On April 12, 2022, the Italian Competition Authority (the AGCM[1] or “ICA”), following a formal investigation for the review of remedies imposed upon a concentration, revoked the measures that it had imposed on SKY Italian Holding SpA (“SKY”)—the leading pay-TV broadcaster in Italy—to offset the anti-competitive effects created by its late 2018 acquisition of the pay-TV technical platform R2 Srl (“R2”) from Mediaset Premium S.p.A (“Mediaset”). R2 provided exclusive technical platform services, enabling Mediaset to retail a pay-TV offering on DTT. Along with certain DTT[2] channels and related numbering (or LCNs) and other ancillary arrangements, R2 was the undertaking Mediaset used to compete against SKY in the pay-TV market in Italy.
SKY filed the acquisition of R2 with the ICA at the end of November 2018 and completed the transaction a few days after submitting notification, as permitted by the Italian merger control regime enshrined by Law 287/90.[3] However, in March 2019 the ICA opened a Phase 2 investigation in response to concerns that the transaction would strengthen SKY’s consolidated dominant position in the retail pay-TV market in Italy, with spillover harmful effects in connected upstream markets for the acquisition of content. At that time, the ICA did not consider pure online pay-TV players (“OTTs”) effective competitors to satellite (DTH) and DTT pay-TV broadcasters because of the scarcity of pure online pay-TV offerings and high-speed broadband in several areas of the country. Notably, the parties agreed to terminate the transaction in the event the ICA deemed it anti-competitive. Consequently, as soon as the ICA informed SKY of its preliminary objections, the latter activated the termination clause, which provided for returning R2’s assets to Mediaset along with the DTT channel positions (LCNs). However, the ICA found that these steps were insufficient to undo the merger effectively: in its view, the merger had generated certain “irreversible” effects which, pursuant to Article 18(3) of Law 287/90, required the imposition of remedies to “restore effective competition” and to remove the distortion caused by the implementation of the reported concentration. Indeed, the ICA held that the transaction was economically and functionally intertwined with certain commercial agreements that the parties had entered into in March 2018 and that, overall, constituted a single concentration in the aggregate with the acquisition of R2. These agreements included the exclusive sub-licensing of Mediaset’s DTT pay-TV channels to SKY and the transfer to SKY of the rights to use the related LCNs, in addition to exclusive arrangements for the provision of R2’s technical platform services to SKY. Also in light of these arrangements, the ICA held that (a) the restitution of R2’s assets to Mediaset by SKY was “partial”; and (b) the arrangements concerning the returning of LCNs were insufficient in light of the ongoing exclusive licensing of Mediaset’s pay-TV channels to SKY. According to the ICA, the overall concentration substantially had the effect of suppressing Mediaset, SKY’s major (and essentially only) competitor in the pay-TV market in Italy.
Consequently, at the end of the Phase 2 investigation (in May 2019), given SKY’s historical dominant position in the retail pay-TV market in Italy and the need to foster competition from OTT players, the ICA imposed on SKY (i) a three-year ban on purchasing exclusive rights for online distribution of audiovisual content and linear channels from third parties; (ii) FRAND obligations to ensure third-party access to any DTT technical platform for pay-TV offerings that SKY developed using R2’s acquired assets; and (iii) the appointment of a “monitoring trustee” to secure compliance with these measures (jointly, the “Remedies”).[4] SKY challenged the decision before the TAR Lazio (i.e., the first instance administrative court), claiming procedural and substantive errors of law and assessment, which the TAR Lazio upheld. However, the ICA appealed the TAR judgement before the Council of State (i.e., the last instance administrative court), which ultimately upheld the ICA’s decision.[5]
At the end of 2021, SKY asked the ICA to remove the Remedies on the grounds that the Covid-19 pandemic accelerated technological development of the entire audiovisual supply chain, as well as development of consumer habits, making OTT players with their offerings actual and effective competitors of SKY in the pay-TV market in Italy.
The ICA therefore opened a new formal investigation to assess whether the market context had changed to the extent of making the Remedies redundant. At the end of the new investigation, the ICA held that this was indeed the case and thus removed the Remedies.
Interestingly, the ICA rejected SKY’s arguments that it lost its dominant position in the Italian pay-TV market because of market developments that occurred during the pandemic, which included the award on an exclusive basis to an OTT player of the auction for the Serie A audiovisual soccer rights for three years. This event was very relevant, as it marked the first time that such exclusive rights—which are the leading driver of the demand for pay-TV offerings in Italy—were awarded to a player other than SKY, and beyond that to an OTT. However, the ICA’s investigation revealed that, although a pure Internet (either IPTV or OTT) offering could now be deemed fully interchangeable with DTH and DTT offerings (and thus as part of the same pay-TV market), SKY still holds a presumably dominant position because it retains more that 50% of pay-TV subscriptions (with double the market share of its nearest competitor, DAZN, which was awarded the Serie A broadcasting rights) and because it is the only pay-TV player with a multi-platform offering (DTH, DTT, and Internet) that also includes broadband connectivity. Nonetheless, the ICA acknowledged that the investigation also revealed (i) a substantial decrease in SKY’s market shares from more than 80% in 2019 to less than 55% in the second half of 2021; and (ii) a drop by half of the market concentration level over the same period (which the ICA stressed only began after imposition of the Remedies). In addition,
the ICA found that the use of the Internet platform in pay-TV has increased from 38% in 2018 to 61% in 2020 (with a reduction of the use of DTH and DTT), which goes along with significant development of broadband infrastructure and an increase in high-speed connections and smart-TVs. Correspondingly, the main OTT players have seen a significant increase in pay-TV demand (from 2% to 35%). These developments, according to the ICA, are a clear sign that OTT players may have become full substitutes for traditional pay-TV broadcasters, though it noted that this is also a consequence of the way the Remedies stimulated competition.
In light of this, and in light of the fact that only a few months remained before the Remedies expired and that no significant premium content (like the Serie A soccer rights) would be assigned in that remaining timeframe, the ICA accepted SKY’s request for early removal of the Remedies.
This article has been published also on Concurrences.com on April 12, 2022.
