[Random-bits] BEUC letter on AOL/Time Warner/EMI
James Love
love@cptech.org
Fri, 28 Jul 2000 09:21:07 -0400
This is the text of the BEUC letter (the footnotes
didn't make it in the export of this file, unfortunately).
Jamie
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BEUC
BEUC/236/2000
14/07/2000
The European Consumers' Organisation
Bureau Européen des Unions de Consommateurs
Avenue de Tervueren, 36/4
B - 1040 Bruxelles
Tel: (32 2) 743.15.90
Fax: (32 2) 740.28.02
For information:
Dominique Forest, Econcomic Advisor, dfo@beuc.org
Ursula Pachl, Legal Advisor, upa@beuc.org
America -On-Line/ Time Warner Merger and
Time -Warner / EMI Joint Ventures
Submission to the European Commission by BEUC
1) Introduction
This submission is made by BEUC, the European
Consumers' organisation. BEUC is the Brussels based
federation of independent national consumer
organisations from all the Member States of the EU
and from other European countries. Our job is to
try to influence, in the consumer interest, the
development of EU policy and to promote and defend
the interests of all European consumers.
The submission is made by way of an interested
party comment in accordance with Article 18 (1) of
Regulation 4069/89.
This submission follows BEUC's letter to
Commissioner Monti, dated 13 June 2000, concerning
the Commission's Prior notification of a
concentration (Case COMP/M.1845) between AOL and
Time Warner published in the Official Journal on
11th May.
BEUC has concerns to raise regarding the merger as
well as the joint ventures in relation to vertical
integration in general as well as concerns
regarding the fundamental right of European
citizens to access to information and the
fundamental right of European consumers and
citizens to privacy.
2) Concerns in relation to vertical integration
Vertical integration as such might not be regarded
as detrimental to competition conditions by
national or European watchdogs. In principle,
varying degrees of upstream or downstream vertical
integration does not confer per se a clear cost
advantage or disadvantage. It has to be assumed
that the choice of each firm with respect to its
own degree of vertical integration is a rational
one. Therefore, if vertical integration would
confer a definitive cost advantage, normally all
the firms in the market would tend to reach a
similar degree of vertical integration and
therefore competition should hold sway.
However, in the case of this specific deal between
AOL, Time Warner and EMI, consumers will be faced
with a key player able to significantly abuse its
dominant position as a result of the combination of
three factors:
High concentration in the content market
AOL/TW/EMI will account for a large portion of
sales in the online market
New entry into the content market is difficult.
Potential competition could be significantly
hindered, to the detriment of consumers' welfare.
I - The EMI-Time Warner deal
The joint venture between EMI and Time Warner
would reduce the club of the world's big five
music companies (Sony, Warner, BMG, Universal and
EMI) to a oligopoly of 4 firms that would control
80% of worldwide sales. It goes without saying
that music has to be considered globally as a
world-wide market exists for film soundtracks and
popular, classic and rock genres, whatever their
language (with English being increasingly
predominant, though). Indeed, international and
national pop is sold by the same retailers and
competes on the same market.
The restrictive EC legislation on copyright
(Directive on copyright in the information
society COM (97) 628), which will be in force
very soon (2001) - most probably will give a
blank check to content industry (rightholders) to
freely use copyright protection management
systems, which can be used to control every use
and every copy which is made, even for purely
private, non-commercial purposes. Given the very
high concentration of copyrights that would be
created by this merger in the music sector, the
use of copyright management systems to determine
if uses and what kind of uses for what protected
material will be possible and what has to be paid
for, the merger will create a monopoly-like
situation. This has to be seen in context with
the fact that probably the above mentioned
directive will allow that rightholders by
contractual terms contract out all exceptions to
copyright and therefore can create monopolies on
the use of protected material they own not only
through technological barriers but also through
license practices, also in the consumer mass
market.
The impact of the merger would be even larger if
one would consider more narrowly defined music
markets (publishing, talent development, online
delivery of music, individual categories of music
from back catalogues (oldies are separate from
rap)). For instance, the back catalogue has an
impact on the assessment of the market share of
the conglomerate. TW and EMI possess a large
catalogue of popular music from the 30's, 40's,
60's and 70's and they were market leaders before
the joint venture, meaning that they could charge
a higher price than other major competitors.
EMI and Time Warner would control over half of
the world's repertoire. TW/EMI will own a huge
number of copyrights to some of the most popular
musical works and it will control the licensing
market for use of such copyrights. AOL/TW/EMI
will be able to increase the fees for use of
their copyrights and exploit specific terms to
licenses (e.g. short terms). The entity might
also be able to adopt a predatory pricing scheme.
In the recorded music and music publishing
business, success might be highly dependent upon
whether consumers like the music or not. However,
marketing is more and more key to the success of
an artist not to mention the tailor-made
artist'. All this will make it more difficult for
smaller record companies to sign up for new
artists.
Time Warner/EMI could become dominant in the
digital delivery of music via the Internet with
the merger AOL-TW. Indeed, a highly significant
part of the emerging market for integrated
internet services would be the online delivery of
music, due to the importance of music to the
group of users most active on the internet, i.e.
teenagers and people in their twenties.
Furthermore, TW-EMI could foreclose the access to
the large catalogue of music that they control.
II - The AOL-Time Warner deal: data protection fear
In relation to data protection, European as well
as US consumer organisations fear that the merger
gives the companies more far-reaching and more
sophisticated ability to collect information
about consumer shopping and browsing habits and
to use the personal data of subscribers from a
merged database (see the attached Recommendation
of the TACD on this issue).
Although in the EU we benefit from a horizontal
legal framework to protect personal data, the
enforcement of data protection rules in the
digital world is difficult and the current legal
framework could prove not sufficient to deal with
the challenges of the new technologies. Moreover,
in the US the company has mixed records for
compliance with privacy laws. This merger, as
well as other mergers of multimedia companies
that might follow, threatens to undermine
consumers' privacy by giving much greater access
to personal information. Furthermore, this aspect
of the merger could well create a competitive
disadvantage to other companies, who will not be
able to compete against an entity which has
access to such an amount of personal data.
III - AOL Time Warner EMI
According to the information available,
AOL/TW/EMI would be involved in at least many
different markets : Internet Access and content
markets , such as financial news, TV programmes,
films, on-line music , and magazine, book and
music publishing;
Furthermore the market of music-software would be
affected, as regards copyright management systems
as well as access control management systems.
AOL has an interest in holding a dominant
position on the market for Internet access in the
United States (where it hold 40% of the market)
and in several Member States in order to make its
mark in the provision of pay content such as
films, television broadcasting, financial
information, etc.
AOL/TW/EMI could use its control of online
service to discriminate against competitors
seeking to deliver their wares to consumers via
the internet (gate keeper) in spite of the
AOL/TW's pledge to provide access to their
combined networks on a non-discriminatory basis.
In the new market for integrated Internet
services, will operate a 'walled garden' serving
to discriminate against third party unaffiliated
content and precluding access by third party
content suppliers to users of the AOL/TW/EMI
service. Similarly, consumers will be discouraged
from switching to other suppliers as a bundle'
of services covering most of their needs will be
offered to them by the new entity. Uncertainty
regarding quality of other suppliers and lack of
a good reputation will constitute acute switching
barriers, further amplified by proprietary
products such as e-mail address that leads
consumers to stay with the same ISPs.
AOL could leverage its strong position in America
and its proprietary content and services to
achieve dominance in Europe, in particular, in a
number of neighbouring Internet paid-for content
markets such as films, TVs and financial news.
AOL could also leverage its dominance in music
publishing to consolidate its dominance in the
new market for integrated internet services.
Vertical integration will allow AOL to have
preferential access to the leading source of
music and publishing rights and music repertoire
in most Member States, which could in turn allow
it to dictate the technical standards for
delivering music over the internet and monopolise
the music player software
Other integrated Internet service providers will
have to face very significant barriers to entry.
Indeed, owners of new technology or exclusive
programme content can hinder new service
operators either through imposition of unfair
terms or conditions, or through lack of
inter-operability of systems. Effective
competition is needed at all stages and gateways
to ensure there is full choice and open access on
fair terms to all networks and services. There
will be a foreclosure effect as a result of high
entry costs in terms of functionality, know how
and significant libraries of content. AOL/TW/EMI
will benefit from a first mover advantage that
few competitors will be able to emulate. In fact,
being initially the sole provider of such
integrated internet service under one roof',
AOL/TW/EMI will control 100% of the market, i.e.
it will be a monopolistic player and will remain
dominant even following new entrants into the
market.
Conclusions
In summary the vertical integration of Time Warner
- AOL - EMI could have the impact of creating a
monopolistic conglomerate that will work to the
detriment of European citizens and consumers,
negatively affecting consumers' choice, access to
content and protection of personal data.
The AOL/Time Warner/EMI case will clearly be a
precedent and other deals could be assessed along
its lines. Therefore, the Commission should take
into account the fact that other major deals are on
sight. The Canal +/Vivendi/Seagram merger which is
in the pipeline will lead to a conglomerate which
is only second to. AOL/Time Warner/EMI. The
consequences of these deals on consumers welfare
will be even more damaging if no account is taken
of the potential oligopolistic dominance (i.e.
parallel behaviour, price-fixing) such mega-mergers
could lead to.
Brussels, 13 July 2000
Dominique Forest
Ursula Pachl
Economic Advisor
Legal Advisor
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James Love, Director | http://www.cptech.org
Consumer Project on Technology | mailto:love@cptech.org
P.O. Box 19367 | voice: 1.202.387.8030
Washington, DC 20036 | fax: 1.202.234.5176
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