[By Siddharth Sengupta & Ansruta Debnath]
The authors are students of National Law University Odisha.
Introduction
On February 28, Reliance Industries Limited (“RIL”) and The Walt Disney Company announced that they would be merging their Indian television and internet streaming businesses to create an organization with a valuation of more than $8.5 billion. The two former competitors, who were until recently engaged in a fierce legal dispute over Indian Premier League (“IPL”) rights, have decided to establish a joint venture (“JV”) in order to strengthen RIL’s position in the Indian Media and Entertainment industry and lessen Disney’s presence there, in the face of intense competition.
The plan of a slow, steady exit of Disney from India due to the steady decline it has faced over the last few years is one of the key reasons for this deal taking place. The loss of streaming rights over IPL matches to Reliance Jio followed by the loss of HBO content to Viacom18, which is also a Reliance subsidiary, did the most damage to its subscriber base. In February 2024, Hotstar in fact reported a decline of 39% in the number of subscribers from the previous fiscal year.
This article attempts to analyze the competition concerns in various relevant markets, that this JV between such close competitors may cause, by analyzing Indian and foreign precedents. The article, naturally, also compares these concerns raised through the authors’ analysis and the relevant markets identified to the CCI’s recent order granting conditional approval to the JV.
Abuse of Dominance in Cable TV and Broadcasting Market
The Indian Cable and Broadcasting Market has been valued at USD 13.61 billion in 2023 and is expected to grow by 7.85% through 2029. In this robust industry, Zee Entertainment Enterprises dominates the market followed closely by the Star Network, which is owned by Disney. Disney’s Star India and Viacom 18, which in itself is a lesser player, together have a 750 million plus viewership.
The CCI, in the Zee-Sony Merger approval order, found Disney to have around 35-40% market share (varying) across various types of wholesale supply of TV Channel markets while Viacom had a maximum of 15%. Thus, for some of these markets, like Hindi and Bengali General Entertainment Channels, the JV will have almost 50% market share. In general, the data presented indicates that the JV will hold almost 35-40% of the market with competition from Sony, Zee, Sun TV and other smaller entities, each with a market share of maximum 15% or less. The combined JV, broadcasting more than 120 channels across regional languages and English and Hindi is expected to be a massive entity capable of holding a dominant position in the market.
Thus, the JV will have the ability to abuse its position of dominance with its concentrated market share and hence, power. The market structure is also such that it is not easy for new entrants to establish themselves, thus, such a strong entity is highly likely to create entry barriers.
Oligopoly and Collective Dominance in the OTT Market
In 2023, the Indian OTT market achieved a valuation of US$ 3.7 Billion. The revenue of the market is dominated by players such as Amazon Prime Video, Netflix and Hotstar and the same is set to double from US$ 1.8 billion in 2022 to US$ 3.5 billion by 2027.
In this highly lucrative market, there are few key players. JioTV and Hotstar together hold a big portion of the market i.e., almost 43%. Although, Disney’s market share has reduced to an extent since 2022, it is primarily attributed to their loss of rights over HBO Max Original content and IPL broadcasting rights, both of which now reside with Reliance, whose subscriber base has increased exponentially since. In January 2024, nearly 243.5 million users — a 46.5% market share — visited three streaming platforms, Disney’s Hotstar and Reliance’s JioCinema and JioTV.
In the European Commission’s 10th Report on Competition Policy, it was stated that a dominant position would generally be said to exist once a market share to the order of 40% to 45% is reached. This position of dominance is reinforced by Reliance’s economic power and resources. Further, in online platforms, network effects play a big factor in increasing an entity’s power i.e., the value of a platform increases as more users join it. This creates entry barriers in the market, especially when deep discounts (extremely low pricing to pursue growth-over-profit) are offered to increase network effects, which in turn makes it unsustainable for new entities to enter or survive in the market.
Hence, Disney’s Hotstar and Reliance’s JioCinema, when combined, create doubts as to whether Amazon Prime, Netflix and Zee5 will be able to remain competitive enough against the JV. The OTT industry is slowly converting into an oligopoly, with the presence of a few strong market players who have the maximum consumer support. This situation might translate into collective dominance, as substantiated in Gencor v. Commission by the General Court of EU, but is something that the Indian competition statute does not prosecute. This was exhibited in Meru Travel Solutions Pvt. Ltd. v. M/s ANI Technologies Pvt. Ltd. where they found Uber to be enough of a competitor to Ola instead of finding Ola and Uber collectively dominant, or in Sanjeev Rao v. Andhra Pradesh Hire Purchase Association where no abuse of dominance was made out against the Respondent-Association and its 162 members.
Monopoly in the Specific Sports Broadcasting Market
The Indian sports industry is the largest in the world vis-a-vis consumers and revenue. The JV involves more than 120 channels and two OTT platforms, within which a big portion of the channels is devoted to sports, necessitating competition analysis in the sports broadcasting market of India. As it stands today, among OTTs, the JV will have exclusive streaming rights over the IPL, ICC Cricket, Wimbledon, Premier League and Pro Kabaddi, which will comprise 80 percent of the total market of sports.
The CCI has observed that cricket is non-substitutable to other forms of entertainment, especially in the context of India and even within cricket, IPL forms a separate industry. Such an observation is in line with international standards such as the slightly broader approach taken by the European Commission, which categorized UEFA Champions League to be part of the “market for the acquisition of television broadcasting rights for football events held regularly throughout the year”.
This makes the JV a dominant entity by a considerable margin in not only the market for sports, but also a monopolistic entity in cricket, specifically IPL broadcasting. The introduction of free IPL live streaming on Jio Cinema has contributed to the increasing market share of Reliance Industries which made Rs. 3,239 crore from advertisements during April-June 2023, a sharp increase as compared to the same quarter in 2022 as per its quarterly report.
Thus, through the JV, Reliance is expected to have complete control over advertisements in IPL. This control will translate into the merged entity having a very strong negotiating power and ability to setting prices unilaterally, and hence issue anti-competitive agreements.
Leveraging in the Telecommunications Market
In August 2023, Netflix inked a “first-of-its-kind” deal with Jio Platforms to bundle the streaming service with the carrier’s two pay-as-you-go plans to leverage Netflix’s position in the market. Such deals are fairly common now, making the two markets often reliant on each other in drawing consumers through network effects.
Reliance’s vast capital strength is very apparent and has been on display multiple times, especially in the context of the telecommunications industry. It provided extremely lucrative deals when Jio had just launched in the market. With the JV, Reliance with its majority holding will have a unique position to use its and Disney’s market share in the media and entertainment market to strengthen its position in the telecommunications market through leveraging which has been prohibited under the Competition Act, under Section 4(2)(e). Leveraging amounts to abuse of a dominant position as it leads to foreclosure in the second market, here, telecommunications, irrespective of whether an entity may be dominant in the same.
Notable Decisions in The European Union (“EU”)
The EU Commission in its judgments has dealt with several instances of competition concerns in M&A in the media industry. The decisions by the European Commission therefore naturally have a significant persuasive value in the JV.
In the acquisition of Scripps by Discovery (horizontal competitors), for instance, where the combined entity would have a 20-30% market share in the ‘Wholesale supply of TV channels Market of Poland’, the EU Commission imposed the condition that Discovery would be required to make “certain TV channels available to current and future TV distributors in Poland for a reasonable fee.” Similarly, in Liberty Global’s acquisition of Ziggo, both cable TV operators providing mainly fixed telecommunications services, the Commission approved the proposed acquisition on the condition of a series of commitments, including the divestment of certain TV channels, by Liberty Global in order to address competition concerns in the Dutch ‘premium Pay TV film channel’ market.
Most notably, the European Union Competition Commission’s decision in Disney’s acquisition of Fox Film and TV studios and TV business involved a condition to divest all the factual channels it owned in the EEA. Fox and Disney were direct competitors in the ‘Wholesale supply of TV channels’ market, and were also two of the largest players in the EU market.
Drawing parallels to the Jio-Disney JV is quite straightforward here, specifically in the Cable TV and Broadcasting market. The EU judgments mentioned above clearly indicate that the CCI must take note of the competition concerns in combinations in the TV Broadcasting market which has a relatively higher entry barrier. The CCI should therefore carefully consider the ‘divestment’ condition in approving such combinations, as it did while conditionally approving the Zee-Sony merger.
The CCI Approval
While the detailed order of the CCI approval of the JV is not out yet, it has been reported that the involved entities have proposed voluntary modifications under the Act. A major cause of concern for the CCI is said to be the sports broadcasting and advertising market, and it is expected that most of the voluntary commitments have been made there. Apart from the condition of voluntary modifications, the CCI has found no possible AAEC in any market, despite the resultant high market concentrations as shown above.
This order is thus in line with CCI’s growing short-sighted approach of approving mergers involving market leaders, such as the Air India-Vistara merger, which have a legitimate possibility of causing AAEC in the future but are deemed to not cause any immediate concerns. This approach fails to take into consideration the ground realities of the relevant markets and puts a lot of faith on voluntary commitments, ignoring the fact that these mergers have the potential of driving competitors out of the markets and creating entry barriers.
Conclusion
The JV displays a significant consolidation within the Indian media and entertainment industry, with far-reaching implications for market competition and consumer choice. The merger aims to address the challenges faced by both companies in the face of intense competition, particularly in the television broadcasting and OTT sectors.
By combining their resources and assets, including television channels and popular streaming platforms such as Disney’s Hotstar and Reliance’s JioCinema, the newly formed entity seeks to leverage synergies and strengthen its market position. However, the proposed JV raises several competition concerns, particularly in relation to potential abuse of dominance in the cable TV and broadcasting market, oligopoly and collective dominance in the OTT market, and possible monopoly in the sports broadcasting market, especially cricket and IPL, and advertising therein.
The vast economic power of Reliance gives it a unique position to abuse its position of dominance by anti-competitive agreements, predatory pricing, creation of entry barriers and leveraging. Further, the JV, with its big market share also comes in possession of large quantities of consumer data, which might be one of the most precious commodities in today’s business ecosystem.
In light of these concerns, it was imperative for the CCI to conduct a thorough assessment of the proposed JV, taking into account relevant market dynamics, competitive landscape, and potential consumer welfare implications. While in line with precedents from other jurisdictions, such as the European Union, the CCI has considered imposing conditions while approving the merger, its reluctant approach of imposing merely voluntary modifications puts unrealistic expectations on these voluntary commitments, ignoring ground realities and the fact that the JV has the potential of driving competitors out of the markets and creating entry barriers. To mitigate any adverse effects on competition and ensure a level playing field for all market participants, the CCI must at the very least ensure that the voluntary modifications address the competitive concerns in the longer run.