- DotEcon – Economic Consulting - http://www.dotecon.com -

World Cup Woes in Singapore

How much did you say?

This June, football fans will get to enjoy the blockbuster entertainment that is the FIFA World Cup. Consumers in many countries including the UK, Germany, Norway, Australia, China, Japan, South Korea and India will be able to watch the tournament on free-to-air television. Viewers in countries where the TV rights have been won by pay-TV providers are less fortunate, having to pay to gain access. In Singapore for instance, pay-TV provider Singtel won the broadcast rights for the event.

Singtel charges a one-off fee of roughly USD89 for access to all 64 matches. Alternatively, viewers may subscribe or extend an existing subscription to Singtel’s football channels for 24 months at an annual cost of roughly USD565. The one-off fee in Singapore is more than twice that in Malaysia (USD30) and thrice that in Hong Kong (USD20) while the annual subscription cost of Singtel’s football channels is more than twice the average paid across the Middle East (USD255). At these exorbitant prices, perhaps unsurprisingly, only a meagre 7.5% said that they would sign up to watch the tournament in an online poll by goal.com.

This is not the first time that Singaporean viewers are faced with expensive football: in 2009, Singtel reportedly paid around S$400 million for the exclusive English Premier League (EPL) TV rights during the 2010-2013 period. That is roughly three times that paid by Starhub in the previous cycle (2007-2010) and at least 10% more than that paid in many other countries around the world with significantly larger populations. The price paid by subscribers to EPL content rose from USD20/month pre-2010 to USD27/month in 2011 to USD47/month in 2013. In 2013, Singtel outbid Starhub yet again for the next cycle of EPL rights (2013-2016).

Cross-carriage rules assist but do not score

The Media Development Authority of Singapore (MDA) introduced “cross-carriage rules” in 2010 to ensure that all pay-TV viewers in Singapore can get access to exclusive content independent of whether Starhub or Singtel held the rights for the content. Under these rules, customers on Starhub’s cable platform can subscribe to Singtel’s football channel on terms and conditions no worse than those offered by Singtel to its own subscribers.
football
Under the cross-carriage rules, Starhub will broadcast Singtel’s football channels on its cable TV platform, but it cannot repackage the EPL content in any way. Billing for subscriptions to Singtel’s football channels will also be done directly by Singtel to Starhub’s customers. Because the content is to be broadcast in its entirety cross carriage, the rights holder has a monopoly over this particular segment of the market. In the case of EPL and World Cup football content, Singtel has a monopoly over both. While the cross-carriage rules limit the ability of a rights holder to leverage control over premium content to drive customers to its platform, they do nothing to constrain the ability to set monopoly prices.

Time for the referee to blow his whistle

In many countries, the World Cup is televised on free-to-air TV because it is considered an event of national interest. In these countries, the broadcast of such events of national interest is considered to be in the public interest, and regulating access to such events is considered to be necessary to ensure that viewers will not be priced off by broadcasters aiming to maximise profits.

For instance, the European Court of Justice upheld a European General Court decision in 2011 to maintain the World Cup’s status as a “protected” event of national interest in the UK, thereby preventing pay-TV operators from acquiring exclusive TV rights. In Thailand, the National Broadcasting and Telecommunications Commission did not allow pay-TV provider RS Sports to charge subscribers for a new set-top box in order to watch the World Cup and ruled that the tournament should be televised on a free-to-air basis.

In Singapore only the semi-finals and final matches of the World Cup are included in MDA’s anti-siphoning list and are thus required to be broadcast free-to-air. However, even if World Cup viewing is not considered to be a matter of public interest, (e.g. because of its contribution to social welfare), the question is whether government might not have a duty to step in to avoid the exploitation of monopoly power. The fact that watching the World Cup in Singapore is significantly more expensive than in other countries might be considered as prima facie evidence that prices are excessive.

As the cross-carriage rules are ineffective in constraining prices, other forms of regulation may be required to address the market failure. One option is to regulate at the source, preventing any operator from obtaining exclusive rights to the entire event. This would ensure that the event is televised by at least two operators, with cross carriage rules allowing consumers to view all matches. Competition will only put a pressure on prices if viewers would consider the packages offered by the individual broadcasters as substitutes. However, if matches are complementary, then each broadcaster would still retain pricing power.

This may be overcome by disallowing the acquisition of TV rights for such event on an exclusive basis. This should allow both Singtel and Starhub to procure non-exclusive rights and to compete effectively by offering differentiated services based on the same content. To ensure effectiveness of this rule, commercial agreements that allow one buyer’s bid to impose a price floor on the rights value for another bidder should be banned, otherwise a bidder can carve out exclusive rights by simply pricing the other bidder out.

Alternatively, MDA could impose a wholesale must-offer requirement on exclusive content held by either operator, which would allow the rival operator to package the content and offer differentiated services rather than simply re-selling those offered by the rights holder – and set its own prices. Given the monopoly power of the rights holder, it may be necessary to regulate wholesale prices. In the UK for instance, Ofcom sets wholesale prices for Sky’s sports channel at “a level that would allow an efficient operator to match Sky’s retail prices.”

Such measures should ultimately be expected to have an impact on the prices paid for broadcasting rights. FIFA agents selling the TV-rights for the World Cup allegedly consider what the market can afford when setting prices – and if those acquiring the rights are restricted in exploiting them, their willingness to pay should be reduced. However, this only reflects the fact that ultimately pricing power sits with the rights holder rather than the broadcaster.

Indeed, more competition in the pay TV market might help the rights holder to exploit its pricing power and extract a greater proportion of the monopoly rent. Indeed, since Singtel entered the pay-TV market in 2007, football fans have been facing ever increasing prices for access to football content, which has been matched by more money paid out to rights holders. The rate of increase of prices has been particularly alarming.

That there might be a need for the government to step in has also been raised in Parliament recently. In response, the MDA is reported to be reviewing the anti-siphoning list as well as the cross-carriage rules. Whatever the remedy, football fans will hope that it comes quicker than Real Madrid on the counter attack.