Project Kangaroo 'will restrict competition'

The Competition Commission (CC) has reached the provisional conclusion (pdf) that the proposed video-on-demand (VOD) joint-venture between BBC Worldwide, ITV and Channel 4, known as UKVOD or Project Kangaroo, "will restrict competition in the supply of VOD services in the UK."

Peter Freeman, CC Chairman and Chairman of the inquiry group, said:

Video on Demand is a relatively new and rapidly expanding medium and UKVOD clearly has much to offer. However, we are concerned that a loss of rivalry between BBCW, ITV and C4C, who are normally regarded as close competitors, could restrict existing and future competition for VOD. Whatever benefits viewers would gain from this rivalry would clearly be lost.

Of course there are already several other well-established providers of various types of VOD services. However, the evidence that we have seen tells us that domestic content is key to being able to offer strong competition to UKVOD’s proposed service. The parties control most of that content, putting them in a powerful position in relation to competitors and viewers. We think that it would be difficult to obtain content from third parties to match UKVOD’s offer in scale or attractiveness.

In this situation, UKVOD would have the ability and incentive to impose unfavourable terms when licensing domestic content to rival VOD providers. At the extreme, UKVOD might withhold content from its rivals altogether. Any reduction in access to content would be likely to impact unfavourably on viewers.
We now seek comments on how to address the loss of competition and its adverse effects for viewers.

The Competition Commission has published a list of possible remedies (pdf) and invited feedback from interested parties.

Update (04.12.2008): In Broadcast, Emily Booth argues that, despite some negative headlines, the outlook for Project Kangaroo is, in fact, quite healthy.

Although the commission has ruled that the plans amount to a substantial lessening of competition and that remedies must be found before the service can be greenlit, the implication is that it will ultimately be given the go-ahead. The commission was at pains to point out this week that blocking Kangaroo would be a last resort. To date the commission has a track record of raising competition concerns which are subsequently sorted out.