Exclusivity and the 6th Nigeria Broadcasting Code: Where Intellectual Property Rights and Competition Law Collide
Introduction
Since the National Broadcasting Commission (“NBC”) released the revised Nigeria Broadcasting Code (“Code”), there has been a furore in the entertainment industry. Stakeholders are concerned, among other things, about certain provisions of the Code which prohibit exclusive licensing in the broadcasting industry, with particular implications for sports broadcasting in Nigeria. Lai Mohammed, Nigeria’s Minister of Information and Culture, noted that exclusivity in the market allowed for “anti-competitive and unfair practices, by a foreign or local broadcaster to suppress other local broadcasters in the television and radio markets” and the Code will allow sports content to be shared between broadcasters “upon the payment of commercially viable fees”. Reports indicate that this development is prompting service providers like Netflix, Amazon, iROKOtv and Africa Magic to consider suspending further investments in the Nigerian entertainment industry.
This commentary discusses the competition law provisions of the Code, their implications for intellectual property (IP) rights and how they affect players in the Nigerian pay TV industry.
Exclusive Agreements
The Code prohibits a broadcaster or licensee from entering into agreements, concerted practices or taking decisions “which have as their object and intendment the prevention, restriction or distortion of competition in, or in any part of, the broadcast media industry in Nigeria; and…no broadcaster or licensee shall enter into any form of broadcasting rights acquisition either in Nigeria or anywhere in the world to acquire any broadcasting right(s) in such a manner as to exclude persons, broadcasters or licensees in Nigeria from sub-licensing the same” (Section 9.0.1). Such exclusive agreements or decisions are void (Section 9.0.2).
This provision targets exclusive or restrictive agreements or practices in restraint of competition. It means, for example, that while Multichoice can bid for and obtain broadcasting rights for the Premier League, it cannot enter into an agreement or take a decision that prevents it from sublicensing those broadcasting rights to domestic TV stations (such as NTA).
Exclusivity per se should not be considered anti-competitive for the grant of exclusive broadcasting licenses falls within the lawful exercise of copyright. It is widely accepted that, as far as competition policy is concerned, a licensee should generally be free to refuse to license other firms, and to restrict exploitation of IP either to itself or to its selected licensee(s). In particular, exclusivity is unlikely to pose competition problems when it is granted for a short period, and there are efficiencies arising from it. However, anti-competitive effects are possible when exclusivity, combined with the scarcity of premium content, is granted for long periods of time, a situation more common in sports broadcasting where exclusivity may be granted for up to three years.
The Code does not refer to duration of exclusivity, suggesting that an exclusive agreement which restricts sublicensing would automatically be deemed anti-competitive. This can disincentivize innovation by undercutting the possibility of reaping the rewards granted by the IP system. The NBC should accept that exclusivity could benefit the public by giving broadcasters incentives to invest in acquiring and developing quality content; however, deals of longer duration (say, over a year) should be scrutinized for their potential anti-competitive effects in broadcast markets.
Compulsory Licensing
Any doubt that in the absence of an exclusive agreement, a broadcaster can still refuse to sublicense broadcasting rights, is extinguished by the Code. The Code imposes an obligation on sports and news broadcasters to sublicense premium content to other broadcasters for a fee and, if the broadcaster refuses to license, the NBC can compel it to do so.
By section 9.1.1.1, “For the purpose of ensuring the widest possible distribution and viewership of content considered critical to the success and sustainability of new entrants in the Pay TV industry in Nigeria, the Broadcaster shall ensure access by all Pay TV platforms to premium content in the Sports and News genre…” Access to premium content shall be granted within a reasonable time and on a non-exclusive basis for a fee (section 9.1.1.2). Premium content is content that may be accessed for a fee or as part of a paid subscription plan, as distinguished from free content. Premium content would include sports games (Premier League and Champions League games) and new movies.
The provision limits the obligation to grant access to premium content to the sports and news genres. Unquestionably, European football dominates the Nigerian sports pay TV industry. This makes access to football broadcasting rights within Nigeria critical to the success and sustainability of new entrants. The bidding process for European football operates on a ‘competition for the market’ basis, where the winner retains exclusivity for a territory. The Code changes this dynamic. Now, if a platform such as Silverbird TV or Africa Magic approaches Multichoice to acquire broadcasting rights for the Premier League, Multichoice cannot refuse. The sublicense must be granted on a non-exclusive basis, so Multichoice can grant concurrent broadcasting rights to Silverbird, Start Times, Africa Magic and iROKOtv, provided each can pay a fee determined by Multichoice. Multichoice would then have to compete with its sublicensees for a share of the downstream market by offering competitive prices to subscribers. The challenge, however, is that if Multichoice or any future successful bidder is unable to recoup its investments (and make a profit) in obtaining football broadcasting rights, investors would become discouraged from bidding for those broadcast rights, and we may return to the days when Nigerians could not watch live European football because no one wanted to bid for the broadcasting rights.
The Code gives the NBC sweeping powers to “compel any broadcaster in the broadcasting industry to license its broadcast and/or signal rights in any genre of programming to another licencee or broadcaster” if (a) the genre enjoys a compelling viewership by Nigerians; (b) it concerns a product or service that is objectively necessary to compete in a downstream market; and (c) a refusal to license is likely to eliminate effective competition in the downstream market and lead to consumer deprivation (Section 9.1.1.8).
Unlike section 9.1.1.1 which is limited to the sports and news genres, this provision applies to any genre. Therefore, the NBC can compel sublicensing of premium content in Nollywood, if the content is essential for a third party to compete in a downstream market. However, before doing so, the NBC will make an assessment whether competitors can create alternative sources or efficient supply, which can be disposed in the downstream market. Unfortunately, premium sport events and new releases of movies usually have no substitutes, and the holders of such content are likely to be caught by this provision.
Will a fee be paid for such compulsory licences? The provision does not say so, but sound policy dictates the payment of a reasonable fee for sublicensing. It is suggested that the licensor fixes the sublicensing fees taking into account the cost of acquisition of the broadcasting or signal rights.
Fees for Sublicensing
Given the obligation to sublicense, the payment of sublicensing fees and the process for fixing such fees become critical. Broadcasters/sublicensors need to be assured that they can still recoup their investments and make a profit by sublicensing, while the NBC may want to keep sublicensing fees low, in order to increase access to premium content by other broadcasters.
The Code envisages this problem and provides that in fixing sublicensing fees, the Broadcaster should consider the “prorated cost of acquisition of the sports and news programme and/or channels by a subscriber on the platform of the Licensee (“Stipulated Prices”) and the retailing thereof to each potential subscriber. In no event shall the charges exceed the Stipulated Price thereof. (Section 9.1.1.3)
This provision seems to be a compromise, allowing the broadcaster to fix the sublicensing fees while stating considerations that would guide the fixing of a fee (the stipulated price) which the broadcaster cannot exceed. Notably, the Code does not assign the NBC any role or power in the price-fixing process. The preference would be for a licensee/broadcaster to freely bid for, negotiate or acquire rights at prices dictated by the market. Such contractual freedom may, however, be counterproductive to the idea behind the Code – access to critical premium content – especially since a broadcaster who does not wish to sublicense can simply demand high rates, making it difficult for other broadcasters to acquire critical premium content. It will be interesting to see whether the NBC will interfere in the pricing process and how the NBC will enforce the “stipulated prices”.
Abuse of dominance
The Code empowers the NBC to order a dominant broadcaster to discontinue any conduct which amounts to abuse of a dominant position or which substantially prevents, restricts and/or distorts competition in the broadcast industry.
The preliminary step here would be to establish that the broadcaster occupies a “dominant position” in the relevant broadcast market, a term which the Code characterizes as being able to act without significant competitive restraint from competitors. The inquiry then proceeds to whether there has been an abuse of dominant position. The Code does not, however, state what conducts will amount to abuse of dominance. An express or constructive refusal to license may amount to an abuse of dominance in certain exceptional circumstances – in particular where, without an objective justification, a dominant broadcaster refuses to license IP rights indispensable to the exercise of a particular activity on a downstream market, restricting effective competition in that market and leading to consumer harm.
Final Thoughts
From an economic perspective, broadcasters and investors have incentives to contract on an exclusive basis, especially with respect to premium content. Given that content is a highly differentiated product, exclusivity is crucial to protect the value of existing content and to create the financial incentives necessary for the production of future content. Movie producers and sporting agencies therefore tend to sell their rights on an exclusive basis in order to extract maximum economic benefit for their content. On the other hand, exclusivity and licensing agreements can serve to cartelize an industry or to foreclose markets. In Nigeria, this is particularly evident in the sports industry. The challenge for the NBC is determining whether a particular agreement or practice is likely to help or hurt competition, a determination made particularly challenging by the fact that a restrictive/exclusive clause in a licensing agreement can be either pro- or anticompetitive, depending on the circumstances.
The Code’s approach to solving the problem, compulsory licensing, may increase competition in the short term, by reducing market dominance and forcing firms to price at marginal costs. This may have pro-consumer effects in the long run if it facilitates the growth of new products for which there is potential demand. For example, it may lead to the emergence of strong competitors which can even outbid Multichoice and Star Times for football broadcasting rights. However, compulsory licensing can limit the value of legitimate broadcasting rights and stifle innovation by discouraging the acquisition and/or development of premium content, especially where the sublicensing regime does not yield adequate economic returns to, not only cover the broadcaster/licensor’s cost, but also produce a profit. In practice, it is difficult to balance the welfare increasing and welfare decreasing effects of compulsory licensing. Therefore, the main question is whether, and when, compulsory licensing is justified in competition law. The most widely acknowledged answer is that the use of compulsory licences should be limited to exceptional situations when no other, simpler remedy is available.
Whatever regulatory interventions the NBC makes, it should be mindful not to subsidize inefficiency and should encourage firms that cannot pay the stipulated fees for sublicensing to innovate in order to compete in the broadcast market.
Prince Ifeanyi Nwankwo holds law degrees from the University of Nigeria and Harvard Law School. He has experience representing indigenous and multinational clients in commercial and transactional matters, risk management, public sector administration and litigation.
