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MERGER CONTROL IN AUDIOVISUAL SECTOR IN FRANCE

This presentation discusses the French merger control process through case studies of the TPS-Canal+ merger and TF1's acquisition of a stake in AB Group. It covers the pay TV and free-to-air TV markets in France.

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MERGER CONTROL IN AUDIOVISUAL SECTOR IN FRANCE

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  1. MERGER CONTROL IN AUDIOVISUAL SECTOR IN FRANCE Prague Thursday, May 17, 2007 Bernard CELLI Deputy Head, Studies Department CSA

  2. Agenda BERNARD CELLI - 17-05-2007 • The current presentation intends to describe the French merger control process thanks to the description of two case studies: • The TPS-Canal+ Merger in 2006-2007 ; • The acquisition by TF1 of a 33.5% stake in AB Group in 2007 On the pay TV market On the free to air TV market

  3. Agenda BERNARD CELLI - 17-05-2007 • The current presentation intends to describe the French merger control process thanks to the description of two case studies: • The TPS-Canal+ Merger in 2006-2007 ; • The acquisition by TF1 of a 33.5% stake in AB Group in 2007 On the Pay TV market On the Free to air TV market

  4. The TPS-Canal+ Merger 1/2 THE PLAYERS BERNARD CELLI - 17-05-2007 CANAL + • Canal+ is the French pay TV leader. Mainly active in : • Satellite pay TV distribution (CanalSat) ; • French pay TV premium rights dealing (Cinema and Sports) ; • Premium and thematic channels edition (Cinema and Sports). TPS • TPS was created by TF1, M6 in 1996 to compete against CanalSat. Before the merger, TPS was mainly active in : • Satellite pay TV distribution (second satellite distributor) ; • French premium pay TV rights dealing (Cinema) ; • Premium and thematic channels edition (Cinema).

  5. The TPS-Canal+ Merger 2/2 THE SCOPE OF THE MERGER BERNARD CELLI - 17-05-2007 The merger Canal+ France Shareholders Canal+ France includes : • TPS, CanalSat (=100% of French satellite pay TV) • 48,48% share of Canal+ SA (premium channel) • Thematic channels edition • Pay per view activity • Canal+ Distribution • Media Overseas • Announced End 05 • Effective as of Jan. 07 Canal+Group(Vivendi) TPS(TF1, M6) Source : CSA Canal+ France 7 M pay TV subscribers Source : CSA

  6. Authorities involved in the merger process DGCCRF (Ministry), Competition council, CSA BERNARD CELLI - 17-05-2007 French Electronic Communications regulator (ARCEP) Conseil Supérieur de l’Audiovisuel (CSA) Independannt administrative authorities RECOMMENDATION RECOMMENDATION Competition Authorities (Conseil de la concurrence) RECOMMENDATION Economy, Finance and Industry Minister (DGCCRF) DECISION Government Appeal before the French Highest administrative Court (Conseil d’État)

  7. Impact of the merger on the value chain BERNARD CELLI - 17-05-2007 Upstream Intermediate Downstream market market market Transmission Content Broadcasting Pay TV services Programming production distribution and dealing Viewers Rights Pay TV services TV channels Transmission Holders providers services providers Main issues from a competition point of view Upstream market: Canal+ France holds major Cinema and Sports rights (French Premier League, Studio Canal…) Intermediate market: Canal+ France controls the 2 French premium channels Canal+ and TPS Star and most of the most attractive thematic channels (Planète…) Downstream market: a unique satellite pay TV distributor left in France

  8. The Ministry Decision BERNARD CELLI - 17-05-2007 The Aug. 06 Ministry Decision: a clearance under conditions • Based on the CSA and the competitions authorities recommendations. • Canal+ France agreed to comply with 59 obligations to protect competition. • Fostering competition on the innovative downstream market (ADSL, VoD…) was seen as key by the competition authorities who therefore imposed some structural obligations (unbundling) on the intermediate market. Some key obligations: • Unbundling of TPS Star premium channel and 3 former TPS thematic channels in order to allow competitive distributors (especially ISPs) to create their own pay TV offer • No exclusive rigths on VoD • Independent channels protection All obligations may last up to 5 years

  9. CSA decisions FROM A PLURALISM PERSPECTIVE BERNARD CELLI - 17-05-2007 • The CSA reviewed the operation from a pluralism perspective in March 2007. Licences transfer of control (article 42-3 of the French Broadcasting Law) CSA merger control mechanism (article 39 of the French Broadcasting Law) • OK • Canal+ France is below the maximum number of authorisations that a player can hold • OK • Some of the obligations imposed by the Minister (regarding the content of the channel) are attached to the new TPS Star authorisation in order to protect the content quality level.

  10. Agenda BERNARD CELLI - 17-05-2007 • The current presentation intends to describe the French merger control process thanks to the description of two case studies: • The TPS-Canal+ Merger in 2006-2007 ; • The acquisition by TF1 of a 33.5% stake in AB Group in 2007 On the Pay TV market On the Free to air TV market

  11. TF1 Acquisition of a 33.5% stake in AB Group THE PLAYERS BERNARD CELLI - 17-05-2007 TF1 • The French free to air TV leader AB Group • The biggest independent* French Broadcastinggroup. AB Group: • Owns a library of more than 1,300 French speaking programmes representing 37,000 hours of programmes (Friends, Navarro…). • Edits free to air channels: TMC (40% stake) et NT1 (100% stake) in France and AB 3 and AB 4 in Belgium. • Edits pay TV channels distributed on satellite, cable, DTT and ADSL, with among others RTL 9 (65% stake) and AB1. • Generated revenue of € 202 M and a net profit of € 46 M in 2005. *Independent: which is not controlled by another broadcasting group

  12. TF1 Acquisition of a 33.5% stake in AB Group MARKET CONDITIONS BERNARD CELLI - 17-05-2007 Viewers share(Nov-Dec 06) Advertising market sharesJanuary 2007 Source : Mediamétrie Source : TNS MediaIntelligence, traitement CSA

  13. The public authorities decisions BERNARD CELLI - 17-05-2007 Economy, Finance and Industry Ministry (DGCCRF) viewpoint • This is not a merger therefore the competition authorities do not have to be involved CSA Decision: no need to apply article 42-3 on the transfer of control of terrestrial licenses • The operation does not place AB Group under the economic dependence of TF1 Group • The CSA took under consideration that: • There is no change in the format of TMC, NT1 (DTT free to air channel) and AB1 (DTT pay channel) • The common advertising saleshouse between TMC and NT1 will not be extended to other AB Group channels. • The CSA will be very vigilant on the evolution of financial relations between TF1 and AB Group.

  14. CONCLUSION BERNARD CELLI - 17-05-2007 • Two structuring operations affecting the French audiovisual market. • The market impact is likely to be significant on the long run. • A way for the CSA to intervene in the future: the dispute resolution process : • Any TV channel or a distributor can go before the CSA to solve a dispute regarding TV distribution ; • It is the only way for the CSA to have an influence on the financial conditions of the contracts between TV channels and distributors.

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