Mexico. The Plenary of the Federal Institute of Telecommunications, IFT, resolved, unanimously, to approve the concentration by which The Walt Disney Company (Disney) acquires assets of Twenty-First Century Fox, Inc. (Fox), subject to the fulfillment of conditions that prevent risks to competition, for the benefit of consumers, in accordance with the Federal Law of Economic Competition (LFCE).
As it is an international concentration, its effects were analyzed by the authorities in matters of economic competition in the different countries where these companies operate, including Mexico, the United States, Europe and Brazil. In these countries, competition authorities identified specific effects and risks in their markets and authorized the concentration subject to various conditions to avoid the problems identified. In Mexico, the operation was subject to the analysis and decision of the IFT, due to the effects it could have on the markets that belong to the telecommunications and broadcasting sectors.
In the telecommunications and broadcasting sectors in Mexico, Disney and Fox, through their subsidiaries, participate in various economic activities, including the provision and licensing of audiovisual content – for example, television channels and the programs that integrate them – to providers of Pay-TV, free-to-air TV, Internet distribution services (such as TV Everywhere and over the top or OTT services), sound broadcasting, provision of time and spaces for advertising on restricted channels and the acquisition of rights for the transmission of national and international sporting events, including football matches, among others.
Derived from an exhaustive analysis in 10 economic activities of the telecommunications and broadcasting sectors, this regulatory body concluded that this operation would generate risks to the process of competition and free competition in two relevant markets that correspond to the provision and licensing of channels restricted to pay-TV service providers in the programmatic categories: "factual" (which includes cultural programs, documentaries and realities) and "sports".
While the problems identified in these two markets are not sufficient to prevent concentration, it was considered necessary to impose various conditions to correct the identified risks:
1. Market for the provision and licensing of audiovisual content to restricted television and audio service providers (STAR) in the programmatic category "factual".
In this programmatic category, the accumulation of audiovisual content from Disney (A&E, History, H2 and Lifetime) and fox (National Geographic and Nat Geo Wild) would result in a combined share of more than 40% of the market, measured in terms of audience.
In this market, Discovery also participates, which has a similar share. However, as a result of the concentration, the number of competitors would be reduced from three to two and, in order to avoid risks of coordination between them, the Plenary decided to impose behavioural conditions, among which are:
- Maintain controls to prevent disney's relevant directors and officers in A&E Group from having access to information or participating in any way in decisions related to the marketing and distribution of this content, since Disney's "factual" channels are currently marketed by grupo A&E which is made up of a group of companies over which Disney may have influence.
- The obligation that the provision and licensing of the parties' "factual" channels (National Geographic and Nat Geo Wild) be kept separate from the "factual" channels currently marketed by Grupo A&E (A&E, History, H2 and Lifetime). This considers the channels for the STAR and also the services offered on the internet such as TV Everywhere and over the top or OTT.
- 2. Market for the provision and licensing of audiovisual content to television and audio service providers restricted in the programmatic category "sports".
In this category, significant risks to the competition were warned, since the concentration would result in the parties accumulating together about 80% of this market, measured in terms of audience, where Disney participates with the ESPN channels and Fox with the Fox Sports channels. Accordingly, it was noted that the concentration would result in an undertaking with the unilateral capacity to affect supply or prices for STAR's suppliers, without such effects being offset by other competitors.
Since the accumulation is considerable, it was found that behavioral measures would not be enough, so structural measures were chosen, as happened in other parts of the world. Therefore, the disincorporation or sale of the Fox Sports channels and all the assets of that business was ordered.
In this regard, the Plenary resolved to impose the following measures:
- The order to disincorporate all business related to the provision and licensing of Fox's sports channels (known commercially as Fox Sports), which includes all assets necessary to maintain it as a viable business independent of the parties (transmission rights, current contracts, real estate, movable, transmission rights, among others).
- The term to disincorporate this business is 6 months, extendable for an equal period only with justified causes. In case the sale to a third party is not achieved within this period, the business must be assigned to a trust with the irrevocable mandate to dispose of and / or liquidate the business.
- To carry out the disincorporation, the parties must appoint:
- -To an Independent Administrator, who from the closing date of the transaction must take over the administration of the business to be disincorporated separately and independently from the parties (Disney and the part it acquires from Fox).
-To a Disincorporation Agent, with the approval of the IFT, who will have the mandate to sell the business as immediately as possible.
-To an Independent Auditor, with the approval of the IFT, who will be in charge of supervising and reporting to the Institute on compliance with the structural conditions imposed on the parties, which includes the effective separation of the business, maintaining its independent operation, preserving its viability and competitiveness, and making sales efforts.
-The Institute will authorize the buyer and verify that the acquisition does not generate adverse effects on competition, in accordance with the Law.
To ensure that the offering of sports channels remains independent, Disney is prevented from providing and licensing its own (ESPN) jointly with those of Fox (Fox Sports) and from jointly acquiring or producing sports content.
Once the sale is completed, obligations are imposed on the parties to ensure the viability of the disincorporated business, such as not buying back all or part of the business in at least 10 years. Likewise, for at least 3 years from the sale of the Fox Sports channels, the parties may not recruit key personnel from the disincorporated business; may not increase the number of sports channels in their offer; they will not be able to offer content that in the last 3 years has been offered exclusively by the disincorporated business (Fox Sports) and must allow the buyer to use the "Fox" brand for sports content on Pay TV.
The IFT shall verify compliance with the conditions imposed and may request information from the parties at any time. In the event of any possible non-compliance, the Institute may initiate the sanctioning procedures provided for in the Federal Law on Economic Competition.
The parties must accept the conditions imposed by the IFT within 10 days, otherwise the concentration will be considered objected to.
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