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Prime goes on Freeview - did Kordia sweeten the deal?

Freeview has finally secured a full line-up of free-to-air channels, but on terms dictated by Sky TV - and with taxpayers likely picking up the shortfall.

Prime will be available on both the standard definition digital Freeview Satellite and the high definition digital Freeview HD from today.

The deal was announced late this afternoon by a Freeview rep, and comes at a time the the TVNZ-MediaWorks consortium is on a roll. Freeview recently announced it had extended its reach to an estimated 250,000 households. And shortly it will release three new MyFreeviewHD recorders, including one from Panasonic that also features Blu-ray recordable discs. Now, with Prime, Freeview gets shows like Man vs Wild and Top Gear, and delayed All Blacks' games too.

The sequence of events indicates that with the government, Sky TV, Freeview and Kordia in a four way tangle over the issue, it was the state-owned Kordia that buckled its position.

Freeview: non-negotiable position
For a broadcaster with revenue above $2 million a year, Freeview charges a $100,000 annual administration fee, rising to $150,000 in the second year, and $200,000 in the third.

Additionally, Freeview’s transmission partner, Kordia, has never published its charges but former Freeview GM Steve Browning told NBR it costs a broadcaster $1.8 million a year to place a high definition digital channel on Freeview’s terrestrial service and $500,000 for a standard definition digital delivered via satellite.

Freeview GM Sam Irvine told NBR he would not negotiate on Freeview’s administration fee which he described as “already a knock-down rate at $100,000 - especially when you consider Prime has advertising revenue of $23 million.” (Sky TV’s latest annual report lists Prime’s advertising revenue as $30 million gross).

Sky TV: you pay, if it’s so important to you
Sky TV chief executive's John Fellet’s stance has always been that he will only put Prime on Freeview if:
1. Audience numbers grow to yield enough advertising revenue to cover the broadcast cost (which he told NBR is at least a year away), or
2. If Freeview agree to “eat the cost themselves, if Prime is so important to their success.”

The third way
On August 3, Mr Fellet told NBR he’d put a third option is on the table.

The Sky TV boss said he had proposed a deal to Kordia under which Sky TV’s broadcast fee to Kordia would be tied to any extra revenue Prime achieved from being on Freeview. So if, for example, being on the platform brought in $300,000 extra revenue, that would constitute the amount that Sky TV paid Kordia. The at-cost deal would be phased out once Prime started turning a profit from advertising generated by its larger viewership by dint of being on Freeview (and Mr Fellet did acknowledge that not being on Freeview costs Prime viewers). Mr Fellet reconfirmed his terms today.

Kordia: rate card a starting point
A spokeswoman for Kordia said she would not comment on her company’s “commercial discussion” with Sky TV, other than to offer: “We do have a rate card and that’s the starting point for any discussion.” [NBR's italics]

Win-win for Fellet
As NBR noted on August 3, Mr Fellet had created a win-win situation for himself.

Either Kordia rejected his terms, and Freeview’s appeal remained hobbled by Prime’s absence. Or, his cut-rate terms were accepted, and Prime went on Freeview for peanuts.

Which is likely what happened. 

Mr Fellet had zero incentive to pay the full rate, but Kordia has a lot invested in Freeview's success, and will earn kudos from its shareholder (the government) for helping it resolve a politically thorny situation. 

Under the circumstances, "starting point" would have been very much the operative phase as the two sides looked at the official rate card.

Paying for free TV
Taxpayers are already heavily subsidising the creation of Freeview, and the Kordia infrastructure and broadcasting costs around it, to the tune of $60 million. Now, if the already heavily-geared Kordia is indeed taking one for the team by offering Sky TV a sweetheart deal, it’s likely the taxpayer is generously helping out again.

Neither party had any immediate response to the deal, and its terms are likely to remain confidential.

Coleman: stayed out, but everybody knew what he wanted
Broadcasting minister Jonathan Coleman made no secret of his desire to see Prime go on Freeview - a move that clears the way for a switchover from analogue to broadcast TV some time around 2013 (that is, anyone wanting to watch TV will have to do so through Freeview or Sky TV). The freed up analogue spectrum can be auctioned, and is likely to prove a $200 million to $300 million windfall for the government. And in the short-term, replayed test matches will now reach 100% of the country, rather than Prime’s 75%.

However, Mr Fellet told NBR that the last time he spoke to Mr Coleman was two months ago.

A spokesman for Mr Coleman’s office confirmed that version of events on August 3: “The minister has made his position clear, and now he’s stepped back. This is a commercial decision for Sky TV to make by itself.”

Nevertheless, Mr Coleman has got the outcome he wanted - with a little help from the state-owned Kordia.

And TVNZ no longer look like such duffers for putting the HD versions of TV1 and TV2 (and TVNZ 6 and 7) on Sky TV before securing an assurance that Prime would go on Freeview.

Freeview claims that 250,000 homes now have access to its service, based on sales of set-top boxes and TVs with integrated tuners. While Sky TV has three times as many people for its paid service, in HD the race is much tighter: Freeview recently claimed 87,000 HD households, while Sky TV said its number of installed MySky HDi boxes had passed 80,000 (Freeview points out that not only a minority of MySky HDi owners pay for an HD package to use the set-top box in its full glory; Sky TV claims that many who get a TV with an integrated Freeview tuner never use it.)

Path cleared, a little, for TiVo's launch
The deal also makes life a little simpler for TVNZ as it positions itself to launch TiVo before Christmas.

TiVo's broadcast TV feed will be provided by Freeview HD - meaning the New Zealand incarnation of TiVo will be, in its manager's words, "Freeview on steroids".

And now Freeview HD, finally, features a complete sweep of free-to-air channels.

But hurdles remain. MediaWorks is still disputing that TV3 and C4 should automatically be included in a "bolt-on" deal to Freeview, such as TiVo.

An insider told NBR that MediaWorks is concerned, among other things, that TiVo's set-up is too complex - especially its requirement for a broadband connection to deliver its electronic programming guide (EPG) plus pay TV shows and movies that would supplement a TiVo box's Freeview HD broadast TV feed.

So far, no internet service providers have signed on. For one thing, downloading pay movies would bust most subscribers' datacaps.

There is one ISP, however, that has put itself in a position where it could easily make the hop to supporting TiVo: Orcon, whose new zero-rated deal that does not count data streamed from several sites - including TVNZ on demand - toward a user's data cap.

Orcon is owned by ... wait for it ... Kordia.

TVNZ's ISP negotiations will stand and fall on whether Telecom Broadband (formerly Xtra) decides to support TiVo, simply because the provider holds nearly 60% of the retail market. But Orcon setting an example would help move things along.

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