UK broadcasters' online shop referred to competition watchdog

The Office of Fair Trading has referred the plan, which is currently named Kangaroo, to the Competition Commission because it fears that its dominance of UK television could allow it to charge high prices.

"Concerns arise because the concentration of these important and competing libraries of UK TV programming may give market power to the joint venture, enabling it to charge higher prices in syndicating content to wholesale customers, and potentially raise DTR (download to rent) and DTO (download to own) prices paid by VOD (video on demand) consumers, or limit the range of ways in which viewers can watch the parties' content on demand," said the OFT.

It is thought that the referral will delay the launch of the service until 2009, and the OFT said that the deadline for the Competition Commission's investigation is 12 December.

"We're naturally disappointed by the decision from the OFT and are frustrated that it will delay the launch of Kangaroo. However, all parties remain committed to what the venture offers," a joint statement from the BBC's commercial arm, BBC Worldwide, ITV and Channel 4 said. "The OFT's decision shows that the assessment of the proposed joint venture involves some very complicated issues."

"The parties are confident that when properly subject to more detailed scrutiny by the Competition Commission, the Competition Commission will conclude that the joint venture will provide wider choice for consumers and be seen as a pro-competitive force in the market place," it said. "Our aspiration is that Kangaroo will offer a wealth of British content and provide an example of UK innovation and collaboration for the benefit of consumers and advertisers alike."

Kangaroo will bring together the channels' programming both for consumers and on a wholesale basis for companies or other broadcasters who want to use their material.

"The collective rights library will be the largest and richest source of UK TV content, not least because BBCW and ITV are each contributing the two single largest archives of popular British TV, and all three parties are combining their significant portfolios of rights to various recent independent UK TV shows," said the OFT.

Former BBC chairman and ITV's executive chairman has staunchly opposed the referral. "While I understand that the Office of Fair Trading is carrying out its statutory obligations, there is a serious problem with a regulatory framework that seems unable to take the most important interest into account – that of British viewers," he told The Guardian newspaper.

"As digital distribution gathers pace, we want to make our content available for free to online users in the most accessible way through Kangaroo. This venture has been delayed by a reference to the Competition Commission at the very same time that non-UK companies like Google and Apple are free to build market dominating positions online in the UK without so much as a regulatory murmur," he said.

Competition law expert Edward Anderson of Pinsent Masons, the law firm behind OUT-LAW.COM, said that the reference to the Competition Commission will not necessarily block the development of the venture.

"The reference is not necessarily fatal to the JV [joint venture]," said Anderson. "The reference means is that the OFT was not able to satisfy itself, on the basis of the information provided, that there would not be a realistic prospect of a significant lessening of competition as a result of the JV."

"One reason that a case is referred by the OFT to the Competition Commission is simply that the OFT does not have enough information to make a confident assessment of the competitive effects of the transaction," he said. "The press release from the OFT mentions that there was a 'lack of good evidence' as to the likely effects, suggesting that this might have been the case here. The OFT works to a tight time table and has no mandatory evidence gathering powers, so if in doubt, it must refer."

The OFT conceded that consumers would benefit from the ability to browse the huge library of content in one place, but said that it was concerned about alternatives to that system. It said alternatives could include the recording of the original live broadcast and DVD rentals of the material, but that it was not convinced that those were viable alternatives in a situation where Kangaroo raised prices for access to the material.

"While it is easy to speculate about what different UK viewers might do if the joint venture charged a higher price, there was a lack of good evidence available on these issues," the OFT said. "In this case a lack of evidence meant that the OFT could not make a robust judgment as to whether the joint venture's future pricing (and non-price offer) would, in fact, be constrained by competition from other sources."

"Video on demand is a new and fast-growing consumer sector, and we should judge the issues on evidence, rather than speculate about consumer behaviour," said Simon Pritchard, senior director of mergers at the OFT.

The OFT said that the broadcasters offered to make changes to the system, but that they did not go far enough.

"JVs are often approved subject to the parties agreeing to certain structural or behavioural conditions that would mitigate any anti-competitive effects. One condition here might be that the BBC, ITV and Channel 4 agree to maintain their own, non-integrated, 'video on demand' services," said Anderson. "Though it is debatable how much of a competitive constraint these separate services would place on the integrated offering, especially if prices charged were the same."