Merger of Eastern Multimedia Co., Ltd. and Lien Ch'un, Hsin Taipei, Chin P'in Tao, and Hsin Chu Chen Tao Cable Television Systems
Case:
Merger of Eastern Multimedia Co., Ltd. and Lien Ch'un, Hsin Taipei, Chin P'in Tao, and Hsin Chu Chen Tao Cable Television Systems
Key Words:
disadvantage through restraint of competition, concession permit, fixed line network, circuit lease, programming providers, cable television
Reference:
Fair Trade Commission Decision of April 19, 2000 (the 441st Commissioners' Meeting)
Industry:
Television Industry (8520)
Relevant Laws:
Article 11(2) of the Fair Trade Law
Summary:
1. The application for enterprise merger by Eastern Multimedia Co., Ltd. (Eastern Multimedia) aimed at controlling, directly or indirectly, the operations and personnel recruitment of Lien Ch'un, Hsin Taipei, Chin P'in Tao, and Hsin Chu Chen Tao cable television stations was reviewed and rejected at the 441st commissioners' meeting held on 19 April 2000 pursuant to article 11(2) of the Fair Trade Law due to the fact that the merger would bring greater disadvantage through restraint of competition than the overall economic benefits it would provide. 2. Theoretically and empirically, market penetration will create economies of scale for cable programming providers. Also note that revenues from advertisements are the major sources of income for programming providers and that revenues from advertisements have a positive correlation with penetration. At the time of the application, Eastern Multimedia Co., Ltd. and its associated enterprises produced and distributed programming for a total of 14 cable television channels. Through Eastern Broadcast Co., Ltd., its affilated enterprise, Eastern Multimedia also worked to promote the sale of programming for five of ERA Communications' cable channels. Eastern Multimedia also invested in Mu Ch'iao Inc. through its associated enterprises. Mu Ch'iao also distributed 18 cable channels. Eastern Multimedia thus could affect the supply of programming for up to 37 cable channels -approximately 50 percent of the 75 cable television channels available to cable television systems. While the provided programming was neither exclusive in terms of type nor in an absolutely dominant position and thus irreplaceable in terms of viewership, the implementation of this merger nonetheless could exclude competitive programming from being broadcast by the combined enterprise through their likely refusal to deal with competitors, concerted action and unfavorable treatments against them, the competitive advantages of negotiating pricing collectively, or their power to scare off potential competitors. 3. The Commission's analysis found that the implementation of the combination would reduce risks, improve operations, stabilize supply and demand, and create the advantages of collective price negotiations and inter-industry consolidation. These benefits would give the combining cable systems a marked edge over other cable systems in the same franchise area that did not combine. Given the cable television industry's current structure, the competitive superiority of the combining cable systems and their power to scare off competitors would tend to concentrate the cable television industry to the detriment of the competitive mechanism. An examination of Eastern Multimedia's application, moreover, revealed that in order to allay doubts about the merger, the applicant had not offered concrete measures describing how it would independently limit its own possible restriction of competition or encourage the externalization of internal advantages. Cable television market penetration has reached more than 70 % in a majority of regions, and watching cable television programs is not only the population's major leisure activity, but also their primary source of information. The implementation of this merger would concentrate the upstream and downstream cable television markets and might, through forcing the disadvantages on consumers, injure consumer welfare. 4. The applicants argued that the combined enterprises could provide consolidated inter-industry cable television, telecommunications, and Internet services through their cable television broadcast networks and thereby encourage technical improvements in value-added (and high quality) services such as broadband network transmission, graded payments for services, two-way interaction services (among others), and indirectly contribute to the overall economic interest by stimulating the development of peripheral industries (such as cable modems, digital decoders, and broadband network infrastructure). It is this Commission's view, however, that cable broadcast television is but one vehicle for broadband. As communication technology develops, traditional fixed-line enterprises will also be able to provide broadband service. Note that cable television network is one of the many, but not the only, emphases of this country's plan for its information communications infrastructure development. The potential overall economic benefit of this merger may be reached through other means that conform to competition regulations. Moreover, the cable television systems in this case would still need to lease lines from broadband providers in order to operate as communications or information businesses. Thus the denial of this application will not necessarily affect the nation's information infrastructure and the enterprises may still invest in Internet infrastructure or offer cable television, telecommunications, or Internet services if they believe that their business so warrants. 5. After consultation with the competent authorities on the national and the local levels with regard to the possible creation of restricted or unfair competition in the event of this application's approval, the Commission found that these agencies also had concerns [regarding the possible effects of the merger]. 6. In view of the considerations outlined here, the Commission denied the application for merger under Article 11(2) of the Fair Trade Law due to the merger bringing greater disadvantages through restriction of competition than the overall economic benefits it would provide. Appendix: Eastern Multimedia Co., Ltd.'s Uniform Invoice Number: 89396814 Summarized by Liu Hsi-jung; Supervised by Hu Kuang-yu