Eastern Multimedia Co., Ltd. applied for approval of a plan to merge with 12 cable television providers (Yang Ming Shan Cable TV, King's Channel CATV, New Taipei Cable TV, Tah An Wen Shan Cable TV, United Cable Television, New Tang-Cheng CATV, Shin Chu Chen Tao Cable Television, Feng Meng Cable Television, New Channel Cable TV, Nan Tien Cable Television, Kuan Sheng Cable Television, and Ping Nan Cable Television).
Case:
Eastern Multimedia Co., Ltd. applied for approval of a plan to merge with 12 cable television providers (Yang Ming Shan Cable TV, King's Channel CATV, New Taipei Cable TV, Tah An Wen Shan Cable TV, United Cable Television, New Tang- Cheng CATV, Shin Chu Chen Tao Cable Television, Feng Meng Cable Television, New Channel Cable TV, Nan Tien Cable Television, Kuan Sheng Cable Television, and Ping Nan Cable Television).
Key Words:
cable television, competitive advantage, creative competition
Reference:
Fair Trade Commission Decision of November 22, 2001 (the 524th Commissioners' Meeting); Decision (90) Kung Chieh Tzu No. 998
Industry:
Television Broadcasting (8620)
Relevant Laws:
Summary:
1. Eastern Multimedia Co. Ltd. is primarily engaged in the business of purchasing and re-selling cable television programs. Eastern Multimedia intended to acquire more than one-third of the stock of Yang Ming Shan Cable TV and 11 other cable television firms, and to control either directly or indirectly the management and personnel decisions of these companies. Eastern Multimedia applied under Article 6(1)(ii), Article 6(1)(v), and Article 11(1)(iii) of the Fair Trade Law for approval of its plan to merge.2. Reasons for approval(1) Benefits to the overall economy(i) Strengthening the management of the acquired companies: The applicant in this case is much superior to the acquired companies in terms of capital, annual sales, and managerial expertise. Moreover, the cost of building and upgrading cable television networks is extremely high. The financial, technical, and managerial backing of Eastern Multimedia would significantly enhance the management of the acquired companies, and could thereb y directly or indirectly improve the quality of services provided by the acquired companies.(ii) Facilitating the upgrade of the cable television industry: Under the trend toward 4C convergence (i.e. between firms providing services related to communications, computers, cable TV, and content), cable television provides one of the best 4C convergence platforms thanks to the strong penetration of cable networks in Chinese Taipei. It is also among one of the most important targeted industries for the development of information infrastructure in Chinese Taipei. However, the cost of expanding and upgrading a cable network is so high that cable operators currently active in the Chinese Taipei market, given the level of their financial and technical resources, have to be extremely cautious about committing themselves to big investments. If the proposed merger were carried out and the applicant were able to help its acquired companies lay an extensive two-way HFC cable network, it would spur progress in the cable television industry. A single platform could be used to provide integrated cable television, communications, and Internet services. This would enable these companies to offer a diverse range of services (such as broadband network transmission, pay-tiered service, interactive two-way services, and other value-added services), and would also spur progress in related industries (such as manufacturing of cable modems and set-top boxes, and the building of cable networks).(iii) Reducing the risks associated with the renewal of program licensing: Under the Copyright Law, unauthorized broadcasting of programs is prohibited. The cable television market, furthermore, is locally oligopolized. As a result, during renewal negotiation for program licensing contract, unforeseen circumstances and changing market conditions can easily trigger disputes between program providers and cable system operators, and thus harm the interests of consumers. If the proposed merger is carried out, the firms acquired by Easte rn Multimedia would have access to a large, stable source of programs, which would reduce the transaction costs for both sides and stabilize the supply-and-demand relationship. This could lead to a reduction in the external costs in connection with the disputes emerged during contract renewal periods. (iv) Inducing the applicant to produce higher quality programs: If the proposed merger is carried out, the companies to be acquired by Eastern Multimedia would pledge to carry a certain amount of programs which would reduce the level of risk associated with investment in producing new programs. This would make the applicant more willing to develop higher quality programs, and would also result in a more diverse programming environment.(v) Providing comprehensive services to consumers: If this proposal is carried out, cable system operators would very likely find that the involvement of the applicant in their businesses has enabled them to upgrade both software and hardware, and to implement ne w management techniques. By achieving greater efficiency, these companies would be able to deliver better and more diversified entertainment, information, and communications services.(2) Restricting effect upon competition: In view of the applicant's strength in the market of program supply, and the market position of the acquired companies in the cable television system, there is room for concern about the potential for the program-supply market to become more concentrated after the merger. Induced by personal interest and acting through the acquired companies, the applicant could significantly lower the appearance frequency of its programs by means of refusal to deal, discriminatory treatments, leveraging the advantages from joint bargaining power, or acting collusively with other cable system operators to prevent other program providers from entering the system of the acquired companies. That will result in higher average costs and lower income for competing program providers, which in tur n would weaken their competitiveness and possibly force them out of the market altogether. To be sure, the merger does create the benefit of reducing transaction risks, improving management quality, stabilizing supply-and-demand relationship and realizing cross-industry integration for the acquired companies, and could also lower their costs of purchasing programs via the joint bargaining power attained through the merger. Still, the parties to the proposed merger would enjoy a clear competitive advantage over other cable systems operating in their same districts. Thus, in addition to the previously described tendency toward greater concentration in the program-supply market, it is quite possible that the competitive advantages enjoyed by the cable system operators participating in the proposed merger could make it difficult for cable system operators outside the proposed merger to compete in the market, or could discourage potential competitors from entering the market. Under the circumstances, we do not exclude the possibility that the proposed merger could lead to a higher degree of concentration in the market for cable television systems. If these concerns turn out to be a real problem, under the current structure of the cable television market, the adverse effects of the merger would be passed on to consumers, and harm their interests.(3) Overall assessment: Advances in science and technology are expected to provide alternative platforms besides cable television such as direct broadcast satellite (DBS), multi-channel microwave distribution systems (MMDS), and video on demand (VOD) for program broadcasting. In the long term, cable television is going to be only one among many different platforms for program broadcasting, a situation of which should decrease the likelihood that the proposed merger would lead to a higher degree of concentration in the market of cable system operation. Moreover, the applicant used to own 24.99% of the outstanding shares in Mu Chiao Chuan Bo, acquired thr ough three subsidiaries (Fei Chi, Jung Yang, and Chuang Feng), but has sold out the entire shares on 14 August 2001 to One Leader Communications (chairman: Wang Chih-lung), a company not involved in the proposed merger. This sale should mitigate the adverse impact of the proposed merger upon the market for program-supply. In addition, as compression technologies becoming more mature and set-top boxes more widely used, the number of channels that will be broadcast via cable networks is expected to increase dramatically. Accordingly, the likelihood that the proposed merger will trigger increased degree of concentration at the program-supply market will be sharply curtailed. Moreover, in view of the trend toward 4C convergence, the proposed merger could spur further progress in related technologies, encourage "creative competition," and prompt cable system operators, communications firms, and Internet firms to engage aggressively in cross-industry integration. Such a trend would further mitigate any tendency of the proposed merger to restrict competition. Also, the applicant and the companies it intended to acquire are all governed by the Radio and Television Law, the Satellite Radio and Television Law, and other related laws and regulations. Any disputes with consumers concerning price and/or quality would still have to be referred to the competent government authority for resolution, and the relevant regulations still make it possible for potential competitors to enter the market. If the applicant excludes other programs from entering into the market by establishing a cartel, refusing to deal, discriminatory treatments, leveraging its joint bargaining power, or abusing its dominant market position, or use its competitive advantage secured from the proposed merger to engage in restrictive or unfair competition, the Fair Trade Law would still be applicable. We have consulted with the Government Information Office and other government agencies, and have found that they generally believe that the proposed m erger could spur further building out of the cable television network, improve the network's performance, and reduce costs for the firms taken over by the applicant. Lowering costs for these firms could then lead to improvements in the quality of service to consumers. Accordingly, the proposed merger ought to spur healthy development of Chinese Taipei's cable television industry.3. The applicant, Eastern Multimedia Co., Ltd., plans to acquire control of more than one-third of the stock of Yang Ming Shan Cable TV and 11 other cable television firms, through either direct or indirect investments, which would enable the company to exercise either direct or indirect control over the management and personnel decisions of these companies. The proposal constitutes a merger as defined by Article 6(1)(ii) and Article 6(1)(v) of the Fair Trade Law. The overall economic benefits of the merger outweigh any restriction on competition that might result therefrom. In accordance with the provisions of Article 12 of the Fair Trade Law, the proposed merger was therefore approved.Appendix: Eastern Multimedia Co., Ltd.'s Uniform Invoice Number: 89396814Yang Ming Shan Cable TV's Uniform Invoice Number: 97168320King's Channel CATV's Uniform Invoice Number: 97161298Tah An Wen Shan Cable TV's Uniform Invoice Number: 97172470New Taipei Cable TV's Uniform Invoice Number: 97167238United Cable Television's Uniform Invoice Number: 96973620New Tang-Cheng CATV's Uniform Invoice Number: 97165153Shin Chu Chen Tao Cable Television's Uniform Invoice Number: 97162178Feng Meng Cable Television's Uniform Invoice Number: 97171107New Channel Cable TV's Uniform Invoice Number: 97176807Nan Tien Cable Television's Uniform Invoice Number: 89407740Kuan Sheng Cable Television's Uniform Invoice Number: 97168406Ping Nan Cable Television's Uniform Invoice Number: 16446470Summarized by Liou, Chen-Wei;< /p>Supervised by Lee, Wen-Hsiu