Proposed joint venture between BBC Resources Ltd and Granada Media Group Ltd

No. ME/00196

Report under section 125(4) of the Fair Trading Act 1973 of the Director General's advice, dated 21 December 2000, to the Secretary of State for Trade and Industry under section 76 of the Act 

Jurisdiction

This transaction satisfies the share of supply test of the FTA, on the supply of television studio facilities in the North West region of England, a substantial part of the UK. The ECMR does not apply.

The parties

BBC Resources is a wholly owned commercial subsidiary of the BBC. Its interests include the supply of television and other media facilities and allied services to the BBC and to other customers. Granada Media Group Ltd (GMG) has interests in broadcasting, programming and pay TV.

Assessment

Relevant markets

The parties overlap in the supply of TV studio facilities and associated services. They also both provide post-production and graphic design (PPGD) services.

Customers often hire TV studio facilities and purchase PPGD services separately. Sometimes they do not need both (eg when a studio is being used as an event venue rather than for TV production). There is no evidence suggesting that providers actively seek to bundle them together. On both the demand and supply sides, TV studios and PPGD services can be considered as separate product market markets.

As regards the relevant geographic market, PPGD facilities can increasingly be provided remotely, and therefore are considered to be in a market at least as wide as the UK. Third parties have confirmed this view.

The position is less clear for TV studio facilities. A number of factors suggest that the geographic market for TV studio facilities might be smaller than the UK. A significant proportion of the business of TV studio facilities in the North West comes from clients based within the region (or from outside the region but with special needs to produce in and around Manchester). Third parties have confirmed this. In addition, data on the main contract wins and losses by the parties over the past year suggest a significant regional element.

Pricing information is inconclusive. There is clearly a significant premium for London studio facilities but this may reflect cost of living differences and quality issues. Price trends are similar between London and Manchester but, again, this may reflect integration within the parties nationally. The parties argue that the market has become less regional in recent years. They also say that, to the extent that the market might be considered smaller than the UK, it is probably a London/non-London split rather than any specific regional split.

Horizontal issues

The market for PPGD services appears to be at least UK-wide, fragmented and highly competitive. For TV studio facilities, if a national market definition is used, the joint venture produces only a small increment to the market share of either of the parties.

There seems, however, to be a significant regional (or at least non-London) dimension to the business. On a regional market definition, the parties would have in excess of [see note 1]% of studio space in the North West of England. On this definition, the competition concern would be that the joint venture in TV studio facilities in the North West of England might be able to increase prices and/or deter new entry.

Barriers to entry are, however, relatively low for TV studio facilities. I understand that a large number of studios (not all up to TV quality) have opened in the UK in the past five years. In addition, technology allows supply-side substitution from other venues, depending upon the type of production, such as concert halls and theatres.

For TV studio facilities, the largest productions are able to exert bargaining power. They are important to overall studio utilisation and also are large enough to have wider geographic choices than smaller productions. The degree of bargaining power of smaller producers is very dependent on how busy the studio is when they negotiate and on the local/regional alternatives open to them.

Vertical issues

In addition to giving in-house producers freedom to choose studio provider, the trend in recent years has been for the parties to commission more programmes from independent producers. Given these trends and the competitive pressures in the TV studio facilities business, I do not believe that significant vertical issues arise from this joint venture.

Third party views

I have consulted a number of third party customers and competitors. No major concerns were raised.

Conclusion

The market for PPGD services appears to be national, fragmented and highly competitive. It does not, therefore, raise competition concerns.

The market for the provision of TV studio facilities may be regional or national. It is not, however, necessary for me to reach a conclusion on the definition of the relevant geographic market. Even on a narrow, regional market definition, I do not consider that the joint venture raises serious competition concerns. Barriers to entry in the provision of television studio facilities appear to be low. In addition there is the possibility, in certain cases, for supply side substitution from other venues such as concert halls and theatres.

I therefore recommend that you do not refer the transaction to the Competition Commission.

Notes

1. Excised at the request of the parties.

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