Bundeskartellamt tolerates cooperation between arena and Premiere

The Bundeskartellamt will tolerate a cooperation between the pay TV providers arena and Premiere in the use of TV broadcasting rights for the German football league (Bundesliga) for a limited period of up to 30 June 2009.

According to the cooperation model presented by the companies concerned, arena will transfer the broadcasting rights it acquired at the end of 2005 for three seasons of the German Football League to Premiere for the remaining two seasons (under sub-licence); in return arena will receive a grant-back licence for marketing Premiere’s Bundesliga coverage via cable and Direct-to-Home (DTH) satellite.

In the cable TV area of North Rhine-Westphalia and Hesse, both Unitymedia and Premiere will market Bundesliga coverage in competition with one another via third-party transmission. Furthermore, each provider will market its own pay TV programmes. Cable customers in North Rhine-Westphalia and Hesse will thus receive independent pay TV offers from arena and Premiere, both for the Bundesliga and other programme packages. In the DTH satellite sector both satellite platforms will continue to exist. Both arena and Premiere will market Bundesliga coverage and their own programmes in competition with one another via DTH satellite.

In contrast to the cooperation originally envisaged, which provided little incentive for arena to enter into price and quality competition with Premiere, competition is now possible and likely to emerge under the rules that have been agreed upon.

In early 2007 arena and its investors had agreed to enter into an extensive cooperation with their competitor Premiere. This so-called “alpha agreement” would have resulted in a long-term market sharing arrangement: arena or its parent company, Unitymedia, would have exclusively marketed the Bundesliga in the cable TV areas of North Rhine-Westphalia (previously ish) and Hesse (previously iesy) whereas Premiere would have taken over distribution in the remaining cable TV areas. Furthermore, Premiere would have exclusively marketed Bundesliga coverage to nationwide DTH satellite customers. Apart from this market sharing scheme the “alpha agreement” included many other provisions which altogether would have eliminated price and quality competition.

Immediately after it had become aware of the agreement, the Bundeskartellamt threatened the companies with a prohibition of this hard core cartel. In bilateral discussions the companies went on to look for a solution that would be in compliance with competition law. They then submitted the result of their lengthy negotiations to the Bundeskartellamt for examination.

Sublicensing to a competitor an exclusive right which is important for the pay TV market, such as the broadcasting rights for the football Bundesliga, can in principle constitute a restraint of competition. However, it cannot be ruled out that, without the cooperation, arena might not have been able to continue marketing the Bundesliga rights alone, due to the losses incurred. Under the current circumstances (the new season starts on 10 August 2007), a prohibition of the cooperation would be very likely to result in the licence being handed back to the German Football League (Deutsche Fußball Liga, DFL). The only candidate for taking over the licence for the remaining period at short notice is Premiere. The DFL has already stated that in such a case only Premiere would be considered as a possible acquirer of the rights.

Under these circumstances the Bundeskartellamt considers the cooperation, which is restricted to the current period, i.e. the 2007/08 and 2008/09 seasons, to be acceptable. The time limit and further provisions prevent a foreclosure of the market and keep open the possibility for competition in the forthcoming award of Bundesliga rights for the seasons starting from 2009/10.

As arena’s participation in Premiere (without voting rights for arena) will be reduced at the latest by the end of the 2008/09 season, there are no concerns under competition or merger law in this respect. The elimination of the interlocks ensures that the companies will operate independently in the market.

The President of the Bundeskartellamt, Dr Heitzer, stated: “Cooperation between the only two current competitors is not an ideal scenario. However, in view of arena’s strained financial situation it has to be assumed that the proposed agreements are most likely to maintain competition between arena and Premiere, at least for the remaining period of the Bundesliga licence. The prohibition of the market sharing arrangement under the “alpha agreement“ will allow the market participants to have greater scope for action in the future. Maintaining two satellite platforms leaves more scope for the potential market entry of further pay TV providers.”