‘Monopolisation’ is misunderstood and freedom of contract infringed in sports rights broadcasting

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Martin van Staden | Head of Legal Policy | The Rule of Law Project (RLP)Free Market Foundation | mail me |


Proposed government interference in the pay TV market is a violation of the freedom of contract, which is not only critical in the commercial world, but a fundamental guarantee of individual and community autonomy from the dictates of third parties.

Once we cede the principle of contract freedom and allow government, an unrelated and uninvolved third party, to dictate the terms of interpersonal and interorganisational agreements, we are giving away a major portion of our liberty.

Nobody likes a monopoly. Eskom’s monopoly is the reason for high electricity prices and blackouts. But a lack of understanding of the true definition of a detrimental monopoly can lead to even more detrimental consequences. The South African and Nigerian governments’ clampdown on ‘exclusivity agreements’ in the pay TV market are examples of doing more harm than good by applying a misunderstanding of monopolisation, and, in the process, damaging successful private sector companies.

In January, the Nigerian government announced steps to end MultiChoice’s so-called ‘monopoly’ on the live broadcasting of notable sporting events. This was done by means of a ‘directive’ that prohibits exclusivity agreements between sports broadcasters and sporting bodies. The South African government is engaged in a similar process, albeit more democratic and orderly, and less dictatorial than its Nigerian counterpart.

Freedom of entry

There exists a fundamental false impression of monopoly power. The key test is that a market must be contestable – rival firms must be free to enter. If they chose not to do so, for a variety of reasons unrelated to contestability, then that market is not the victim of a detrimental monopoly.

For instance, if everyone in Upington prefers Coca-Cola over Pepsi and all the stores stock only Coca-Cola as a result, it cannot be said that Coca-Cola has a detrimental monopoly in Upington because Pepsi is free to enter if it can persuade consumers to choose its product.

Detrimental monopolisation, where markets are absolutely incontestable, is almost exclusively the result of government interference and the proposed regulations on sports broadcasting in South Africa are no exception.

In the case of MultiChoice, nobody’s rights or interests are being violated. MultiChoice is contracting with the sports bodies who own the rights to their own sporting engagements. It is like a marriage – a contract – whereby two parties freely agree to engage with one another to the exclusion of others.

There is no injustice here. The sports broadcasting market remains highly contestable as any other broadcasters are free to offer a better deal to the sporting bodies, or simply contract with other, more willing sporting bodies. We see this with OTT (over the top) internet players like Amazon Prime and Netflix. Far from being a monopoly, MultiChoice is facing serious competition.

Exclusivity

Furthermore, exclusivity agreements make economic sense. Precisely because the broadcasting market is highly accessible and contestable, broadcasters have to differentiate themselves from their competitors.

Coca-Cola and Pepsi compete on taste, some restaurants compete on location and prices, and broadcasters compete on programme content. Variety is an inherent result of competition, and the variety offered in TV entertainment today attests to the fact that competition flourishes in broadcasting. It is precisely because of the necessity for competition that exclusivity agreements are concluded.

The broadcaster that offers the sports bodies the best deal, wins the rights. It is important to recognise that the decision for this lies with the sports bodies, not pay TV providers or government. To construe the outcome of this process as a ‘monopoly’ is to misunderstand the concept, something widely done by government, regulator ICASA, and the public.

Negative consequences

If exclusivity agreements are prohibited, negative consequences will follow. The value of sports rights will diminish.

In South Africa, the bulk of sports bodies’ revenue comes from selling exclusive broadcasting rights at the highest prices. Sports bodies are incentivised to draw in as many bidders as they can to increase the value of these rights. This revenue pays for investment in players – local and in the highly competitive international market, grassroots development, and facilities. The moment local sports bodies are unable to compete with foreign ones on how much they pay sportspersons, our local sports heroes will leave the country.

If government interferes and bans exclusive deals, the core incentive for broadcasters to obtain the rights to sporting events will vanish. Their competitive differentiation in sports broadcasting will be gone and their focus will shift elsewhere, like movies and series, with limited sports broadcasting if any.

Free to air broadcasters will be unable to afford to show all the sporting types required under the new draft regulations, and the same is true for the inefficient and corrupt state-owned enterprise, the South African Broadcasting Corporation.

And these are only the foreseeable consequences: if the proposals are adopted, along with our freedom to contract in principle, the sports industry, and particularly sports entertainment, will be decimated.


 

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