Kangaroo would restrict competition

The UK Competition Commission has concluded in its initial findings that Project Kangaroo, the proposed joint venture from the BBC, ITV and Channel 4, would restrict competition in the UK on-demand market.

The commission said in a summary of its provisional report today that Kangaroo, or UKVOD as the venture’s referred to, would likely result in “a substantial lessening of competition” in the supply of video-on-demand content in the UK at both wholesale and retail levels.

The decision is a further blow to joint-venture partners BBC Worldwide (BBCWW), ITV and Channel 4, whose attempts to get the service off the ground have been frustrated by the commission’s ongoing investigation.

“We are concerned that a loss of rivalry between BBCWW, ITV and C4, who are normally regarded as close competitors, could restrict existing and future competition for VoD. Whatever benefits viewers would gain from this rivalry would clearly be lost,” said Competition Commission chairman Peter Freeman.

“The evidence that we have seen tells us that domestic content is key to being able to offer strong competition to UKVOD’s proposed service. The parties control most of that content, putting them in a powerful position in relation to competitors and viewers. We think that it would be difficult to obtain content from third parties to match UKVOD’s offer in scale or attractiveness.

“In this situation, UKVOD would have the ability and incentive to impose unfavourable terms when licensing domestic content to rival VOD providers. At the extreme, UKVOD might withhold content from its rivals altogether. Any reduction in access to content would be likely to impact unfavourably on viewers.”

A more favourable view from the commission today would have allowed the Kangaroo consortium to focus on honing the business model, design and other non-regulatory matters in the run up to the commission’s final report on February 8. But the parties will now have to return to the negotiating table to discuss a number of potential ‘remedies.’

These include putting in place controls over the way Kangaroo offers content to other providers and “material modifications” to the terms of the joint venture, potentially limiting the scope of its activities or the terms of exclusivity between the partners and their parent companies, the commission said.

Kangaroo could be restricted in the way it shares catch-up programming from ITV.com and Channel4.com, for example, as is the plan with the BBC iPlayer. Other options include handing all VoD rights back to independent producers at the end of the catch-up window, rather than having them reside with the broadcasters.

Of greatest concern of all for Kangaroo, the summary said that in the event that such remedies could not be agreed upon “prohibition would also be an option,” meaning that Kangaroo would not be given the go ahead at all. The commission is now seeking further opinions from interested parties.

In a joint statement BBCWW, ITV and C4 concentrated on the only positives to come out of the commission’s provisional findings, i.e. that they are provisional and that the commission said Kangaroo “clearly has much to offer.” Indeed it said the venture wouldn’t substantially lessen competition for online advertising or content acquisition.

“We will continue to make the case for a service that will be both in vast majority free and non-exclusive, and of great benefit and value to British consumers,” said Kangaroo’s backers, adding that they looked forward to a dialogue with the commission over remedies curing the coming weeks.

“The shareholders remain committed to engaging with the commission and will continue to work towards launching the service next year,” they said. The full report into the Competition Commission’s provisional findings is due out soon.