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Case No COMP/M.3542 - SONY PICTURES / WALT DISNEY / ODG / MOVIECO

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 10/11/2004

In electronic form on the EUR-Lex website under document number 32004M3542

Office for Official Publications of the European Communities L-2985 Luxembourg

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10-11-2004

SG-Greffe(2004) D/205183

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus [Ö]. Where possible the information omitted has been replaced by ranges of figures or a general description.

PUBLIC VERSION

To the notifying parties

Dear Sir/Madam,

Subject: Subject: Case No. COMP/M. 3542 ñ Sony Pictures/Disney/ODG/JV (MovieCo) Notification of 04/10/2004 pursuant to Article 4 of Council Regulation (EC) No. 139/2004

1.On 04/10/2004, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which the undertakings Columbia Pictures Corporation Limited ("Sony Pictures", United Kingdom), belonging to the Sony group ("Sony", Japan), The Walt Disney Company Limited ("Disney", United Kingdom, belonging to The Walt Disney Company group (USA)), and ON Demand Group ("ODG", United Kingdom) acquire within the meaning of Article 3(1)(b) of the Council Regulation joint control of the undertaking MovieCo, ("MovieCo", United Kingdom) by way of purchase of shares in a newly created company constituting a joint venture.

I. THE PARTIES

2.Columbia Pictures Corporation Limited is part of the global Sony group based in Japan with interests in electronics, entertainment and financial services, and is an affiliate company of Sony Pictures Entertainment Inc (ìSony Picturesî). Sony Pictures entertainment Inc. is engaged in the development, production, marketing, distribution and broadcasting of image-based software, including motion pictures, video,

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Commission europÈenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

television and new digital entertainment technologies, and operation of studio facilities.

3.The Walt Disney Company Limited is a wholly owned subsidiary of The Walt Disney Company. The Walt Disney Company is active in the sector of family entertainment, including motion pictures.

4.ON Demand Group Limited (ìODGî) is a UK based company active in the management of transactional television content. Its activities and services include negotiation with content providers; the development, launch and operation of pay-per-view and video-on-demand (ìVODî) services; the production and development of on-air promotions and advertising; image storing and distribution; performance forecasting and scheduling support and related consulting services.

II. THE TRANSACTION

5.MovieCo will be established as a joint venture company owned in equal shares by Disney, Sony Pictures and ODG, governed by a Shareholders Agreement and the Articles of Association of MovieCo. MovieCo will enter first into Agency Agreements with movie content providers and secondly into Carriage Agreements with ntl Group Limited and Telewest Communications Networks Limited. Finally, MovieCo will also be entering into an Outsourced Services Agreement with ODG for the purchase of certain management, operational, marketing and technical services.

6.The proposed joint venture has been structured to provide an open platform (the business model is called by the parties "the farmer's market model") based on non-discriminatory basis on which any movie content provider can make VOD individual motion pictures available direct to customers for viewing in their own homes at a retail fee set by the content provider within the UK and Ireland. The service will be offered within the two big UK cable networks (Telewest and ntl). The end customers will conclude contracts with the cable operators. The JV will thus be active on the wholesale level. The operation will however also have effects on the retail level.

The proposed JV should be considered to be a full-function joint venture and, therefore, to fall within the scope of Article 3 of the Merger Regulation.

IV. COMMUNITY DIMENSION

8.The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion . Each of the undertakings concerned have a Community-wide turnover in excess of EUR 250 million, but they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension.

2Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

9.MovieCo will be active in the provision of agency, technical and marketing services in the pay TV sector. Sony Pictures and Disney are currently active in the production and wholesale of motion pictures and the purchasing of carriage services, and, following the establishment of MovieCo, will be active in the retail licensing of motion pictures.

10.The relevant products markets identified previously by the Commission are: (i) DTH satellite, cable and terrestrial retail distribution of pay-TV and pay-per-view (ìPPVî) /NVOD services; (ii) DTH satellite, cable and terrestrial wholesale distribution of Pay-TV premium content channels and pay-per-view/near-video-on-demand (ìNVODî) film channels and (iii) markets for supply of premium film and sport rights and other audio-visual content for pay-TV programming.

11.In the present case, the concentration might have effects on the market for wholesale distribution of Pay-TV and PPV/NVOD film channels, where cable operators procure video content to be fed into their networks (presently mainly from BSkyB), but also on the retail level on the markets for video content. In vertical respect, also the markets for the supply of content may be affected. The exact market definition can be left open in this case, since the outcome of the competitive analysis would remain unchanged.

12.The geographic market definition can also be left open, since the result of the competitive analysis does not depend on the exact market definition.

Assessment

13.On the retail level, the parentsí goal in establishing the MovieCo JV is to provide the resources required to make VOD motion picture services widely available to UK and Irish consumers. Currently consumers wishing to watch motion pictures at home prior to their eventual release on free television can choose from; (i) buying or renting a DVD or video; (ii) subscribing to a pay television service ; and (iii) pay-per-view/NVOD. Therefore with the creation of this new service, MovieCo will enhance competition at the retail level and should, as a result, provide both additional choices and additional price competition for consumers.

14.At the wholesale level, the creation of the JV will give the purchasing side, i.e. the cable network operators, a new possibility to procure video content for its cable networks. Currently, cable companies have to procure the content from BSkyB, which has a very strong position in the Pay-TV market, or from one of the very few other premium film services, such as Film Four. By means of the joint venture, Disney, Sony and the other content providers will make their content available to MovieCo and the cable operators will be able to procure the content also via the joint venture. The joint venture will therefore give the cable operators an alternative for the procurement of premium film content, other than the procurement from the dominant operator BSkyB. The joint venture should thus also enhance competition on the market for the wholesale distribution of pay-TV and PPV/NVOD film services.

15.In vertical respect, also the markets for the supply of content might be concerned. Two of the parents, Sony Pictures and Disney are active on the upstream market for the supply of broadcasting rights for premium motion pictures for pay-per-view/NVOD and pay-TV where each of them has significant position. This can be illustrated by their shares in the total revenues from theatrical releases in the UK where Disney accounted for 26% and Sony Pictures for 10% in 2003 (in terms of number of film releases, their combined share was only 16%). It has to be noted that these shares do not represent market shares in the relevant markets for pay-TV and PPV/NVOD content.

16.However, also in vertical respect there is no risk of the transaction leading to a dominant position of the joint venture. First, the joint venture will only be a minor competitor in the market for wholesale distribution of pay-TV and PPD/NVOD film channels compared to BSkyB, which has a very strong position in the pay-TV market in the UK, including for the supply of premium movie services. It seems therefore very unlikely that the creation of the joint venture would lead to a foreclosure of other players in the pay-TV and PPV/NVOD market by the content providers Sony Pictures and Disney. Second, the rationale of the creation of the transaction is to give third party movie content providers access to a platform on a non-discriminatory and open basis in order to create an alternative way of reaching the cable operators to the established pay-TV operators. This purpose of the joint venture would exclude any foreclosure of other content providers from the outset. Third, it appears that the joint venture will only be successful in the competition with BSkyB and other established pay-TV providers if it can offer a whole range of content from different content providers and is not limited to content from Sony Pictures and Disney. It would therefore be in the interest of Sony Pictures and Disney to keep the platform open to all content providers. This makes it even more unlikely that Sony Pictures and Disney will engage in any foreclosure of other content providers by means of the joint venture.

Assessment under Art. 2(4) MR

17.Sony Pictures and Disney will remain competitors on the upstream market for the supply of broadcasting rights for premium motion pictures for pay-per-view/NVOD and pay-TV. However, there is no evidence nor does it seem to be economically reasonable to suggest that the creation of the joint venture will lead to a coordination of the competitive behaviour of Sony Pictures and Disney in the meaning of Article 2 (4) of the Merger Regulation in the upstream market.

18.Only a very limited part of the motion picture output of Sony Pictures and Disney will be distributed through the JV. It concerns only the UK and Ireland, only the distribution via the cable networks of ntl and Telewest, and only the Video on Demand segment of the market. Furthermore, the joint venture only forms an open platform for the distribution of film content. It is, therefore, reasonable to assume that the creation of the JV will not change the incentives of the content providers to compete against each other, including competition within MovieCo platform itself.

19.Given the above, the proposed transaction will not lead to coordination of Sony Picturesí and Disneyís competitive behaviour in the market for the supply of pay-TV and PPV/NVOD content in the meaning of Article 2 (4) of the Merger Regulation.

VI. CONCLUSION

20.For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EC) No 139/2004.

For the Commission (signed) Michaele SCHREYER Member of the Commission

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