Completed acquisition by Creative Broadcast Services Limited of BBC Broadcast Limited

Affected market: Television programmes transmissions

No. ME/1962/05

Please note that the full text of the decision can be downloaded from the link on the right.  What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 22 (1) given on 2 November 2005. Full text of decision published 11 November 2005.

Please note square brackets indicate information excised or replaced by a range at the request of the merging parties or third parties for reasons of commercial confidentiality.

PARTIES

Creative Broadcast Services Limited (CBSL) is a newly incorporated UK company which is 65.3 per cent owned by Australian listed investment fund, Macquarie Capital Alliance Group (MCAG), and 34.7 per cent owned by diversified international specialist financial and investment banking services provider, Macquarie Bank Limited (MBL), both members of the Macquarie Bank Group.

BBC Broadcast Limited (BBCB) was a commercial subsidiary of the BBC, offering a complete range of services required to launch, promote, playout and provide access to broadcast content on different media platforms. BBCB has two wholly-owned subsidiaries: Broadcasting Dataservices, which provides media scheduling information; and, BBC Broadcast USA, Inc. In the year ending 31 March 2005, BBCB's worldwide turnover was [ ] and its UK turnover was [ ].

TRANSACTION

CBSL acquired sole control of BBCB on 31 July 2005 and the consideration was £166 million. The administrative deadline expires on 2 November 2005.

The OFT considers that MBL has material influence over BBCB (via CBSL). As a minimum, a shareholding conferring on the holder 25 per cent or more of the voting rights in a UK company generally enables the holder to block special resolutions; consequently, consistent with OFT Guidelines, the OFT considers that CBSL's acquisition may give MBL the ability materially to influence the policy of BBCB. The OFT's analysis does not rely on a statement by CBSL that this is a temporary underwriting stake to be sold down to third party investors in the short term.

The OFT also considers that  MBL may have the ability to materially influence the policy of another playout provider, Arqiva (formerly ntl Broadcast) having regard to all the circumstances of the case and, in particular, a combination of shareholdings, a management services agreement, and [board appointments]. Arqiva is wholly owned by Macquarie UK Broadcast Holdings Limited (MUBHL). MUBHL is 54 per cent owned by Australian listed investment fund, Macquarie Communications Infrastructure Group (MCIG), 4.3 per cent owned by MBL, 10.9 per cent owned by other funds managed by MBL subsidiaries, and 30.8 per cent owned by other investors. In addition to MBL's direct shareholding in Arqiva, a wholly owned MBL subsidiary has an 8.5 per cent interest in MCIG. MCIG has delegated to this subsidiary the responsibility for managing MCIG's interests in the companies it invests in under a management services agreement. Finally, there are a number of [board appointments], the key ones being MBL has jointly appointed one director to the board of Arqiva and an executive director of Macquarie Bank is the deputy chairman of Arqiva.

The parties have entered into a 10 year services supply agreement (the Framework Agreement) with the BBC, whereby the BBC exclusively outsources to CBSL the provision of services previously supplied to it by BBCB. The OFT has been asked to form a view as to whether the Framework Agreement would be considered ancillary to the merger. The OFT generally follows the European Commission's Notice on ancillary restraints, which provides that only those restrictions that are 'directly related and necessary' to the legimitate objective sought of implementing the concentration are justified. In particular, restrictions to competition should be of limited duration. The Commission Notice indicates that the duration of supply restrictions are acceptable for up to five years. The life of the Framework Agreement agreed by the parties is outside this time limit. A 10 year duration agreement is further demonstrated to be unnecessary as [ ]. Therefore, the OFT does not consider that such an arrangement is directly related and necessary in order to implement the merger.

JURISDICTION

As a result of this transaction CBSL and BBCB have ceased to be distinct. The UK turnover of BBCB exceeds £70 million, so the turnover test in section 23(1)(b) of the Act is satisfied. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created. 

THIRD PARTY VIEWS

Some third parties expressed the concern that the merger brings together BBCB, a large sophisticated complex playout service provider (with a reputation for high quality service derived from its experience of servicing the BBC), and the terrestrial TV broadcast transmission services capabilities of Arqiva (as one of only two UK terrestrial transmission providers). In particular, post-merger Arqiva might be able to bundle BBCB's playout services with its terrestrial transmission services at a price substantially undercutting its competitors. There is no evidence to suggest, however, that any change in this respect as a result of the transaction would be significant as Arqiva already provides playout and could currently bundle its services. Furthermore, given the limited capacity of terrestrial TV, most playout contracts relate to satellite and cable and there would be limited foreclosure.

A customer raised the concern that the merger reduces the number of credible playout providers who combine with channel management services to one post-merger. The OFT does not have reason to believe, on the basis of the evidence provided, that the merger has a significant impact on competition in this respect taking into account: BBCB has not previously provided channel management services to unaffiliated customers and does not, therefore, act as an existing constraint on outsourced provision; the vast majority of channel owners appear to carry out channel management services in-house; and, there do not appear to be substantial barriers to entry in providing channel management services for channel owners not currently self-supplying (according to the parties, likely start-up costs can be limited to readily available off-the-shelf software and staff training).

ASSESSMENT

The OFT considers that the parties overlap in the supply of playout services as a result of the material influence (34 per cent shareholding) over CBSL by MBL, which may also have an existing ability to materially influence playout provider, Arqiva, by virtue of a combination of factors outlined above including a combination of shareholdings, a management services agreement, and common directorships.

A combined share of [approximately 20-25 per cent] for outsourced and in-house playout service provision is created, with an increment of [no more than 10 per cent]. This share increases to approximately [30-40 per cent (increment no more than 10 per cent)] by volume when third party provision is considered alone, however, the bulk of this can be attributed to the previously exclusive in-house supply of playout by the BBCB to the BBC and, therefore, share of supply data may be misleading. The parties opine that this is a bidding market and there appear to have been only a limited number of occasions when Arqiva and BBCB have bid for the same contracts in the last 3 years. Based on the evidence provided, the parties do not appear to be each other's closest competitor for playout provision and there are a number of other significant playout providers providing sufficient actual rivalry to constrain post-acquisition behaviour. The threat of customers switching to self-supply would appear to act as a viable competitive constraint in the event of a price rise, as would potential outsourcing by wholly captive broadcasters and/or the sponsoring of new entry.

Taken in conjunction with a general lack of third party concerns, the OFT believes that the loss of any competitive constraint as a result of this transaction will not be significant. Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

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