MEDIA WARS: Why pay TV operators and online platforms often prefer exclusive content – and why consumers don’t necessarily lose out
New research explains why a pay TV operator like Sky or an online platform like Netflix may choose to supply its premium sports and movie programming exclusively to its own subscribers, despite the potential additional revenues from licensing the content to other platforms. The study by Dr Helen Weeds, which is forthcoming in the Economic Journal, explains that the incentives for exclusivity may dominate the incentives for extra licensing income in a number of common circumstances:
• When ‘dynamic’ effects are strong – such as during a war of attrition between platforms or as part of an entry strategy. Online distributors such as Netflix, for example, use exclusive content to enter a market and build up their subscriber base.
• When platforms are relatively undifferentiated – for example, in head-to-head competition between satellite operators. It is notable that prior to the merger of Italian satellite operators Stream and Telepiù, the two companies withheld their premium programming from each other’s satellite subscribers but permitted supply to customers using other distribution technologies, including to Stream’s cable customers.
• When content is particularly attractive to consumers – in other words, for ‘premium’ rather than ‘basic’ programming. Empirically, it is premium channels that are sometimes distributed exclusively, while basic channels are usually carried on many different platforms.
The research also finds that exclusivity is not necessarily harmful to consumers: when content is supplied widely, licence fee arrangements entail that it is effectively monopolised and the price paid by consumers is high. Exclusivity is more competitive in the sense that prices are lower, and dynamic benefits – such as investment – may benefit many consumers too.
Against this, some consumers cannot watch the premium content and others distort their choice of platform in order to access it. The complexity of weighing up these factors suggests the need for a case-by-case approach to policy-making in this area.
Media regulators and competition authorities in several countries have investigated concerns about ‘foreclosure’ – retaining exclusive use of an input – in the supply of premium pay TV programming, such as live coverage of popular sports matches and first-release Hollywood movies.
Rival platforms complain that they are unable to obtain the programming to supply to their subscribers, alleging anti-competitive behaviour, while regulators express concerns that consumers cannot watch the programming on their preferred platform. Such issues have been raised in pay TV investigations and merger proceedings in the UK, France, Italy, Spain, the United States, Canada and South Africa, among others.
Previous studies of foreclosure fail to explain this situation. The substantial body of research on product licensing concludes that as long as there is freedom to contract as desired, the owner of a valuable input (such as pay TV content) always chooses to license this efficiently, supplying other operators whenever this expands demand. But this does not account for the many observed instances in which wholesale supply would increase sales yet content is withheld.
Dr Weeds’ research fills this gap by considering content distribution alongside the scale economies and dynamic characteristics of pay TV and online platforms. Exclusive premium programming has ‘pulling power’, attracting subscribers to the owner’s platform at the expense of rivals.
This market share advantage is amplified by dynamic effects, generating higher profits in the future. Under some circumstances, this benefit outweighs additional revenues from wider distribution, tipping the balance towards exclusivity.
This research has had significant impact outside academia, notably in competition investigations in the pay TV sector and in the development of broadcasting policy. ‘TV Wars’ served as the framework for the Competition Commission’s (now the Competition and Markets Authority) assessment of competition issues in the Movies on Pay TV market review at a crucial turning point in the inquiry. The study has also been cited in other competition investigations in the pay TV sector.
Notes for editors: ‘TV Wars: Exclusive Content and Platform Competition in Pay TV’ by Helen Weeds is forthcoming in the Economic Journal.
Helen Weeds is at the University of Essex; she is also a member of the Centre for Competition and Regulatory Policy at City University London and a visiting lecturer at Imperial College Business School.
For further information: contact Romesh Vaitilingam on +44-7768-661095 (email: email@example.com; Twitter: @econromesh); or Helen Weeds via email: firstname.lastname@example.org; webpage: www.helenweeds.com