The European Commission has 'stopped the clock' on its investigation of Liberty Global's proposed takeover of Dutch cable operator Ziggo. It's awaiting additional information from Liberty Global before resuming the investigation, meaning a further delay to the original deadline of 17 October to take a decision. It's unclear what kind of information the EC is seeking, but Liberty Global's recent transactions in the content sector could be raising a new line of inquiry for the competition regulator.
Recent media reports suggest that Liberty has offered to sell the premium channel Film1 in order to gain approval for the deal, which would see its Dutch cable unit UPC merged with Ziggo. This would be a relatively small concession given the merged company's dominant position on the broadband and TV markets.
While this is still speculative, the EC could be looking at the consequences for the content market more broadly. Liberty Global has made acquisitions in the content market and recently outlined its strategy in an interview with the Wall Street Journal.
Content strategy
In May, Liberty agreed with Discovery to jointly acquire the British production company All3Media. In June, Liberty's Belgian subsidiary Telenet bought half of De Vijver Media, which owns two commercial channels and a production house in Belgium. In July, Liberty Global announced a deal to buy a 6.4 percent stake in ITV, the biggest commercial broadcaster in the UK. BSkyB acquired a stake a few years ago in ITV but was forced to dispose of it due to competition concerns given its strong position in the pay-TV access market.
As far as the Ziggo-UPC deal is concerned, the merger is reportedly facing opposition from the main Dutch commercial broadcasters, RTL and SBS. But this is reportedly not a deal-breaker. Whatever the case, combining content and access in one company is problematic in any market. In a recent interview with the WSJ, Liberty chairman John Malone and CEO Mike Fries said the company is interested in the growing number of content acquisition opportunities on the market. In terms of the company's overall acquisition strategy, they said the following:
- On the cable market, there are not many takeover candidates available. The company has no interest in Portugal, which is considered too small, while the fragmented Polish market still offers opportunities for consolidation.
- Liberty has no interest in the satellite sector. This suggests it may want to exit its DTH activities in east Europe, with M7 an obvious buyer.
- The company also has little interest in mobile, as the sector is too competitive.
- There are no talks underway with Vodafone, either in mobile or cable.
- The big internet companies (Google, Facebook, Netflix) are 'frenemies' - friends in the UK, where Virgin Media offers Netflix, and enemies in the Netherlands and Germany, where UPC competes with Netflix. The management sees this as normal in the media sector, where cooperation and competition go hand in hand.
- In terms of media and content, there are more attractive takeover opportunities, and Liberty is interested in this kind of vertical expansion. The ITV stake is valuable given the company's own TV productions. It's also looking at buying Formula 1 rights in cooperation with Discovery.
In the media market, Liberty distinguishes clearly between real-time events (eg live sports) and other forms of entertainment. Its interest is clearly on the former, while the latter is experiencing a rapid commoditisation, even if it does seem some value in unique content like the ITV productions. This suggests the company will have few concerns about disposing of Film1. The live sports events can be divided into two categories:
- Competitions: in the Netherlands, the most value is in the first-division football league Eredivisie and the Champions League.
- Tournaments: mainly the World Cup, Euro Cup, Tour de France, Wimbledon and skating.
Fox
Fox's recent expansion in the Netherlands is relevant as well:
- After it acquired the rights to the Eredivisie, the monthly and pay-per-view prices for the matches went up significantly. The cost of watching a single match doubled.
- Fox is clearly a candidate to acquire Film1 from Liberty. The channel can be expanded with its own Fox and Sky content. Sport1 would also make a nice addition to Fox's portfolio.
- BSkyB (39% owned by 21st Century Fox) sold the ITV stake to Liberty in part to help finance is acquisition of Sky Italia and Sky Deutschland from Fox. That deal was also expected to help Fox with its short-lived bid for Time Warner. While Fox has now withdrawn that offer, an acquisition of Time Warner would have also given it ownership of HBO. This may have contributed to the EC's concerns, given that HBO Netherlands is half owned by Ziggo.
Conclusion
Liberty Global's recent moves on the content market may have triggered further lines of inquiry at the EC. Vertical integration of a national cable operator (access) and premium content (especially football) can have a monopoly effect on the market. The company's dealings with Fox may also require some explanation. This all could lead the EC to ask for stricter remedies, such as required wholesale access to content at reasonable prices and non-discriminatory terms.
