The report, which is accompanied by the Draft Digital Competition Bill, proposes imposing conditions on large technology companies, categorised as Systemically Significant Digital Enterprises (SSDEs), to counter their might in digital markets. 

It argues that the current ex-post competition regime helmed by the Competition Commission of India (CCI) and ex-ante regulation by sectoral regulators is insufficient to ensure fair competition in digital markets, making ex-ante obligations under the proposed Digital Competition Law necessary. 

Ex-ante regulation aims to prevent a problem from occurring, such as the now-repealed law against monopolistic trade practices. Ex-post regulation adjudicates an issue after it has occurred, like the CCI approving Ultratech's acquisition of Kesoram's cement unit recently, that is, after the takeover.

The Committee report argues ex-ante rules are required as the ex-post framework cannot keep up with the dynamic and changing nature of digital technology. SSDEs are enterprises that offer core digital services (CDS), such as online search engines, social networking services, and video-sharing platforming services, and meet minimum requirements on turnover, market capitalisation, and user base defined under the Bill. 

CDS are digital services that are supposedly susceptible to concentration and anti-competitive behaviour based on the CCI’s prior enforcement action, market studies, and emerging international practices. 

However, it is questionable whether video-sharing services, also known as video-on-demand services, which make online curated content available for consumption on demand by users, meet the criteria for designation as a CDS. Some prominent examples of such services in India include Netflix, Amazon Prime Video, and AltBalaji.  

Indeed, video-on-demand services do not rely on network effects, which occur when the value of a platform increases as more users join the platform for user acquisition and retention. Instead, the primary value proposition lies in the content library itself. 

Users subscribe to these platforms for high-quality TV shows, movies, and documentaries and not to interact with other users, as in a social network. The relatively minor role of network effects in the market for video-sharing services makes it less susceptible to tipping in favour of a dominant enterprise, thereby reducing the risk of concentration. 

The limited reliance on network effects for consumer retention also makes lock-in, which refers to a situation when consumers find it difficult to switch between competitors, less likely for video-on-demand services, thereby reducing the scope for anti-competitive behaviour. 

The relatively limited role of network effects and the absence of consumer lock-in promote fierce competition for users between different video-on-demand services. As per the Ministry of Information and Broadcasting, there are more than 35 video-on-demand services currently operating in India, each vying for limited consumer attention.

Moreover, the CCI’s Market Study on the Film Distribution Value Chain in India reveals that intense competition between these services leads to the adoption of tiered pricing strategies; with prices for subscription packages varying on the basis of device, picture quality, duration, ad support, and type of content offering. 

The study, which was conducted by the Esya Centre, also reveals that the demand for niche content in regional languages acts as a key differentiator between video-on-demand services, constraining the ability of one or a few services to dominate the market. 

Given the above factors, imposing prescriptive ex-ante obligations on video-on-demand services could prove counterproductive and hamper market growth and innovation. 

Consider, for instance, the prohibition of bundling by SSDEs under Section 15 of the proposed Bill. Bundling occurs when a firm offers packages of its products/ services together with its own complementary products/services or with products/services of related third parties. 

The Committee Reports states that bundling can be anti-competitive as large digital enterprises may make access to their main service contingent on purchasing other complementary but non-essential services, thereby limiting consumer choice and foreclosing competition by smaller entities. 

However, bundling is a common business practice that can help improve firm efficiencies and consumer welfare. Indeed, most video-on-demand services can be thought of as content bundles since they make movies and shows, which are distinct products from different producers and studios, available to consumers on a single platform. 

This bundling is integral to video-on-demand platforms, allowing them to spread the costs of content acquisition, platform maintenance, and technological innovation across a large subscriber base, keeping subscription costs relatively low for consumers. 

If bundling were prohibited, each piece of content would have to be offered individually or in smaller, genre-specific packages. For example, Netflix would not be able to offer its wide variety of genres in a single package; instead, it might need to segment its offerings into separate subscriptions or offer them on a la carte basis, which would exponentially increase costs for consumers. 

To be sure, the Draft Bill states that bundling of products and services may be permitted if it is integral to the provision of a CDS. However, the CCI will determine which products and services are considered integral, leaving scope for uncertainty about the business model used by most video-on-demand services. 

Regardless of the above exemption, video-on-demand services that aggregate content from other video-on-demand service providers will likely be hit by the prohibition on bundling, yielding negative outcomes for consumers. 

For instance, Amazon Prime Video bundles content from different video-on-demand platforms, such as Lionsgate Play and BBC iPlayer, which were hitherto unavailable in India. Imposing the bundling prohibition under Section 15  would prevent Amazon from aggregating content from these providers, which would make it onerous, if not impossible, for Indian users to access such content. 

In conclusion, the inclusion of video-sharing services as CDS under the Draft Bill must be reconsidered as they do not appear to be susceptible to concentration and anti-competitive activities. 

Illustratively, only one video-sharing service, namely YouTube, has been identified as a core platform service (the equivalent of a CDS) under the Digital Markets Act, the European Union’s digital competition law. YouTube has been designated a core platform service as it forms an integral part of Google’s advertisement and data collection machinery, unlike other standalone video-sharing services, such as Netflix. 

Given the dynamic and evolving nature of the OTT services market in India, imposing the prescriptive obligations envisioned under the Draft Bill could stifle innovation and growth in the market. 

(Noyanika Batta is a Junior Fellow at the Esya Centre, whose research interests lie in telecommunications law, digital competition and digital trade. Mohit Chawdhry is a Fellow at the Esya Centre, specialising in digital assets, data protection, and digital antitrust. Views expressed are personal)