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Market Definition in the Media Sector - Economic Issues

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Market Definition in the Media Sector - Economic Issues EUROPEAN COMMISSION Competition DG Information, communication and multimedia Media and music publishing Market Definition in the Media Sector - Economic Issues - Report by Europe Economics for the European Commission, DG Competition November 2002 PREFACE AND DISCLAIMER This report has been prepared by Europe Economics as part of an assignment for the Media Unit of the Competition Directorate General of the European Commission. Europe Economics was appointed to produce this report following the restricted tender procedure COMP/C2/2001/16, which comprised two lots: Lot 1: Market definition in the media sector: comparative legal analysis (awarded to Bird & Bird). Lot 2: Market definition in the media sector: economic issues (awarded to Europe Economics). The two studies are complementary, and Europe Economics read and took account of Bird & Bird’s interim report when drafting the present report. Further information on decisions of the Competition Directorate-General of the European Commission in the media sector can be found in the 2002 compilation “EU competition policy in the media sector”, available on request from the Media Unit of the Competition Directorate General of the European Commission. The opinions expressed in this report are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission. © European Communities, 2002 www.europe-economics.com TABLE OF CONTENTS 1 EXECUTIVE SUMMARY...............................................................................1 1.1 Purpose and Scope...........................................................................................................1 1.2 Structure of the Report.....................................................................................................1 1.3 Defining Markets................................................................................................................2 1.4 Market Definition Issues in Media....................................................................................2 1.5 Framework for Defining Markets in Media Cases..........................................................4 2 METHODOLOGICAL ISSUES......................................................................7 2.1 Introduction........................................................................................................................7 2.2 Price Discrimination........................................................................................................ 11 2.3 Bundling ...........................................................................................................................21 2.4 Advertising and Free Content........................................................................................36 2.5 Gateways..........................................................................................................................47 2.6 Rapid Change ..................................................................................................................58 2.7 Convergence....................................................................................................................61 3 PRACTICAL ISSUES ..................................................................................64 3.1 Introduction......................................................................................................................64 3.2 Key Steps for Market Definition in Media......................................................................64 3.3 Definition of the Relevant Products ..............................................................................66 3.4 Assessing Substitutability..............................................................................................73 3.5 Cross-checking with Other Evidence ...........................................................................90 4 CONCLUSIONS...........................................................................................96 4.1 Why Define Media Markets?...........................................................................................96 4.2 The Structure of Media Markets.....................................................................................96 4.3 Defining Media Markets in Practice...............................................................................98 APPENDIX 1: THE CONCEPT OF MARKET DEFINITION ..............................100 APPENDIX 2: CHALLENGES TO THE TRADITIONAL FRAMEWORK .........115 APPENDIX 3: CATEGORISATION OF TRADITIONAL TECHNIQUES ...........125 APPENDIX 4: BIBLIOGRAPHY..........................................................................131 www.europe-economics.com DETAILED TABLE OF CONTENTS 1 EXECUTIVE SUMMARY...............................................................................1 1.1 Purpose and Scope...........................................................................................................1 1.2 Structure of the Report.....................................................................................................1 1.3 Defining Markets................................................................................................................2 1.4 Market Definition Issues in Media....................................................................................2 False problems.................................................................................................................... 3 1.5 Framework for Defining Markets in Media Cases..........................................................4 Weaknesses in the traditional tests..................................................................................... 4 False solutions..................................................................................................................... 4 Key steps for market definition ............................................................................................ 5 Developing operational guidance........................................................................................ 6 2 METHODOLOGICAL ISSUES......................................................................7 2.1 Introduction........................................................................................................................7 Definition of the media sector.............................................................................................. 7 Economic characteristics of media industries that affect market definition ......................... 7 Economies of scale and value-based pricing ............................................................... 8 Inter-related markets, advertising and free content....................................................... 9 Stages of production ..................................................................................................... 9 Rapid change and convergence ................................................................................. 10 Structure of the section...................................................................................................... 10 2.2 Price Discrimination........................................................................................................ 11 The role of price discrimination in the media sector.......................................................... 11 Market definition issues ..................................................................................................... 12 The case of price discrimination by customer group .................................................. 12 The case of price discrimination through versioning................................................... 14 Examples........................................................................................................................... 15 Geographic price discrimination by cable franchise area ........................................... 15 Versioning of books as paperbacks and hardbacks ................................................... 16 Versioning of movie releases ...................................................................................... 18 Temporal discrimination for durable content ............................................................... 19 Summary of methodological issues .................................................................................. 20 2.3 Bundling ...........................................................................................................................21 The role of bundling in the media sector ........................................................................... 21 The case of bundling to extract consumer surplus ..................................................... 22 The case of bundling as a form of entry deterrence ................................................... 22 Market definition issues ..................................................................................................... 23 Substitutability between bundled and unbundled supply............................................ 24 Analysis of complements and secondary markets...................................................... 26 Examples........................................................................................................................... 28 Bundling of pay-television and telephony ................................................................... 29 Bundling of broadband content ..................................................................................
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