The vital role of experts in media – and why first principles thinking is needed in competition cases
There is little doubt that the media, entertainment and sports sectors are about to go through a period of consolidation, which in many cases will need the approval of competition authorities in the UK, Europe and the USA. At the same time, there is renewed scrutiny of the global tech sector, especially in the areas where it intersects with traditional media, such as advertising, content access and prominence. It is very likely that the ability of competition authorities to deal with the complexities of the media and tech sectors will be tested several times over the next 18 months. In responding to this test, some first principles economic thinking will be needed and the best source of such thinking may well be sector experts who understand how these markets really work.
The media and tech sectors have always provided a challenge to those applying standard competition tests and interventions to mergers and potential anti-competitive behaviours. Both pose specific, and often inter-related, challenges to standard economic models with the frequent presence of:
two-sided markets (e.g. supplying programmes to audiences, supplying audiences to advertisers);
significant network effects (the more users a service has, the more valuable the service becomes to all users);
externalities (indirect benefits or costs to society or other consumers and providers);
high fixed costs and almost zero marginal costs (implying a degree of necessary market concentration where service bundling to cover fixed costs plus price discrimination may become the most efficient outcomes); and,
non-rivalrous consumption (one person’s consumption of a good or service does not deprive another person of that good or service).
In addition, cases in media, entertainment, sport and tech often raise thorny cultural and social issues requiring separate public interest and plurality criteria and these are often best dealt with by those with a more rounded view of the media sector, including media policy.
Given such circumstances, sector experts often need to take the lead in adapting standard economic models and sometimes even develop completely new but more relevant approaches from first principles.
The current hot trends in competition theory, introduced to deal with tech platforms, such as ecosystem impact tests for mergers, come as no surprise to specialists in media, sport and entertainment who have been using this approach for years even if they may not have given it this specific label.
No proper assessment of consolidation in national advertising-funded network TV markets can avoid the two-sided nature of the market. Any judgement on the appropriate intervention to take should be made by looking both at its effect on the competition for audiences through programming and market share in the TV advertising market - weighing up the net effect on consumers of both the likely changes in programming investment and advertising prices. It should also take into account longer term trends in the efficiency of marketing campaigns and TV’s role within that, compared to digital platforms.
Any intervention in the premium sports rights market to discourage one player from dominating the market needs to balance two different impacts. On one hand, the potential consumer benefits of enabling competing pay TV providers to win rights and develop rival businesses of scale that compete on price and quality, while on the other is the potential welfare loss to sports fans of having to pay for several different providers to see all their favourite matches within a given competition. The latter effect is significant if one sees individual televised matches not as substitute products but more as complementary components of a desirable all season, all matches offering for fans.
Similarly, any assessment of market power in the digital advertising market needs to be as focused on the privileged access to, and use of, consumer profiling and behavioural data as it is on the buying or selling of advertising. Much of the agonising that eventually led to the Furman review and the establishment of the Digital Markets Unit in the UK, was about general competition economists coming to terms with the inadequacy of their own models and assumptions, as they jarred with actual outcomes when predicting public policy outcomes.
Developments in sports themselves (not just the sale of their TV rights) also pose challenges to standard free market competition theory. Sports authorities often have to intervene to ensure there is adequate competition on the pitch – wage bill caps, new player picking order systems. They also need to co-ordinate calendar slots and encourage elite athlete development. These actions can reduce the freedom of an individual competition or team or player in a way that might count as collusion or coercion in other sectors. And, of course, it’s not just an economic activity, it also has huge cultural and social value, almost as important to modern societies as a plural news sector.
Over and above the non-standard economics and cultural/social factors that need to be accounted for, media, sports and entertainment sectors also involve global soft power and influencing strategies between the major centres of the USA, Europe, the Middle East, China, Russia and India – something that is likely to become more important as we move to a more multi-polar world. This in turn might lead to calls for more effective external scrutiny – economic and political - of global sports bodies and their activities.
As leading independent experts on the media, sports and entertainment sectors, O&O has played an important role in the last 30 years, helping to determine the outcomes of reviews of pay TV markets, premium sports markets, US and European film and TV studio mergers, news markets and specific media ownership rules.
O&O combines detailed industry insight with an ability to adapt standard economic models to better fit the sectors and even to develop totally new but more relevant approaches from first principles, which are compelling to the relevant authorities. Our broader policy-making expertise means that we can also take into account the cultural and social impacts and the broader political context.
O&O’s economists will be even busier in the very near future.