ACQUISITION BY BRITISH SKY BROADCASTING GROUP PLC OF 17.9 PER CENT OF THE SHARES IN ITV PLC Report sent to Secretary of State (BERR) 14 December 2007 © Competition Commission 2007 Website: www.competition-commission.org.uk Members of the Competition Commission who conducted this inquiry Peter Freeman (Chairman of the Group) Christopher Bright Christopher Smallwood Professor Stephen Wilks Chief Executive and Secretary of the Competition Commission Martin Stanley The Department for Business, Enterprise and Regulatory Reform (BERR) has excluded from this published version of the report information which it considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by . The versions of this report published on the BERR website on 20 December 2007, and reproduced on the CC website, gave the name of the company acquiring the 17.9 per cent stake in ITV plc as British Sky Broadcasting plc. The correct, full title of the acquiring company is British Sky Broadcasting Group plc. This corrected version of the report, with the full company name given on the title pages, paragraph 1 of the summary and in footnote 160, was posted on the BERR and CC websites on 11 January 2008. Acquisition by British Sky Broadcasting Group plc of 17.9 per cent of the shares in ITV plc Contents Page Summary................................................................................................................................ 4 Findings ............................................................................................................................... 12 1. The reference ............................................................................................................... 12 2. Industry background and the companies...................................................................... 13 Industry overview.......................................................................................................... 13 Regulatory regime ........................................................................................................ 14 Ofcom ...................................................................................................................... 14 Public service broadcasters ..................................................................................... 14 Ownership and control ............................................................................................. 15 Programme content ................................................................................................. 15 Commissioning content............................................................................................ 16 Advertising ............................................................................................................... 16 Multiplexing .............................................................................................................. 17 Electronic Programme Guides ................................................................................. 17 Television industry........................................................................................................ 17 Television supply chain............................................................................................ 17 Provision of television news..................................................................................... 20 The main parties........................................................................................................... 20 BSkyB ...................................................................................................................... 21 ITV ........................................................................................................................... 22 3. The acquisition.............................................................................................................. 23 History of the acquisition............................................................................................... 23 Rationale for the acquisition ......................................................................................... 23 View on rationale ..................................................................................................... 25 Counterfactual .............................................................................................................. 25 Independent ITV ...................................................................................................... 25 Acquisition by another party..................................................................................... 26 Conclusions on counterfactual................................................................................. 26 Jurisdiction....................................................................................................................26 Introduction .............................................................................................................. 26 Factors which might give rise to material influence.................................................. 28 Absolute and relative size of BSkyB shareholding and ability to block special resolutions........................................................................................................... 28 BSkyB industry knowledge and standing combined with the size of its shareholding........................................................................................................ 31 Countervailing factors relevant to material influence ............................................... 32 Cross-media ownership rules.............................................................................. 32 Countervailing influence of other shareholders ................................................... 33 No evidence of actual influence .......................................................................... 33 Conclusions on material influence ........................................................................... 33 Turnover................................................................................................................... 33 Conclusion on relevant merger situation.................................................................. 33 4. Market definition and assessment of competitive effects ............................................. 34 Overview....................................................................................................................... 34 Audiovisual services ..................................................................................................... 34 Market definition....................................................................................................... 34 Introduction.......................................................................................................... 34 Product market.................................................................................................... 35 1 Geographic market.............................................................................................. 39 Conclusion on market definition .......................................................................... 40 Underlying factors affecting competition .................................................................. 40 Overview of competitors...................................................................................... 40 Market shares...................................................................................................... 43 Levels of competition absent the acquisition ........................................................... 45 Pay-TV operators ................................................................................................ 46 FTA broadcasters................................................................................................ 47 Barriers to entry and expansion .......................................................................... 49 Impact of the acquisition .......................................................................................... 51 Current competition............................................................................................. 51 Future competition............................................................................................... 55 Conclusions on competitive effects.......................................................................... 56 Advertising.................................................................................................................... 56 Market definition....................................................................................................... 56 Underlying factors affecting existing competition..................................................... 57 Impact of the acquisition .......................................................................................... 58 Conclusions on competitive effects.......................................................................... 59 National television news programme supply ................................................................ 60 Market definition....................................................................................................... 60 Underlying factors affecting existing competition..................................................... 61 Main television