Opening address 2010 competition law conference

The Analysis of the Full Court

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The Analysis of the Full Court

C7’s Business

  1. Seven on appeal, contended that the primary judge’s analysis of the alleged wholesale sports channel market was misconceived due to the mistaken characterisation of the context within which the inquiry arose. Seven contended that its business was that of supplying sports channels to pay television platforms including Optus, Austar and Foxtel and in order to do so it needed to acquire pay television broadcasting rights from the AFL or NRL. Seven’s complaint, on appeal, was that the respondents deprived C7 of access to those rights by anti competitive means and thus the fundamental question was “whether there was a market for the supply of wholesale pay television sports channels, being the relevant business carried on by Seven” which it alleged was harmed by the conduct. At [590], the Full Court noted Seven’s inconsistency of treatment in the formulation of the market as between a market for the “wholesale acquisition [of sports channels] and supply of sports channels” and a market for the “supply of wholesale pay television sports channels”. The Full Court thought the former description more closely reflected Seven’s case.

The Relevant Respondent’s Market

  1. The Full Court at [591] thought there was merit in the respondent’s criticism that it was erroneous to commence with an inquiry concerning the market in which C7 participated because s 45(3) provides that competition for the purposes of s 45(2) means competition in any market in which a corporation which is a party to the relevant contract, supplies or acquires or is likely to supply or acquire the relevant services. Section 45(2) prescribes conduct exhibiting the relevant purpose or effect or likely effect in such a market. Thus the primary focus of the inquiry is “identification of a market in which a relevant respondent or related entity supplies the product in question” [591].

Constraints and Substitutes

  1. Seven contended that the primary judge wrongly determined that because pay television platforms operated as constraints upon Foxtel and Fox Sports as suppliers of sports channels, the relevant market was the retail pay television market. Seven contended that in focusing upon constraints, the primary judge “confused principles associated with market power” (that is, constraints upon market power) with principles associated with the identification of the boundaries of a market by reference to substitution possibilities. However, isolating actual or potential constraints upon supply or acquisition is part of the process of evaluating the degree of market power in a postulated market which is integral to market definition or as the High Court said in Queensland Wire per Mason CJ and Wilson J at p 187, “part of the same process”.

  2. It is true that the primary judge accepted that the capacity of pay television platforms to integrate backwards and the ability of the leagues to integrate forwards constituted constraints upon Foxtel and Fox Sports as suppliers of sports channels. However, the Full Court concluded at [593] that the primary ground upon which Sackville J rejected the subsistence of a wholesale sports channel market in which both Fox Sports and C7 competed was that the respective products (an NRL sports channel and an AFL sports channel respectively) were not substitutes in demand or supply due to audience differentiation and loyalty to the individual codes. In other words, their products were not in the same market and even if the products were substitutes, they were not in the same functional market because pay TV platforms could integrate backwards and the leagues could migrate forwards.

C7’s Contention that Non Contestability is Counter Intuitive

  1. The Full Court at [593] identified its perception of the appellant’s real point which seemed to go to the counter intuitive notion that a pay television supplier to the platforms offering an NRL sporting channel is not in competition with a pay television channel supplier offering the platforms an AFL sporting channel simply because the upstream codes reflect a downstream cohort of loyal followers committed to one form of football as opposed to another with minor overlaps in code support. The real question required by the statutory integers was whether a pay television platform in the business of seeking to secure subscribers through access to a sports channel would regard a sports channel offered by C7 as a substitute for a sports channel offered by Fox Sports.

A Cohort of Subscribers

  1. Although the product is a channel offering one of the marquee sports in Australia, what each channel offers, as a matter of real principle, is a premium cohort of commercial subscribers who will pay tier fees above the base package for access to one or other of the marquee sports. In one sense, an AFL channel represents a certain body of subscribers, a body of fee revenue capable of prediction or estimation and a certain return based upon the financial operating model of the platform provider. An NRL channel represents precisely the same thing although one may be more or less profitable than the other having regard to the financial structure and operating costs of the platform provider.

  2. The substitution question might come down to a question of whether a platform provider might be induced to switch to taking up an opportunity to attract one cohort of premium sports subscribers to AFL rather than the NRL cohort should Fox Sports impose a non transitory price increase at a particular level, charge more and give less, or alter the quality and characteristics of the service, assuming, of course, that switching is structurally possible having regard to churn, contractual arrangements and other factors.

  3. Although Seven pleaded that the wholesale suppliers of sports channels were C7, Fox Sports, the Fox Footy Channel, ESPN, TAB (Sky Racing) and Sports Vision, and the pay television platforms were Foxtel, Optus and Austar, the field of wholesale suppliers was narrower than that in the sense that on appeal, the case was conducted on the footing that a sports channel provider offering either of the two marquee sports was not relevantly in competition with a provider which did not offer either of them.

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