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1 Monopoly Practices and Competitive Behaviour in the French Satellite Pay-TV Market Michele Cincera and Abdul G. Noury CEPR Discussion Paper #4174 Motivations As a result of technological progress in digital broadcasting industry there is a substantial decrease in prices and/or increase in quality of pay-tv services. To what extent such changes can be attributed to competition? To answer this question we compare the French competitive (pay-tv) market with the British monopolistic (pay-tv) industry. Before the comparison we analyse the nature of interactions between (rival) firms in the French pay-tv market. 1

prices and/or increase in quality of pay-tv services. To what extent such changes can be attributed to competition?

2 Why France? The French SPTV market was characterized by a monopoly till 1997 but since then there are three firms competing together. Availability of monthly data that allows structural econometric estimations. The French competitive situation can be compared with the British or Italian monopolistic cases. Theory Related literature Armstrong (1999) Harbord and Ottaviani (2002) Nilssen and Sorgard (2000) Anderson and Coate (2002) Spence and Owen (1977) Empirical Waterman and Weiss (1996) Chipty (2001) Golsbee and Petrin (2004) 2

The French competitive situation can be compared with the British or Italian monopolistic cases.

3 Relevant market Satellite Pay-TV market vs. Cable TV, Terrestrial (or Air-to to-air TV) and ADSL. EU Antitrust authorities have identified the Pay TV market as a separate one from the free access TV market. Barabes and Encaoua (2002): same conclusion for France. Subscription rates in 2002 in France: 35% for Cable Pay TV vs. 65% for Satellite Pay TV. Data Monthly data collected from TeleSatellite magazine. Variables: Micro: net subscription prices, number of subscribers, advertising effort, number of channels, and Macroeconomic variables affecting demand: industrial production index, the number of unemployed, ed and seasonal dummies. Limits and advantages of the data. 3

Subscription rates in 2002 in France: 35% for Cable Pay TV vs. 65% for Satellite Pay TV. Data Monthly data collected from TeleSatellite magazine.

4 CS catégorie J-97 J-98 J-00 J-01 J-04 TPS J-97 J-98 J-00 J-01 J-04 AB Sports sport BBC World information Allociné TV généraliste BBC Prime généraliste Auto Moto service Boomerang jeunesse BBC World information Escales art de vivre Bonjour.fr service Eurêka jeunesse C: divertissement ESPN Classic Sport sport Canal Club téléachat Eurosport France sport Canal Festival Dauville généraliste Eurosport News sport Canalsat Boutique téléachat Festival généraliste Canalsat Finances service Fun TV musique CTV service Gourmet TV art de vivre Fashion TV art de vivre Histoire documentaire Fiches Elle art de vivre Infosport sport Forum Boutiques (Boutiques Spectacle) téléachat I Télévision information Forum Planète art de vivre LCI information France courses service Mezzo musique Free One généraliste M6 Music musique I.Sport service MTV musique Journal de chez vous service Odyssée documentaire MCM 2 musique Paris Première généraliste MCM Africa musique Piwi jeunesse Nostalgie la Télé musique Régions généraliste Parents service RFO Sat généraliste Pathé Sport sport RTL 9 généraliste Première service Série Club fiction RTPI généraliste Télétoon jeunesse Santé art de vivre Télétoon +1 jeunesse Spectacle téléachat Téva art de vivre TV Festival généraliste Tfou jeunesse TVPI art de vivre TF6 généraliste Zaléa TV généraliste TV5 généraliste Zik musique TF1 généraliste Zoé service France 2 généraliste sat.tv musique France 3 généraliste e Rue fiction La Chaîne Parlementaire information AB 1 fiction La Cinquième généraliste AB Moteurs sport Arte généraliste Alegria art de vivre M6 généraliste Banques services interactifs AB Moteurs sport Bloomberg TV France information Ciné info services Boutiques téléachat Club Téléachat téléachat Canal Jimmy jeunesse M6 Boutique téléachat Canal J jeunesse CNBC Europe information Canalsat Jeux divertissement CNN International information Cartoon Network jeunesse Equidia sport Cash TV divertissement Game one divertissement Cinécinéma Info services KTO généraliste Club Téléachat téléachat TFJ généraliste M6 Boutique téléachat TV Breizh généraliste CNBC-NBC information Annonces et Shopping téléachat Comédie fiction Astrologie (Equilibre) service Cuisine.TV art de vivre Bandiagara divertissement Demain! service Espace annonces service Equidia sport Fi (CATV/Vega/Echos) service ESPN Classic Sport sport Info Express service Euronews information Le journal de chez vous service Eurosport France sport Météo Express service Eurosport Interactive services interactifs Pari à domicile service Extreme Sports Channel sport TPS Hors Série généraliste Festival généraliste TPS Mail service Fox Kids jeunesse Alegria art de vivre France 2 généraliste RTM généraliste France 3 généraliste TV7 généraliste Game one divertissement Chronobourse service Gourmet TV art de vivre La Chaîne Sud généraliste Histoire documentaire Canal Auto service Itélévision information Superfoot sport La chaîne météo service VH-1 musique LCI information knowledge TV documentaire L'équipe TV sport France Supervision généraliste Live 1 musique Eurosport Breizh sport Ma Planète documentaire France courses service Market shares CanalSatellite TPS TOTAL Number of Subs. Market share Number of Market Subs. share Number of Subs % % % % % % % % % % % %

fr service 0 0 0 0 0 Eurêka jeunesse 0 0 0 0 1 C: divertissement 1 1 0 0 0 ESPN Classic Sport sport 0 0 0 0 1 Canal Club téléachat 0 0 0 1 0 Eurosport France sport 1 1 1 1 1 Canal Festival Dauville

5 3,500,000 3,000,000 Série1 Série2 2,500, ,000,000 1,500,000 1,000, , Number of channels Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 CanalSatellite Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 TelevisionParSatellite Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 5

Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 CanalSatellite Dec-99 Mar-00 Jun-00 Sep-00 Dec-00

6 Descriptive statistics Variable Mean Std. error Min Max net annual subscription price (euros) p p #ofsubscribers q q advertising a a total # of channels nt nt total # of channels in the basic bundle nb nb total # of channels in the movie bundle nc nc total # of bundles o o industrial production index (OECD) y = CS 2 = TPS Methodology (Gasmi et al. 1992) Demand equation: Cost equation: Profit: 6

8 29 108 nt2 49.36 10.3 16 59 total # of channels in the basic bundle nb1 37.83 14 15 56 nb2 40 9.53 21 52 total # of channels in the movie bundle nc1 6.53 1.51 5 11 nc2 3.

7 System of 4 equations (2 demand equations + 2 first order conditions) to be estimated (by 3SLS): Competitive (Nash) model Strategic behaviour Stackelberg with CanalSatellite as leader Stackelberg with TPS as leader Collusion on Price 7

model Strategic behaviour Stackelberg with CanalSatellite

8 Results Vuong Test Vuong (1989) developed a test for nonnested models. It is based on LR corrected for the number of estimated parameters. The test statistic is ass. normal under the null hypothesis (i.e. both models are equivalent). M2 M3 M4 M M M

The test statistic is ass. normal under the null hypothesis (i.e. both models are equivalent).

9 Comparison with the British Case Note the preliminary and static aspects of comparison. Is this result still valid across periods and/or space? BskyB (UK) CS (FR) TPS (FR) min Max min Max min Max Premium Movies Premium Kids Premum Sports Price (EUR) Conclusions Given the sample size, and assumption on functional forms, care must be taken when interpreting our results. Our structural estimations produces similar results for four competitive behaviours. Vuong test suggests that the data can best be explained by Stackelberg model with CanalSatellite as leader. A comparison with the British [and Italian case] show that despite similarities, packages of pay-tv services are cheaper in France. But, one needs more precise methods (hedonic regression) to reach firm conclusion on cross country comparisons. 9

and assumption on functional forms, care must be taken when interpreting our results. Our structural estimations produces similar results for four competitive behaviours.

10 10

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