Project Canvas clears first hurdle - a few more to go...

written by: Paul Johnson

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Published on Wednesday, 19 May 2010 20:20

Project Canvas falls outside UK merger control jurisdiction - OFT

The OFT has today concluded that Project Canvas, the proposed joint venture (JV) between the BBC, ITV, Channel 4, Five, BT, Talk Talk and Arqiva, does not qualify for investigation under the merger provisions of the Enterprise Act 2002.

Project Canvas involves a proposal to build an open internet-connected television platform with common technical standards. The BBC started the project, contributing existing research and development. The contributions of the other JV Partners will be primarily financial.

The OFT has decided that it does not have jurisdiction to review Project Canvas under the merger provisions of the Enterprise Act 2002, in particular because none of the JV partners (including the BBC) is contributing a pre-existing business ('enterprise') to the Canvas JV.

Unlike in the Project Kangaroo joint venture which was blocked by the Competition Commission in 2009, it is not proposed that the JV Partners will contribute any video-on-demand content or other business to Canvas, and Canvas will have no role in aggregating, marketing or directly retailing any such television content.

Sheldon Mills, OFT Director of Mergers said:

'In the context of a start-up joint venture such as Project Canvas, the merger control provisions are designed to capture arrangements leading to the transfer of a pre-existing business. Our investigation has confirmed that the JV partners, including the BBC, do not intend to transfer an existing business into the JV. Therefore, regardless of the potential significance of Project Canvas JV for the future of internet connected television, the notified proposals do not give rise to a merger qualifying for substantive investigation by the OFT.'

NOTES

1. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and either the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million or in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
2. The term 'enterprise' is defined in section 129 of the Act as the 'activities or part of the activities of a business.' 'Business' is defined to include 'any undertaking which is carried on for gain or reward.'
3. In addition to its conclusion that no 'enterprise' is being transferred, the OFT also found that none of the JV partners will have material influence over the Canvas JV. Material influence is the ability to materially influence the policy of the transferred business. It is the lowest level of control that may give rise to a relevant merger situation (section 26(3) Enterprise Act 2002). This is a further reason why the OFT does not have the legal power to review substantively Project Canvas under UK merger control laws.
4. Project Kangaroo was a proposed joint venture between BBC Worldwide Limited, Channel Four Television Corporation and ITV plc. It aimed primarily at aggregating, retailing and syndicating television content to establish a 'one-stop-shop' that would provide viewers with access to video-on-demand (VOD) content from all JV Partners. It was blocked by the Competition Commission on 4 February 2009. The Commission concluded that the aggregation of such important UK VOD content (from its parent companies) would be likely to lead to a loss of rivalry between the parties, amounting to a substantial lessening of competition in the supply of UK TV VOD content at the wholesale and retail levels. The final Competition Commission report is available at: www.competition-commission.org.uk/rep_pub/reports/2009/fulltext/543.pdf
5. This decision does not preclude the application of other provisions of Competition law and other relevant legislation.
6. The text of this decision will be placed in the mergers section of this web site as soon as is reasonably practicable.