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Sport TV caught Offside

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Aside from the two biggest antitrust cases showing up in the news – the mergers between Zon and Optimus and between PT and the Brazilian Oi –, another case has been around for a while now: the partial acquisition of the sports events PPV operator Sport TV by PT

In mid-December 2012, Controlinveste, owner of Sport TV, decided to restructure the shareholding structure of the company, integrating in it two other firms of the group: PPTV, manager of the television sporting broadcasting rights and of sporting advertisement, and Sportinveste Multimedia, manager of the internet rights of many sports clubs (among which Sporting, Porto and Benfica). Sport TV was held by Controlinveste but also by Zon, with 50% each, while Sportinveste Multimedia was similarly held by Controlinveste and PT. In the end, Sport TV was to be held by Zon, PT (each with 25%) and Controlinveste (with 50%).

Confused? A little bit confused? Totally lost? Just to recap: i) what’s at stake is sporting media rights; ii) PT had 50% stakes in the main internet rights operator, while Zon held 50% of the main television broadcaster; iii) Controlinveste, the holder of the other 50% in each, merged it all in Sport TV; iv) the new Sport TV would be not just a PPV broadcaster, but also the manager of both TV and Internet rights of all that matters in the national sporting media (at least at the time; we’ll go there in a second); v) Zon and PT, which had stakes in the Controlinveste group but in different markets, become stakeholders with crossed interests. One fact that is most curious is that PT had already had a 50% stake in Sport TV in the past, when Zon was still PT Multimédia.

This naturally raised antitrust concerns, namely the fact that PT was considered as the only potential entrant in the market for broadcasting sports events and that this partial acquisition would erase the incentives for PT to enter that market. This is a kind of “portfolio effect”, whereby firms exert limited competitive pressure to rivals in the same markets because the former have stakes in the latter. Besides, small TV operators (such as Vodafone or Cabovisão) contested that Sport TV could raise its prices to them and in favor of PT and Zon and it was also claimed that clubs would also be harmed by this concentration.

This was the argument presented by the upstream side of this market, as the Portuguese Professional Football League (LPFP) filed a complaint against what it perceived as the reinforcement of a dominant position; in fact, the same institution had already pressed charges against Sport TV against abuse of dominant position in football match broadcasting in September 2012. A study by Luís Cabral (from Stern School of Business and hired precisely by LPFP) concluded that this operation would increase Sport TV’s monopsony power and that the clubs would lose one third of their broadcasting rights revenues. Besides such unilateral effect (the reinforcement of market power coming from a merger or partial acquisition), the economist managed to foresee also coordinated effects, as such joint shareholding would enable Zon and PT to better communicate into collusion.

After a favorable legal opinion by the Communications regulator (conditional on the elimination of a no-competition agreement between the three shareholders of Sport TV) and after achieving the advanced stage of investigation with the Competition Authority, the process went all the way back to stage zero following the merger process between Zon and Optimus. Interestingly enough, in the meanwhile the market got a proof of contestability, with BenficaTV emerging as the new player by broadcasting all home matches of Benfica and also the English Premier League, which brought already 300.000 subscribers to the channel (only roughly 200.000 less than Sport TV).

Sport TV lost its monopoly position and had to respond by offering one cheaper channel to face this entry. However, one would only need semantics to see that Benfica TV is far from being a perfect substitute for all consumers (at least for the majority of Sporting fans like myself). At this stage, the Competition Authority is investigating the case, more concerned than ever with an input lock-in, whereby PT and Zon would keep potential entrants from accessing broadcasting rights through exclusive, long-term contracts (non-disputed by any potential entrant, as the one for the EPL was). This concern is more than reasonable, both because of the coordinated effects mentioned above and because other Portuguese clubs will hardly see in BenficaTV an alternative broadcaster of their matches. Moreover, this new contestant has, by definition, privileged access to the most valuable input in the market (as the associated club has the largest fan base in the country, at roughly 60% of the domestic population), something which no other potential entrant, whether “independent” or not, can have (again, by the definition implied by “independent”). For the time being, the ball is on the regulator’s side.

João Garcia, #618

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Author: studentnovasbe

Master student in Nova Sbe

2 thoughts on “Sport TV caught Offside

  1. Pingback: Coerção e Poligamia (2) | Deflator

  2. In order to comment the João’s statement, it must be important to mention first the number of TV subscribers of the various Portuguese TV-operators: PT(MEO) has about 39,9%, ZON about 49,7%, Cabovisão 7,6%, Optimus 1,2%, with 1,6% being distributed between Vodafone and Ar Telecom.
    Basically, we are talking about the possibility of Portugal Telecom and Zon Optimus having 25 per cent each and Sportinveste with the remaining 50 per cent in the new shareholding structure of pay-TV company Sport TV. So far, the Portuguese Regulatory Authority has already rejected this option before.
    Factors such as an initial negative opinion of the European Regulatory Council (concerning to the clauses of future non-competition between operators on sports content), another requested from the National Communications Authority, and the opposition against such agreement by the remaining TV-Portuguese operators as well as the Portuguese League of Clubs, motivated Portugal’s Competition Authority to a deeper investigation that is still in process. Essentially, these TV-operators were arguing that Sport TV would likely increase prices charged to these smaller operators in favor of the two biggest ones (PT and ZON).
    On the other hand, PT and ZON argued that the legally established deadline for the Competition Authority to decide whether or not the agreement was valid was overtaken. Yet, Sportinveste also claimed that this new structure of Sport TV is according to customers’ needs and interests and increases the company’s offer.
    As one can think, if PT and ZON were able to collude, its market share would be about 90%, and so they would have almost a monopoly for the TV-subscribers. Consequently, they would be able to raise Sport TV pricing.
    However, with the sudden entrance of Benfica TV as Sport TV competitor, things almost changed picture. That is, although Benfica TV transmits about 15 Benfica’s matches per season, about 40% of the country does not find Benfica games that interesting since it is not their supporting club. Hence, many of these people still prefer to pay more and have Sport TV than Benfica TV. With this reasoning, it is comprehensible that small operators would find it more difficult to operate in Portugal. For that reason, Portugual’s anti-trust authority forced Benfica to allow all national pay-TV operators to access the broadcast. Indeed, it is now possible to find Benfica TV channels in every Portuguese TV-operator. On the other hand, if Benfica TV was able to negotiate TV rights with only one pay-TV operator, it would violate fair-competition rules.
    It seems that these discussions will never end. Over the last several months, many clubs have argued different opinions about the possibility of Benfica TV gaining the rights of transmitting other teams’ matches. So far, only Feirense has accepted Benfica TV to transmit some of their games but as Benfica says, it is not a priority for the next few years to transmit games of teams that are playing in the Portuguese football first division.
    One thing is for sure, competition and hostility will increase if the Competition Authority related to Sports Broadcasting allows Benfica to make deals and contracts with other clubs in order to transmit their matches. Porto and Sporting, for instance, would completely contest this situation.

    Diogo 1707