO prohibits television programme service

licence holders from engaging in anti-competitive conduct that

adversely affects competition “in a television programme service

market” only. (The scope of “a television programme service

market” is considered below in paragraphs 3.16 to 3.19); and

(b) the EC Treaty targets agreements, decisions and concerted

practices which “have their object or effect the prevention,

restriction or distortion of competition”. In Hong Kong, there is

the qualifying word “substantially” before the word “restricting”

in section 13(1) of the BO.

“purpose or effect”

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3.6 The words “object or effect” are also used in Article 81(1) of the EC

Treaty. In the EC, the words are interpreted to be alternative, and not

cumulative, requirements.

3.7 As a matter of statutory interpretation, it is generally assumed that “or” is

intended to be used disjunctively and the word “and” conjunctively, unless

if so to construe those words leads to an unintelligible or absurd result.

3.8 In Hong Kong, the purposive approach to interpretation of the BO

(including the mischief rule) requires an interpretation which is consistent

with and gives effect to the legislative purpose. This has been reflected in

section 19 of the Interpretation and General Clauses Ordinance (Cap 1)

which provides:

“An Ordinance shall be deemed to be remedial and shall receive such fair,

large and liberal construction and interpretation as will best ensure the

attainment of the object of the Ordinance according to its true intent,

meaning and spirit.”

3.9 In applying a purposive approach, the legislative purpose must first be

identified. In the present case, it is stated in the Explanatory

Memorandum to the Bill that Section 13 prohibits a licensee from

engaging in conduct which has the purpose or effect of preventing or

substantially restricting competition in a television programme service

market. It is clearly intended that the relevant legislative purpose is to

prevent anti-competitive conduct, whether or not the anti-competitive

effect of the conduct has actually occurred.

3.10 In ascertaining the “purpose” of the conduct in question, it is legitimate in

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the opinion of the Broadcasting Authority to consider the objective

meaning and object of the agreement in its economic context. In the

absence of direct and overweighing evidence to the contrary, the regulator

may on the evidence available properly infer a proscribed purpose. An

inference may be drawn from conduct and other circumstances without the

need for direct evidence. A requisite purpose may be inferred on the basis

of the objective effect of the conduct in the market.

“preventing, distorting or substantially restricting competition”

3.11 The qualifying word “substantially” appears before the word “restricting”

in section 13(1) of the BO, whereas the words “preventing” and

“distorting” are not expressly qualified by the word “substantially” in

section 13(1).

3.12 The Broadcasting Authority takes it to be a principle of statutory

interpretation that unless the contrary intention appears, every word in the

legislation should be given a meaning. This is based on the presumption

that the Legislature does nothing in vain and if a word or phrase appears, it

must be there for a purpose and must not be disregarded. Applying the

above principle, given that no contrary intention is expressed in the BO,

the “preventing” of competition, “distorting” of competition and

“substantially restricting” of competition in section 13(1) of the BO

should each be interpreted as independent and having their respective and

different meanings, since otherwise there would be tautology in using

these words. The meaning of these words may however overlap to a

degree. For example, a total restriction on competition could also prevent

further competition as well as having some distorting effects on

competition.

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3.13 The words “preventing”, “distorting” and “substantially restricting” are

not defined in the BO. According to the Oxford English Dictionary

(OED):

(a) “prevent” means to “forestall”, “balk”, “stop”, “hinder”, “render

impracticable or impossible by anticipatory action”. Except for

“hinder”, “prevent” is not qualified or conditioned.

(b) “distort” means to “twist”, “wrench”, “render crooked, unshapely,

or deformed”. The word “distort” is qualified or conditioned. For

example there are degrees of “deformation” according to this

dictionary meaning. What degree of crookedness or unshapeliness

is sufficient?

(c) “restrict” means to “confine (some person or thing) to or within

certain limits; limit or bound”. There are degrees of restriction

according to this dictionary meaning.

(d) “substantially” means “in substance; in one’s or its substantial

nature or existence”, “essentially, intrinsically”; “actually, really”;

“in a sound or solid manner; or a firm or solid basis, effectively,

thoroughly, properly, soundly”.

3.14 The Broadcasting Authority has no doubt that the word “substantially”

was not accidentally omitted, in error, from qualifying the words

“preventing” and “distorting”. The omission was no doubt intended. The

question is why the words “preventing” and “distorting” are not expressly

qualified by “substantially”?

3.15 The answer is that the words “preventing” and “distorting” are intended to

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be given an unqualified, unconditioned and absolute meaning. The

Broadcasting Authority considers the omission of “substantially” in

section 13(1) of the BO to be deliberate and well-understood. The

Broadcasting Authority therefore concludes that the Legislature intended

the words “preventing” and “distorting” to be given an unqualified and

unconditioned meaning.

“a television programme service market”

3.16 The expression “television programme service” is defined in section 2(1)

of the BO to mean “subject to paragraph (b) –

(i) the provision of a service that includes television programmes for

transmission by telecommunications–

(A) that are readily accessible to, or made available to, the general public

in or outside Hong Kong; or

(B) to persons, in 2 or more specified premises, simultaneously or on

demand, whether on a point-to-point or a point-to-multi-point

basis…having equipment for receiving that service; and…”.

Accordingly, a “television programme service market” is a market for the

supply of a service that includes television programmes, either to the

general public or to a smaller sector of the public by means of

telecommunications. In other words, the expression “television

programme service market” refers to the downstream market. The

Broadcasting Authority considers that it would be stretching the meaning

of “television programme service market” too far to hold that it also

includes the market for the supply, acquisition or licensing of broadcasting

rights by the rights holders to broadcasters. The statutory regime enjoins

the Broadcasting Authority to focus its attention on the downstream

market as opposed to the upstream market.

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3.17 Support for the Broadcasting Authority’s interpretation of the expression

“television programme service market” is also found in the nature of the

licensing regime established by the BO. Section 5(1) of the BO makes it

unlawful for any person to provide a “broadcasting service” without a

licence. The term “broadcasting service” is defined in section 2(1) of the

BO to mean:-

(a) “a domestic free television programme service”;

(b) “a domestic pay television programme service”;

(c) “a non-domestic television programme service”; and

(d) “an other licensable television programme service”.

The licensing regime provides for the grant of licences in respect of these

types of television programme services, none of which relates to the

acquisition of broadcast rights.

3.18 To assist the Broadcasting Authority to regulate the activities of licensees,

section 13 of the BO proscribes certain anti-competitive conduct.

However, the section does not establish a framework to combat anti-

competitive conduct generally. It only seeks to limit certain conduct in the

downstream market. This is different from the EC, Australian and UK

prohibitions on general anti-competitive behaviour on trade and

pertinently from other sector specific competition regulation in Hong

Kong, such as that established under the Telecommunications Ordinance

(Cap 106), under which the “telecommunications market” is very widely

defined (Section 2, Telecommunications Ordinance).

3.19 Hence, the supply, acquisition or licensing of broadcast rights by the rights

holders to broadcasters cannot, in the Broadcasting Authority’s opinion, be

considered as the “provision” of a “television programme service” within

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the meaning of the BO.

3.20 The Broadcasting Authority is, however, entitled to consider, and has

considered, any indirect impact that the conduct being complained of has

on competition in a television programme service market even if the

conduct does not directly affect competition in a market for the provision

of a television programme service.

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4. The Investigation

4.1 In September 2002, the Broadcasting Authority considered by way of a

Preliminary Enquiry that the existence of the ATV-TVB Agreements

appeared to have an adverse effect on competition and that there were

sufficient grounds to proceed directly to the Full Investigation Stage in

accordance with the Competition Investigation Procedures issued by the

Broadcasting Authority. The Broadcasting Authority has accordingly

embarked on the Full Investigation Stage and considered the submissions

made by HKCTV on the one hand, and ATV and TVB on the other.

4.2 In October 2003, the Broadcasting Authority issued its provisional

findings and decision in the form of a draft final report to HKCTV, ATV

and TVB to invite final representations from them. TVB indicated that

they accepted in general the Broadcasting Authority’s findings.Note 1

HKCTV responded to the Broadcasting Authority’s draft final report in

April 2004 (“Response”). No representations were received from ATV.

4.3 In accordance with the Guidelines to the Application of the Competition

Provisions of the Broadcasting Ordinance (the “Competition Guidelines”)

issued by the Broadcasting Authority, the Broadcasting Authority has

conducted a competition analysis in the following three stages:

(a) Stage 1: Defining the relevant market;

(b) Stage 2: Assessing market power and/or the presence of

agreements or practices; and

Note 1 TVB expressed their views on a number of technical points raised in the Lexecon Report, which do

not affect the Broadcasting Authority’s conclusion reached on this complaint case.

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(c) Stage 3: Assessing whether there is a substantial effect on

competition and, hence, on customers and viewers.

4.4 As part of the investigation, the Broadcasting Authority has engaged a

professional consultant, Lexecon Limited (“Lexecon”), to conduct an

economic analysis of the competitive impact of the ATV-TVB

Agreements for the purposes of section 13 of the BO. The Broadcasting

Authority has been assisted by the analysis undertaken by Lexecon.

Nevertheless the opinions and decisions given in this Report are those of

the Broadcasting Authority.

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5. The Relevant Market

Submissions by the Parties

5.1 HKCTV submitted that the “relevant market” in which competition has

been affected is the market for the supply of World Cup and Olympic

Games free terrestrial television broadcast rights. This market operates on

the basis of negotiation between the rights holder and interested

broadcasters. Whilst HKCTV appears to suggest that there are no other

potential market definitions, in certain submissions in its Response, it

relies on a finding that the relevant market is the market for the supply of

television programme services to viewers.

5.2 TVB submitted that the “relevant market” is the domestic free television

programme service market in Hong Kong.

HKCTV’s Final Representations

5.3 In the draft final report issued by the Broadcasting Authority in October

2003, the relevant market was identified as the “television programme

service market” and confined to the market for the supply of television

programme services to viewers.

5.4 In the Response, HKCTV submitted that the Broadcasting Authority’s

interpretation of the term “television programme service market” as used

in section 13(1) of the BO (the “Interpretation”) was flawed for the

following reasons:–

(a) HKCTV contended that the Interpretation is inconsistent with the

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legislative intent. HKCTV, citing the English House of Lords’

case of Pepper v Hart, submitted that when construing legislation

it is permissible to have recourse to parliamentary materials as an

aid in establishing the intention of the legislature. HKCTV went

on to examine the discussions and reports of the Legislative

Council’s Bills Committee on the Broadcasting Bill 2000

(“Committee Papers”);

(b) HKCTV contended that the Interpretation renders sub-section

13(2)(b) and sub-section 14(5)(d) of the BONote 2 meaningless;

(c) HKCTV submitted that the guidelines issued by the Broadcasting

Authority on the application of the competition provisions of the

BO contemplate a broader application of section 13; and

(d) HKCTV further submitted that confining the market for the supply

of television programmes services to viewers makes little

economic sense and that such an approach is inconsistent with best

practice in other jurisdictions.

Findings and Views of the Broadcasting Authority on the Relevant Market

5.5 The Broadcasting Authority with the benefit of Lexecon’s analysis and all

the submissions made by HKCTV and TVB, and having deliberated on the

matter, takes the view that various markets may be directly or indirectly

affected by the ATV-TVB Agreements. These are:–

Note 2 Section 13(2)(b) provides that the Broadcasting Authority may consider conduct preventing or

restricting the supply of goods and services to competitors as anti-competitive. Section 14(5)(d)provides that the Broadcasting Authority may consider discrimination in the supply of services tocompetitors as an abuse of dominance.

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(a) market for the purchase of exclusive Hong Kong broadcasting

rights to the FIFA World Cup;

(b) market for the purchase of Hong Kong broadcasting rights to the

Olympic Games;

(c) market for the purchase of Hong Kong Core Rights (to the FIFA

World Cup);

(d) market for the supply of Hong Kong broadcasting rights to the

FIFA World Cup;

(e) market for the supply of Hong Kong broadcasting rights to the

Olympic Games;

(f) market for the supply of broadcasting airtime to advertisers in

Hong Kong; and

(g) in this case, two downstream markets for television programme

services in Hong Kong, namely, a FTA TV broadcasters-only

market and a wider market containing both FTA TV and pay-TV

broadcasters, including HKCTV.

The markets referred to in paragraphs 5.5 (a) to 5.5(f) above are all

“upstream markets” whereas the markets referred to in paragraph 5.5(g)

above are “downstream markets”.

5.6 The Broadcasting Authority considers that the relevant market on which

its investigation should be focused is the downstream market rather than

the upstream market. The correctness of this approach is reinforced by the

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statutory definition of the “television programme service” appearing in

section 2 of the BO discussed in paragraphs 3.16 to 3.19 above. The

Broadcasting Authority has, nevertheless, considered any indirect impact

on competition in the downstream market that may have arisen from the

ATV-TVB Agreements for the acquisition of broadcast rights in the

upstream market.

5.7 On paragraph 5.4(a), the Broadcasting Authority considers that the case of

Pepper v Hart cited by HKCTV makes it plain that the rule prohibiting

courts from referring to parliamentary material as an aid to statutory

construction should only be relaxed where the legislation is ambiguous or

obscure or the literal meaning of the legislation led to an absurdity. That

is not the case here and there is no reason for the Broadcasting Authority

to consider any parliamentary material which may address this point.

5.8 On paragraph 5.4(b), the Broadcasting Authority considers that HKCTV

has missed an important point. Sub-sections 13(2)(b) and 14(5)(d) of the

BO describe conduct which may be considered to have an anti-competitive

effect in the television programme service market. That is, they describe

conduct, rather than the market in which that conduct may have an effect.

As asserted by HKCTV in its Response, with which the Broadcasting

Authority agrees, conduct directly concerned with an upstream market

may have an effect in a downstream market.

5.9 On paragraph 5.4(c), the Competition Guidelines clearly state that the BO

is concerned with behaviour having an anti-competitive purpose or effect

in the television programme service marketNote 3, in other words, the

downstream market. The Competition Guidelines are designed to enable

interested parties to understand in general terms how and in what

Note 3 See, for example, paragraphs 4, 6 and 7 of the Competition Guidelines.

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circumstances the Broadcasting Authority may perform its functions

concerning the competition provisions of the BO, but no more. The

Competition Guidelines cannot override the BO and do not affect its

operationNote 4.

5.10 On paragraph 5.4(d), HKCTV has offered little or even no support for the

submission. It appears that HKCTV’s argument is based on the premise

that FTA television viewers pay no price for programming. As such,

HKCTV believes this renders meaningless economic concepts used to

assess competitive harm. The Broadcasting Authority takes the view that

the absence of charging for programming in no way precludes the ability

to define the supply of programming to viewers as a relevant market as

there is competition for viewers by means of non-price variables (e.g.

quality and scheduling of content).

5.11 As discussed in paragraph 3.5 and paragraphs 3.16 to 3.19 above,

HKCTV’s reference to best practice in other jurisdictions is less than

relevant to the regulatory regime in Hong Kong given that competition

legislation in Europe, Australia, Canada and the UK has the character of a

generally applicable law, not sector specific legislation to restrict certain

kinds of conduct in a specific market only, as is the case in Hong Kong.

Note 4 Paragraphs 2 and 3, Competition Guidelines.

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6. Market Power

6.1 The assessment of market power in the present case is part of the overall

assessment of the economic effects of the ATV-TVB Agreements. The

key question is whether a significant amount of market power is created

by the ATV-TVB Agreements.

6.2 As noted in paragraph 5.6 above, the Broadcasting Authority will be

considering the economic impact that the ATV-TVB Agreements would

have on competition in the downstream market. If the market is regarded

as containing both FTA TV and pay-TV broadcasters, there are three

players in the market with the average peak time viewing shares of

approximately 75% for TVB, 20% for ATV and 6% for HKCTV in 2002.

On the basis of a FTA TV broadcasters-only market, ATV and TVB are

the only two operators and the combined share of the market is therefore

100%.

6.3 There is currently a physical barrier to entry to the terrestrial FTA TV

broadcasters-only market because of restriction in the radio spectrum

available for Ultra-High-Frequency wireless television broadcasting.

6.4 For the reasons above, it is accepted that ATV and TVB would have

considerable collective market power in the downstream market for the

supply of television programme services if ATV and TVB collaborate in

coordinating their commercial activities.

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7. Assessment

7.1 The Broadcasting Authority needs to form an opinion as to whether or not

the conduct of ATV and TVB in entering into the ATV-TVB Agreements

has the purpose or effect of preventing, distorting or substantially

restricting competition in a television programme service market. In

forming the opinion, the Broadcasting Authority has assessed the

competitive impact of the ATV-TVB Agreements. The Broadcasting

Authority considers it necessary, in addition to the other issues discussed

in this Report, to address the following issues, which have been raised by

HKCTV:-

(a) HKCTV’s principal complaint;

(b) choice of programming; and

(c) licensing fees and advertising revenue.

HKCTV’s Principal Complaint

HKCTV’s Submission

7.2 HKCTV’s principal complaint is that:-

(a) the “purpose” of the ATV-TVB Agreements is “specifically to

prevent free and fair competition in the licensing of World Cup

and Olympic Games television broadcast rights up until [2012] to

the substantial disadvantage of the rights holder, in the current

case HKCTV”; and

(b) the “effect” of the ATV-TVB Agreements is that it prevents

competition in the market for the licensing of World Cup and

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Olympic Games television broadcast rights by the rights holder

which, in the present case, is HKCTV; and

(c) because of the collusion between ATV and TVB in the markets

referred to in (a) and (b) above, HKCTV was disadvantaged in that

it received a significantly reduced licence fee from them by reason

of the ATV-TVB Agreements than if HKCTV were able to

negotiate with them separately in the absence of such Agreements.

Conversely, the effect of the ATV-TVB Agreements was that ATV

and TVB were unjustly enriched as a result of paying a

significantly lower cost than if those Agreements had not existed.

Findings and Views of the Broadcasting Authority on HKCTV’s Principal

Complaint

7.3 HKCTV’s submission regarding its principal complaint cannot be

accepted. The markets referred to in (a) and (b) in paragraph 7.2 above do

not fall within the legal meaning of “television programme service

market” as used in section 13(1) of the BO. As noted in paragraph 5.6

above, a “television programme service market” covers only the

downstream market, i.e. the market for the supply of television programme

services to viewers, as opposed to the upstream markets for the acquisition

by broadcasters, or licensing or sub-licensing by rights holders, of

broadcast rights.

7.4 In the Broadcasting Authority’s opinion the correct analysis should

address whether the ATV-TVB Agreements have an anti-competitive

purpose or effect on the market for the supply of television programme

services within the meaning of section 13(1) of the BO. The Broadcasting

Authority will therefore consider the overall competitive impact, if any, of

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the Agreements on the downstream market (i.e. the market for the supply

of television programme services to viewers).

7.5 HKCTV’s argument referred to in (c) of paragraph 7.2 above is dealt with

in paragraph 7.21 below.

7.6 As regards the possible downstream effects resulting from the conduct in

the acquisition of rights in the upstream markets arising from the ATV-

TVB Agreements, the Broadcasting Authority considers that:-

(a) The most likely impact of the ATV-TVB Agreements is a reduction

in the price paid for the full packages of World Cup and Olympics

rights and a reduction in the revenue obtained by HKCTV from sub-

licensing Core Rights to the 2002 World Cup to the FTA TV

broadcasters. This is relevant to the extent that it may affect a

television programme service market by means of the allocation of

rights, and potentially by means of the price paid for those rights by

ATV and TVB.

(b) While there are, in theory, potentially indirect anti-competitive

effects on the television programme service market, distorting

competition between FTA TV and pay-TV broadcasters, there is, in

the present case, simply no conclusive evidence that the ATV-TVB

Agreements have any significant effect on the allocation of rights

between FTA TV and pay-TV broadcasters. The available evidence

is to the contrary. HKCTV won the full rights package for the 2002

World Cup despite the operation of the ATV-TVB Agreements. It is

not demonstrated that the Agreements will substantially favour the

FTA TV broadcasters in obtaining rights at the expense of pay TV.

28

(c) The ATV-TVB Agreements may affect the bidding outcome for

rights through increasing or strengthening the ability of FTA TV

broadcasters to fund a bid in favour of them. This scenario might be

relevant only if ATV and TVB individually face binding funding

constraints to outbid HKCTV in the competition for rights. However,

there is no evidence to show that the pooling of funds between ATV

and TVB will remove or ease funding constraints which would

otherwise prevent either of them from outbidding HKCTV. Both

ATV and TVB have in fact been able to spend significant sum on

programming in recent years–well above the amount actually paid

for the 2002 World Cup Core Rights.

(d) The most likely impact of the ATV-TVB Agreements will be to

reduce the price paid for the rights in the upstream market,

particularly over the longer term as a result of the reduction in the

number of bidders to the detriment of the upstream rights holders.

Notwithstanding the impact on prices for rights, it is extremely

unlikely that the ATV-TVB Agreements will have, or have had, any

significant effect on the supply of World Cup or Olympic Games

rights for broadcasting to viewers in Hong Kong, even over a longer

term because the significance of the Hong Kong revenues for these

upstream rights holders is minimal. Note 5

Note 5 Any price effect will generate an output effect in the upstream market (i.e. a change of the quantity of

rights sold) only if the supply of World Cup or Olympic Games rights were sensitive to the price paidfor the rights in Hong Kong. That is, the upstream rights holders would have less of an incentiveover time to generate rights if they expect lower revenues from the sale of such rights. In view of theminimal significance of Hong Kong revenues to the total values of both events (less than […]), it isextremely implausible in the present case. For instance, Kirchmedia paid FIFA CHF1.3bn orapproximately US$1bn for the global rights to 2002 World Cup, and presumably received even morefrom the sale of the rights. HKCTV paid […], i.e. less than […] of Kirchmedia’s acquisition cost.

29

(e) The ATV-TVB Agreements seem likely to lead to some financial

advantage to the FTA TV broadcasters (via the probably reduced

price paid for rights by ATV and TVB). However there are no strong

grounds for concluding that this will have any substantial impact on

competition in the downstream market, in the absence of specific

evidence of significant funding constraints on the FTA TV

broadcasters in Hong Kong which constrain their purchases of

programming other than that which is the subject of the ATV-TVB

Agreements.

(f) There is no evidence that the two FTA TV broadcasters are subject to

any significant funding constraints that would result in the acquisition

of better programming content due to the cost savings enjoyed

through the ATV-TVB Agreements thereby distorting competition in

favour of the two FTA TV broadcasters vis-à-vis the pay TV

broadcaster (and see paragraph 7.21(d) below).

7.7 Having regard to all of the above, the Broadcasting Authority concludes

that:–

(a) HKCTV’s principal complaint, namely that HKCTV was

disadvantaged by the ATV-TVB Agreements in that it received a

significantly reduced licence fee from ATV and TVB as a result, does

not constitute an anti-competitive “effect” targeted by section 13(1) of

the BO.

(b) HKCTV’s complaint that the “purpose” of the ATV-TVB

Agreements was “to prevent free and fair competition in the licensing

of World Cup and Olympic Games television broadcast rights”

30

likewise falls outside the ambit of anti-competitive provision in

section 13(1), as this purpose of the ATV-TVB Agreements relates to

the upstream market for the acquisition of rights.

(c) HKCTV’s related complaint that the ATV-TVB Agreements place

HKCTV in a disadvantageous position in bidding for exclusive rights

in the future may also be disposed of on the same ground as stated in

(a) and (b) above.

(d) The Broadcasting Authority also examines possible downstream

effects resulting from the anti-competitive conduct in the acquisition

of rights in the upstream markets arising from the ATV-TVB

Agreements but concludes that there is no evidence of any significant

effect on the television programme service market (and see

paragraphs 7.15 to 7.17 and paragraph 7.21 below).

Choice of Programming

HKCTV’s Submission

7.8 The Broadcasting Authority now deals with HKCTV’s submission that the

key matches and match highlights should be made available on either

ATV or TVB but not both because such an approach ensures that the

viewers have alternative free television programmes to watch.

7.9 Although this is one of the points made in the HKCTV Complaint, it is not

their contention that the choice of FTA TV programmes during the 2002

World Cup had become so restricted as a result of the ATV-TVB

Agreements that this by itself constituted a breach of section 13 of the BO.

31

7.10 By reason of the alternating broadcasting arrangement adopted by ATV

and TVB, there was no overlapping of broadcasting of the 2002 World

Cup between them except in respect of the Final match, which was

arranged to be shown on both FTA TV stations. The result of such an

arrangement was that, during the time when the Final was shown, the

viewers of FTA TV channels had become restricted in the choice of

programmes to the prejudice of those who had no interest in watching the

World Cup.

7.11 This was a direct effect of a restriction on competition between ATV and

TVB arising from:-

(a) the ATV-TVB Agreements conferring on both FTA TV

broadcasters the Core Rights; and

(b) their alternating broadcasting arrangement whereby the Final

match would be shown by both FTA TV stations at the same time.

HKCTV’s Final Representations

7.12 In its Response, HKCTV submitted that the Broadcasting Authority had

not properly addressed whether the ATV-TVB Agreements had, what it

describes as, “an actual and potential appreciable effect on competition

between ATV and TVB through the coordination of programming

output”Note 6, particularly having regard to the high combined share of

market by ATV and TVB, the importance of premium sports rights and the

long duration of the ATV-TVB Agreements.

Note 6 Para. 3.13, p.18 of the Response.

32

7.13 HKCTV also submitted in its Response that the Broadcasting Authority

had not adequately addressed whether the ATV-TVB Agreements had an

anti-competitive purpose in relation to the co-ordination of programming

output between ATV and TVB. HKCTV argued that if the purpose of the

ATV-TVB Agreements is to share the programme rights between them, it

is not necessary to assess the effect of the arrangement. HKCTV

maintained that, in order to constitute an infringement of section 13(1) of

the BO, it is sufficient that the arrangement “had the purpose of

restricting competition through the co-ordination of programming output

between ATV and TVB”Note 7 (emphasis added).

7.14 The question regarding HKCTV’s submission above is whether the ATV-

TVB Agreements have the anti-competitive purpose in relation to the co-

ordination of programming output so as to amount to a breach of section

13(1) of the BO. To amount to a breach of section 13(1) the ATV-TVB

Agreements must have the purpose of preventing, distorting or

substantially restricting competition.

Findings and Views of the Broadcasting Authority on Choice of Programming

7.15 The Broadcasting Authority considers that:-

(a) The ATV-TVB Agreements generate a direct anti-competitive

effect on competition between ATV and TVB in the television

programme service market through coordination of programming

output (and potentially facilitation of collusion more generally,

although there is no evidence to suggest this is in fact a serious

concern), which manifests itself among others, in the form of a

Note 7 Para 3.11, p.17 of the Response.

33

potential reduction in the variety of programming shown on FTA

TV.

(b) The ATV-TVB Agreements will have the effect of preventing

ATV and TVB from increasing brand differentiation by acquiring

the exclusive rights for the premium content which is the subject of

the Agreements. However, the effect is limited, as it only affects

programming shown over approximately four weeks every two

years for both events–the World Cup and the Olympic Games.

Moreover for 2002 World Cup broadcast, only one (the final match)

out of the 64 matches of the final rounds was transmitted by both

the FTA TV stations in Hong Kong. In the other matches aired by

ATV and TVB, namely, the opening match and the two semi-finals,

the FTA TV broadcaster not showing the World Cup still had to

compete with the other on programming during those time slots, as

if the Core Rights had not been jointly acquired.

(c) While in theory the ATV-TVB Agreements may have a direct anti-

competitive effect on competition between ATV and TVB in the

television programme service market through coordination of

programming output, in actual implementation of the ATV-TVB

Agreements in 2002, the effect is limited.

(d) Given the limited coordination of programming output as noted in

(b) above, the ATV-TVB Agreements do not have a substantial

effect on competition in the supply of programmes to viewers

notwithstanding ATV and TVB are the only two FTA TV

broadcasters in the television programme service market.

(e) Given the limited coordination of programming output as noted in

34

(b) above, the long term duration of the ATV-TVB Agreements

will not have any substantial or appreciable effect on competition

in the supply of programmes to viewers.

(f) Given the limited coordination of programming output as noted in

(b) above, any analogy sought to be relied on by HKCTV on the

significant impact premium sports rights can have on competition

in other jurisdictions is not relevant. This is because the rights

under consideration in the overseas jurisdictions are concerned

with annual competitions which run continuously for a significant

period of time and generate a large quantity of programming

material. The programming material of HKCTV’s complaint is not

comparable with overseas examples in terms of quantity of

programming output, their commercial significance and duration.

7.16 Having regard to all of the above, the Broadcasting Authority concludes

that insofar as the “purpose” of the Agreements is concerned, HKCTV is

incorrect when it contends that it is sufficient that the ATV-TVB

Agreements had the purpose of restricting competition through the co-

ordination of programming output between ATV and TVB in order to

constitute an infringement of section 13(1) of the BO. Under the

Ordinance as explained in paragraph 7.14 above, given the limited

coordination of programming output as the result of the ATV-TVB

Agreements, the Broadcasting Authority concludes that the ATV-TVB

Agreements did not have the purpose of preventing, distorting or

substantially restricting competition in the television programme service

market.

7.17 Having regard to all of the above regarding the “effect” of the Agreements,

the Broadcasting Authority concludes that by reference to the choice of

35

programming, the conduct engaged in by ATV and TVB does not, on the

evidence presently before it:-

(a) have the effect of preventing or distorting competition in a

television programme service market; or

(b) have the effect of substantially restricting competition in such

market

within the meaning of section 13(1) of the BO.

7.18 Joint purchasing agreements may lead to general collusions in downstream

market. If this happens to ATV and TVB whether arising from the

Agreements or otherwise, serious competition concerns may arise. The

Broadcasting Authority observes and concludes that there is no evidence

of any general facilitation of collusion beyond the terms of the ATV-TVB

Agreements, and the actual implementation thereof, which is the subject of

the HKCTV complaint. Nonetheless, the Broadcasting Authority will

continue to monitor the situation, having regard to the potentially

detrimental effects of any general practice of collusion between ATV and

TVB.

Licence Fees and Advertising Revenue

HKCTV’s Submission

7.19 Another of HKCTV’s submissions is that the ATV-TVB Agreements had

the effect of reducing HKCTV’s share of advertising revenue because the

World Cup was not shown on ATV or TVB alone, but by both of them.

The assumption behind such submission is that, where one of the three

36

stations, i.e. HKCTV, ATV and TVB, did not show the World Cup, some

of the usual viewers of that station would have moved across to the

channels showing the World Cup. As a result, the additional advertising

revenue attributable to such viewers could have been shared between

HKCTV and the FTA TV station which broadcast the World Cup.

HKCTV’S Final Representations

7.20 In its Response, HKCTV submitted that the Broadcasting Authority had

not properly addressed the effect on competition in the television

programme service market of the financial disadvantage suffered by

HKCTV as a result of the ATV-TVB Agreements (in the form of reduced

licence fee income and claimed reduction in advertising revenue) and the

financial advantage which accrued to TVB and ATV (in the form of

reduced fees they had to pay for rights and, according to HKCTV’s

submission, increased advertising revenue in proportion to programming

costs). HKCTV stated that the financial advantage they claim has accrued

to the FTA broadcasters has put them in the position where they can invest

more in programming and in infrastructure. It is also submitted that the

reduction in HKCTV’s revenue from the ATV-TVB Agreements

adversely impacts on HKCTV’s ability to make equivalent investments

and this impairs its ability to compete with ATV and TVB.

Findings and Views of the Broadcasting Authority on Licence Fees and

Advertising Revenue

7.21 The Broadcasting Authority considers that:

(a) HKCTV has not offered any explanation on why the coordination of

programming between ATV and TVB should enhance the FTA TV

37

broadcasters’ advertising revenues at the expense of HKCTV; rather

HKCTV merely states that World Cup programming is a valuable

asset in selling advertising airtime (which the Broadcasting Authority

accepts), and that the sale of advertising airtime within World Cup

programming was profitable to ATV and TVB;

(b) there is no basis for expecting HKCTV’s share of advertising revenue

to be significantly reduced by coordination in programming between

ATV and TVB, as the total advertising revenue available to the FTA

TV broadcasters would have been lower as a result of reduced

competition in programming output. In the absence of the ATV-TVB

Agreements, it is reasonable to expect that FTA TV broadcaster not

showing the World Cup still had to compete with the other on

programming at the particular time, resulting in increased

competition for viewers and thus advertising revenue between ATV

and TVB. This would eventually increase competition to HKCTV

and hence decrease the available audience or rather the advertising

revenues for HKCTV’s World Cup broadcasts;

(c) any effect on HKCTV in relation to the 2002 World Cup will have

been a one-off effect that resulted from HKCTV’s apparent ignorance

of the ATV-TVB Agreements at the time when it bid successfully for

the rights. There is no reason to expect any significant future

financial loss to HKCTV to arise from the ATV-TVB Agreements by

virtue of reduced sub-licensing revenues, now that HKCTV is aware

of the existence of the ATV-TVB Agreements. Any longer term

impact from the ATV-TVB Agreements would also be borne by the

ultimate upstream rights holder;

(d) HKCTV’s submissions on the subject of financial impacts begin with

38

the observation that TVB claimed in its submission to the

Broadcasting Authority that the money it would save in acquiring

World Cup and Olympics rights as a result of the ATV-TVB

Agreements could be used to enhance other areas of programming.

As noted in paragraph 7.6 (f) above, there is no evidence that the two

FTA TV broadcasters are subject to any significant funding

constraints that would prevent any of them from undertaking

investment in programming, and that such funding constraints would

be removed through the cost savings realized by the FTA TV

broadcasters through the ATV-TVB Agreements. The Broadcasting

Authority therefore does not consider the argument convincing; and

(e) on the basis of the evidence on the financial performances of ATV,

TVB and HKCTV, relative to the magnitude of the financial impact

claimed by HKCTV, there is no reason to expect any substantial

downstream competitive effects as a result of any financial impacts

on all three broadcasters. Note 8

7.22 Having regard to all of the above, the Broadcasting Authority does not

find that the financial effects of the ATV-TVB Agreements have

prevented, distorted or substantially restricted competition in the television

programme service market.

Note 8 Even if one was to accept HKCTV’s maximum estimate of its loss of […] due to the ATV-TVB

Agreements, this represents […] of its operating profit and […] of its turnover in 2002. RegardingTVB, the broadcaster’s supposed gain due to the ATV-TVB Agreements is estimated at […], […] ofits operating profit and […] of its turnover. ATV’s turnover was in excess of […] per annum, andthe broadcaster’s supposed gain of […] from the ATV-TVB Agreements represents […] of itsturnover. It is assessed that the amounts in question are not such as to have any significant financialimpact on all three broadcasters, nor as their investment decisions more generally.

39

8. Decision

8.1 On the basis of the assessment in paragraphs 7.2 to 7.22 above, the

Broadcasting Authority concludes that there are insufficient grounds to

find that the conduct of ATV and TVB entering into the ATV-TVB

Agreements has the purpose or effect of preventing, distorting or

substantially restricting competition in a television programme service

market in Hong Kong, thereby contravening section 13(1) of the BO. As

such, there is no basis on which to take action against ATV and TVB in

relation to the ATV-TVB Agreements.

8.2 However, the Broadcasting Authority may come to a different conclusion

in the future if the ATV-TVB Agreements lead to broader or more general

collusion or co-ordination between ATV and TVB. Following paragraph

42 of the Competition Investigation Procedures, the Broadcasting

Authority proposes to keep the situation under close observation and

continuous monitoring.

Broadcasting Authority

September 2004