Make it a fair game for all

This was published in TODAY on 17 April 2007. There was a response from StarHub on 23 April 2007. I would only say that:

1. Being the incumbent, they would say all that, wouldn't they?
2. Singapore is supposed at the bleeding edge of regulatory issues, so I would not put too much emphasis on the fact that no other jurisdiction has adopted such an approach to exclusive content agreements.
3. It would not be difficult to construct a mechanism whereby content owners receive part of the fees paid by sub-licensees to licensees, so that overall they still receive a fair price for their content.
4. If EPL's choice is between granting a non-exclusive licence for Singapore at $100 million (less than the reported $150 million paid by StarHub for an exclusive licence) and bypassing the Singapore market entirely at zero dollars, which do you think EPL will choose? I think by definition, all rational beings will choose the former. The only possible argument in response is that EPL may decide to forego Singapore entirely, to deter other regulators from following in Singapore's footsteps. I don't know if that is a realistic threat.
5. In any case, my main thrust is that MDA is trying to have its cake and eat it, by retaining exclusive content agreements while encouraging Pay-TV competition. I'm actually a little ambivalent on exclusivity per se, I just think it makes effective competition in the Singapore context really difficult.

Make it a fair game for all

Content exclusivity harms competition and hurts consumers

Tuesday • April 17, 2007

SIEW KUM HONG

THE Media Development Authority (MDA) recently announced its first triennial review of the media competition code. This is timely, given the significant changes in both the media and competition regulatory landscapes since the code was introduced in 2003.

SPH MediaWorks is no more. The MDA has implemented a licensing framework for Internet Protocol TV (IPTV) services. A new pay TV operator, M2B World, commenced operations last year, while SingTel will launch its IPTV service this year. Meanwhile, the Competition Act administered by the Competition Commission of Singapore has come into force.

In this light, the MDA's proposed changes are positive. They position the code for the upcoming battles in the pay TV market. More importantly, the MDA's regulatory approach will be updated, to become more flexible and more consistent with the approaches of the Competition Commission and of the Infocomm Development Authority (IDA) in regulating the telecommunications industry.

But there remain a couple of issues. Firstly, the MDA has proposed a new prohibition against "anti-competitive leveraging". This prevents a media service provider from relying upon a non-media affiliate's significant market power to unreasonably restrict media competition. This mirrors a similar provision in IDA's telecommunications competition code. But StarHub competes in both the media and telecommunications industries, and SingTel is a dominant licensee in telecommunications. Meanwhile, M1 has also announced plans for a pay TV service.

So, potential complainants may try to "forum shop" for a friendly regulator. Worse, a failed complainant before one regulator may try again before the other, hoping for a more sympathetic ear. The MDA and the IDA will therefore have to work closely, to avoid any anomalies in regulatory decisions.

A bigger issue concerns exclusive content agreements by pay TV operators. In 2003, the MDA sought the public's comments on whether such agreements were anti-competitive, since some content can be so essential that an operator can effectively foreclose competition by tying up such content exclusively. Possible critical genres identified by the MDA included English sports, English films and English education.

The MDA eventually concluded last year that "while certain content could be considered critical for the success of a pay TV service, exclusive carriage agreements per se do not substantially foreclose potential entrants' access to key content for the pay TV market in Singapore." In other words, the MDA thought that such exclusive arrangements did not, in and of themselves, preclude effective competition in the pay TV market.

At that time, the MDA was also conducting a tender exercise for a second pay TV licence, the incumbent being StarHub Cable Vision. There were no bidders. Observers then attributed the lack of interest to uncertainty over the MDA's position on exclusive agreements.

The MDA's decision has not deterred entrants, as can be seen by M2B World's service and SingTel's and M1's plans. But let's put that into context. M2B World is aiming for 10,000 subscribers in Singapore by 2007. With over a million resident households, that represents a penetration rate of below 1 per cent. If M2B World is viable, it is probably because it is also available in the United States, resulting in economies of scale not available to Singapore-only operators.

For SingTel, it was probably compelled to launch an IPTV service so that it can have a "triple play" offering of mobile, broadband and pay TV.

The same reasoning goes for M1. But it remains unclear whether their IPTV services will be viable, without the all-important rights to the English Premier League (EPL).

Last year, StarHub won a bidding war against SingTel and ESPN Star Sports for the Singapore rights for the next three EPL seasons. StarHub's bid was rumoured to exceed $150 million, or eight times what ESPN Star Sports paid for the preceding three seasons. The magnitude of the increase in fees suggests that StarHub may see EPL as critical to its pay TV service — which is exactly why such rights should not be exclusive.

The bidding war also worried many consumers, who fear that StarHub will charge more for EPL matches to recoup its outlay. And therein lies the danger of exclusive agreements. When it is an all-or-nothing proposition, operators will bid high to secure critical content — with the increased costs being passed on to consumers. It is not surprising that during the public consultation, channel owners were unanimous in supporting the status quo.

At the end of the day, competition for its own sake is pointless. Competition is good only if it benefits consumers, normally through greater variety or lower price.

But in the case of pay TV, even as the MDA seeks to update the code, it has not addressed the very big elephant of exclusive content agreements in the middle of the room. I hope the MDA is right, and SingTel's and M1's IPTV services can be truly competitive.

The writer is a corporate counsel and a Nominated Member of Parliament commenting in his personal capacity. He co-authored a submission to the MDA for the public consultation exercise in 2003.