differentiate content in multiple ways will be increasingly heightened with information and communication technologies, to which content can be personalized, catering to the interests, needs and requests by specific audience groups. Picard (2010) also identified two forms of differentiation in television industries: product differentiation and audience differentiation.
Table 2.2. Product and audience differentiation in television industries
Product Differentiation Audience Differentiation Television Industries strategic choices may shift from differentiation to lowering costs and prices (cost leadership) to compete for the largest and most desirable audience and consumer groups. The table below summarizes the type of strategies applicable.
Table 2.3. Applicable strategies in industries
Types of strategies Corporate strategies Business strategies Vertical Integration
(Source: Porter, 1980a; Barney & Hesterly, 2006; Picard, 2010)
2.3. Issue of exclusive content
In the United States and Europe, the issue of exclusive content had been identified as a concern in many studies since the 1970s. For example, Besen (1974) stated that while other local stations in a state in the US could not obtain the same content which a particular local television station had signed exclusive rights, the presence of cable companies could reduce the value of
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that exclusive agreement by providing the same content from a distant television station (from another state). Besen (1974) also discussed the consensus agreement dictated by the FCC to regulate the type of content cable companies could import. In particular for the top 50 markets in the United States, the agreement stated that local television stations could prevent the importation of content into their markets during a 12 month pre-sale period when the content is first sold in the country. For markets in the country ranked 50th to 100th, there would be no preclearance protection for local broadcasters and exclusive agreements would be limited to one or two years, depending on the genre and type of content. However, Besen (1974) also argued that the consensus agreement was not designed to promote viewer satisfaction but rather to protect the economic interests of the major broadcasters.
In more recent years, the focus in the issue of exclusive content had shifted from protecting local broadcasters’ interests and protecting local programming to the problems of pricing, antitrust and competition. Bladwin, Ono and Shrikhande (1991) stated the potential for competition in the cable television industry depended on the ‘resolution of the issue of cable program exclusivity’ and that the trend of exclusive programming was creating significant barriers of entry for new competing services and threatening a market foreclosure. The authors stated that the FCC had began to consider that the cable television industry was a monopoly and was considering two solutions: returning to rate regulation or encouraging direct competition for subscribers. The latter was preferred, where de facto exclusive (a.k.a. non-exclusive) agreements would be granted instead. It was theorized that the use of non-exclusive contracts would encourage competition that would eventually help control prices and assure quality service (Bladwin, Ono and Shrikhande, 1991). However, established cable networks such as HBO, MTV and CNN argued that not only the antitrust laws permitted program exclusivity; the copyright
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law encouraged it and the First Amendment of the US stated that ‘interference with program arrangements’ was to be prevented. Furthermore, it was also argued that the lack of exclusivity did not provide incentives to produce original programming and therefore reduced diversity in the industry. Bladwin, Ono and Shrikhande (1991) however concluded that competition based on price and service was ‘of marginal benefit’ to the consumer while product differentiation would still be the ‘major consequence of competition’ to be felt by the consumer, to which product differentiation of any significance would only occur if program exclusivity is permitted. Bladwin, Ono and Shrikhande (1991) also acknowledged that counter-benefits would occur if program exclusivity was to be permitted, such as consumers facing greater costs if they wished to have a full programming service.
In developing solutions for regulators to promote ‘diversity of programming content and prevent monopoly abuse’, Doyle (1998) recommended that regulators could ‘instruct’ operators on the nature of material to be broadcasted through the terms inserted into the operators’ licenses, or impose taxes on the relevant content so that operators could ‘retain discretion over programme choice’. Doyle (1998) also concluded that measures may be established to regulate subscription fees for the exclusive broadcasting of sports events.
Armstrong (1999) identified exclusive content as a bottleneck area in the subscription television in the UK, where there is high profitability in exclusive content for existing operators but at the same time causing entry difficulties for new players. In particular, he observed that in the case of pay-TV operator BSkyB, premium programming was the major driver of subscriptions. Also, despite acknowledging that such trend of exclusive content allowed major television operators to ‘consolidate their positions’, Armstrong (1999) questioned whether such strategy was the most profitable strategy as more profit could be made from when the content
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was offered to all subscribers through all operators at the same charges rather than simply offering to a subset of the subscribers.
Harbord and Ottaviani (2001) also identified that access to premium programming was widely viewed as crucial for attracting customers. Citing the example of BSkyB in the UK, the authors observed that BSkyB being the first entrant in the UK market, acquired exclusive broadcasting rights to practically all of the Hollywood studios’ first-run films and most of the major sports events available to subscription television. Apart from selling the content directly to its subscribers, BSkyB also sold the content to its competitors in exchange for per-subscriber monthly payments. Such reselling for per-subscriber fees increased social welfare as premium programming became available to all consumers. Harbord and Ottaviani (2001) also explored other remedies to increase consumer welfare through regulating the methods which content rights were sold and resold. Such remedies included direct regulation of resale prices; forced divestiture of premium programming rights (requirement for company with the exclusive rights to give up a fraction of the content to rivals for a fixed payment) or forced ‘rights splitting’ (e.g.
pay-per-view rights and non pay-per-view rights); forced rights sharing or reselling for lump-sum fees; and non-exclusive rights selling for lump-lump-sum fees. After analyzing the proposed remedies, Harbord and Ottaviani (2001) stated that forced rights-selling for lump-sum fees and non-exclusive sale of rights would benefit consumers to a greater extent.
Schaub (2002) also observed that premium content had proven to be a powerful driver for the roll-out of new technologies and the development of new markets. Speaking from experience, he observed that first-run (Hollywood) feature films and sports were the most efficient type of content that was able to persuade viewers to pay for new TV services which had been established at significant costs. In other parts of Europe, Nicita and Ramello (2005) also examined the
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exploitation of exclusive rights over premium programming and their effects on the competition in Europe’s pay-TV industry. Costs of acquiring exclusive content rights were about 70 to 80%
of the total costs incurred by a pay-TV operator, invoking concerns that quasi-monopolistic markets would appear in countries such as Germany, Italy and Spain due to the various mergers announced in national pay-TV markets that might have occurred in view of the rising costs.
Nicita and Ramello (2005) concluded that it was possible to have downstream competition with content sharing and also commented that pay-TV operators’ competitive advantages should not rely only on exclusive content, but also on quality of services, technological innovations, pricing and packaging strategies and etc.
The issue of exclusive content provision had also become a focus for Weeds (2008), who also cited cases between cable and satellite operators in the UK, Italy and Scandinavia where there were cases of collective selling of television rights of Football Association Premier League (FAPL) soccer matches, the wholesale supply of premium channels by satellite television broadcaster BSkyB, as well as competition between Italian satellite broadcasters Telepiu and Stream and Scandinavian satellite broadcasters Canal Digital and Viasat in using exclusive content as competitive strategies. Weeds (2008) also stated that as building market share was often critical for platform operators at times of rapid adoption, premium programming (or exclusive content) played an important role in the process as competition based on pricing was insufficient in achieving such goal. Stennek (2007) also commented that the acquisition of such exclusive content allows the distributing owner of the content (or the platform) to gain ‘initial advantages’ over its rivals, leading to tougher bidding competition and higher prices for the television rights. Such phenomenon was known as the bargaining effect. However, such notion
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of exclusive content also implied that consumers on other platforms were ‘prevented’ from watching them and consumers who could watch often had to pay higher prices (Stennek, 2007).
Apart from the debates that exclusive content rights were anti-competitive, paid no attention to consumer welfare and indirectly caused consumers to pay higher subscription fees, premium programme producers defended the need for content exclusivity by stating that a lack of exclusivity did not provide incentive to produce original programming and would reduced diversity in the industry (Bladwin, Ono & Shrikhande, 1991). Citing cases where cable television and satellite television operators compete against one another by offering exclusive content to consumers in countries such as Sweden and United States, Stennek (2007) also stated that the incentives for exclusive rights were capable of motivating content producers to create high-quality content.
Exclusivity in television programming (or premium programming) had been identified in the earlier paragraphs as an important strategy in television content provision where operators viewed exclusive content as a key to attract viewers and consolidate their market positions (Armstrong, 1999; Stennek, 2007; Weeds, 2008). Such valuable content consisted of live coverage of popular sports events, first-release Hollywood movies and even television channels of high quality which were ‘highly attractive to viewers’, had ‘few substitutes’ and were
‘difficult to replicate’ (Armstrong, 1999; Stennek, 2007; Weeds, 2008). However, the most recognizable type of exclusive content was the broadcasting of sports events, which formed the focus of discussion and analysis for many studies. For example, Ross (1990) observed a trend in sports clubs and leagues switching broadcasting platforms for the telecasts of their matches and games on television. One case cited was the National Football League shifting from ABC (over-the-air) to ESPN (cable network), causing subscribers to pay monthly fees to be able to view the
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matches. Several approaches were used to examine whether such events violated antitrust laws, such as the Sherman Act, the Sports Broadcasting Act of 1961 and applying the Rule of Reason.
About a decade later, Cave and Crandall (2001) also stated that the increasing popularity of televised sports events were having significant effects on the broadcasting sectors in many countries. For example, the Sports Broadcasting Act passed by the Congress in the United States in 1961 led to a dramatic increase in the value of national network television sports rights for various sports such as football, basketball and baseball. Cave and Crandall (2001) also observed that the preferences for soccer among consumers in Europe allowed rights holders (the leagues and clubs) to exploit a dominant or monopolistic position in the rights market and leveraged on that market (for high prices) through collective selling of the broadcasting rights.
While pointing out that sports performed important social, integrating and cultural functions, Schaub (2002) acknowledged the increase of salaries and transfer fees of professional sportsmen and the rise in the value of TV rights due to its important role in the development of TV markets. In particular, Schaub (2002) observed that broadcasters paid 434 million Euro for the TV rights of the English Premier League for five seasons in 1992 but paid a hefty sum of 2.6 billion Euro for three seasons in 2000. The trend of such sports events as premium content consequently become subjects of highly competitive bidding wars between TV operators and resulted in ‘unprecedented price increases to the benefit of sports federations and clubs’. The availability of the sports rights was further reduced by the fact that more of these rights were concluded on an exclusive basis for a long duration or covering large number of events, which only major operators could afford to bid for all the rights in the large package, thus strengthening the market position of these major operators and the likelihood in leading to a market foreclosure.
However, Schaub (2002) also commented that contracts of a longer duration might be justified
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when a new operator wished to enter into the market or develop a new technology which required heavy investments.
Hammervold and Solberg (2006) cited several companies leveraging on attractive sports content as an important strategy behind their market expansion, such as BSkyB in the UK, Canal Plus (Europe), Foxtel (Australia) and DirecTV (North and South America). Similar to Scheub (2002), the increases in prices for sports rights were due to the fierce competition among TV companies and platform operators and the tendency for them to prioritize the same sports. For example, a massive rise in the fees was observed when BSkyB acquired the broadcasting rights for the English Premier League in 1992 for 304 million British Pound while ITV only paid one-fifth of the amount in 1988. However, Hammervold and Solberg (2006) commented that such bidding wars and increased prices for the broadcasting rights had caused many such acquisitions of sports content to become unprofitable for television broadcasters and operators.
The acquisition and carriage of exclusive content was also an important issue among subscription television industries in Asia. However, such issues were mostly discussed in newspaper reports and trade journals, rather than in academic literature. Examples cited included Hong Kong’s dominant player i-Cable losing exclusive rights for ESPN and Star Sports to Now Broadband TV in 2004. Now Broadband TV was an IPTV service operated by PCCW, the dominant fixed-line telecommunications company (Lau, 2004). Being the first subscription television operator in Hong Kong, i-Cable had strong exclusive content offerings ranging from in-house to international channels, to which the loss of ESPN would cause other operators (such as Now Broadband TV) to gain in subscriber numbers and market penetration. The wrestle for prominent sports content such as the EPL was also evident in Hong Kong’s subscription television industries. One instance was seen in 2004, where i-Cable and PCCW (Now Broadband
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TV) competed for exclusive broadcasting rights of the EPL, to which i-Cable eventually won the rights, having paid the higher amount for the content (Lau, 2004). As a response to PCCW’s win for ESPN and Star Sports, i-Cable revamped its soccer programming and introduced interactive features such as a specialized betting channel. Analysts also stated such competition between the various operators in Hong Kong would eventually ‘force down’ subscriber fees (Lau, 2004).
Guevarra and Lee (2008) also discussed the uprising of the IPTV service in Asia, citing examples of PCCW in Hong Kong, SingTel in Singapore, ChungHwa Telecom in Taiwan and KDDI Corp in Japan offering ‘full’ services such as live broadcast channels, instead of simply just offering video-on-demand services. In particular, Guevarra and Lee (2008) also commented that these telecom operators had to make costly moves such as securing premium content in order to attract more customers. Similarly, Neill (2009) expressed that take-up rate for IPTV services in the Asia region was considerably ‘dwarfed’ by their respective competitors and access to exclusive content was vital and a key for subscription growth, citing the example of Hong Kong where PCCW’s Now Broadband TV acquired exclusive broadcasting rights for the EPL games. Similarly in South Korea, Shin (2007) also commented that ‘compelling content packaging’ and ‘content partnerships’ played important roles for IPTV services to compete with other competitors. Media Partners Asia (2011) also conducted a review of the respective subscription television industries in Asia. In particular relevance to exclusive content, it was observed that Australian authorities implemented anti-siphoning rules to prevent subscription television operators from acquiring exclusive broadcasting rights to key sports content. There was also an apparent limitation of product differentiation in India’s subscription television industry as the authorities required that ‘all channels “must provide” content to all distribution platforms’ (Media Partners Asia, 2011). Exclusive broadcasting rights was also an issue in
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Vietnam, where a public outcry was observed over the EPL matches. To resolve the issue, using the Euro 2012 football tournament as an example, authorities required state broadcaster VTV to purchase the broadcasting rights and share them with other operators. There were also calls for
‘joint access to key broadcasting rights through a proposed new pay-TV association’ (Media Partners Asia, 2011).
Such trends were also observed in Singapore, where the aggressive bidding for sports content prompted the authority to implement measures hoping to shift the competition to other aspects and reduce acquisition costs for content. The issue of exclusive content in Singapore will be discussed in the later chapters.