Adams pours cold water on Sky TV regulation talk

There has been increasing industry chatter about the possibility that Sky TV’s near-monopoly could be regulated.

The talk has been stoked by a recent Commerce Commission issues paper on demand for faster broadband, entitled “Content and Willingness to Pay.”

The paper said bundled pay TV services had been a key factor in speeding fast broadband uptake overseas.

The commission said that while many companies had the technology to deliver broadcasts and on-demand viewing over new technology platforms, their success “depends on companies having access to premium content. Currently, most of the rights to this content in New Zealand are held by a small number of market participants.”

In key areas like sport and A-list Hollywood movies, only one participant holds rights, of course: Sky TV.

Sky TV has made its MySky (and pending TVNZ joint venture) igloo boxes fibre-capable, which is good. But with its satellite business bring in fat profits, there’s little motivation for it to hustle along with content-over-fiber – at least at the sought of price that would get households jumping to upgrade from copper.

But … in comments for the print edition of NBR last week, new ICT Minister Amy Adams didn’t seem convinced there was any problem.

“I want to see how the competitive model looks as UFB [Ultrafast Broadband] rolls out and changes the market situation,” Ms Adams said.

“However, at this stage I am satisfied that there is no need for proactive action.”

At the Commerce Commission’s Future Broadband conference today, Ms Adams took a similar line, saying:

The Commission’s papers include a useful discussion of the importance for consumers of premium content – that is broadly speaking, live sport and first-run movies.

While I recognise the value of such content for consumers, and the role it will play in initial domestic uptake, I will signal now that I’m cautious about reaching for regulation as a solution at this stage when it is still too early, in my view, to anticipate how the competitive content market will look in a UFB environment.

Stifling competition
Sky TV boss John Fellet has previous told NBR that new internet platforms that let studios reach audiences over the internet - known as over-the-top technologies - as a potential threat to his company, and as a rationale to why it doesn't hold a near-monopoly position, or power.

Today, Ms Adams took a similar line, telling the audience:

Over the last few years new suppliers of video content have emerged in overseas markets. They have provided over-the-top services in a much more flexible way than traditional subscription and free-to-air broadcasters we are familiar with.

While the innovative services that have been launched in overseas markets are yet to make a significant impact here, I’m concerned that premature government action could in fact stifle innovation in this space.

Users of so-called over-the-top services in New Zealand know that the opposite is the case.

OTT services like the movie and music section of iTunes, and equivalent services run by Microsoft and Sony (not to mention the TVNZ-backed, strangled-at-birth TiVo Caspa) offer great technology (including, with the help of wi-fi, the ability to easily play content on your regular TV).

But compared to, say, iTunes US – which is awash in quality TV shows for download, and tons of recent release moves – the local services offer scarce content. Sky TV’s got content rights tied up. Innovation is stifled right now.

Many platforms, one gatekeeper
Ms Adams told NBR, “Sky has supplied services on other platforms such as TelstraClear cable and Vodafone mobile which have gained traction among consumers, so I expect it would have similar incentives to offer services to providers of services over fibre.”

And Mr Fellet, who has long argued that his company has no special privilege in seeking content rights (and oh that TVNZ and Telecom would team on a proper alternative rather than the half-baked TiVo then falling back into line. Telecom has joined TelstraClear and Vodafone as a Sky TV wholesale partner, giving it the ability to build a MySky clone and funnel SkyTV content through it).

He played that familiar theme to NBR again last week, saying “The rights and the structure of the [content] contracts are no different here than in the US where OTT was invented and is thriving. What is different from the US is our cata caps, speeds and cost of data.”

Yes, our data caps our lousy by developed world standards (thank you for noticing, Mr Fry).

But in terms of multiple platforms, and new ways of delivering content, the key problem is not one of technology. It’s that one gate-keeper controls local rights to all the must-have content.

The National government effectively cleaved Telecom in two by making separation a pre-condition of participating in the $1.35 billion UFB. In many ways, it out-Laboured Labour. But on the demand side, it appears there's little will. Sky TV's charmed, regulation-free run continues. 

Labour, MediaWorks bite back
Labour's Clare Curran blasted in with, “Amy Adams is behind the eightball. She refuses to acknowledge what is plainly obvious: as more content becomes available online, the telecommunciations and broadcasting industries are increasingly merging.

“The broadcasting environment has no regulation. This has allowed Sky TV and TVNZ to enter into a joint venture with no regulatory oversight which stifles opportunities for rival broadcasters as well as the prospects of new players entering the market.

“But the real losers are the New Zealand public, who with little choice on offer may face broadband and broadcast plans which are over-priced."

Less predictable - especially given her company's complicated relationship with the govenment - MediaWorks  managing director Sussan Turner also offered spiky criticism.

Sky TV had a ''take it or leave it approach'' to licensing out its programming rights one that other countries viewed as ''an abuse of monopoly power," the MediaWorks boss told a panel discusssion.

Rival broadcasters and telcos should be able to purchase programming to which Sky owns broadcasting rights on terms set by regulators, so they could package it up with other programming they sourced themselves to provide competitively-priced alternatives to Sky's service, Ms Turner told a panel discussion (see Tom Pullar-Strecker's report on the fracas here).

Ms Turner would like to see a joint telco-broadcasting regulator. (Currently telecommunications is tightly regulated, pay TV almost entirely unregulated).

Sky TV boss John Fellet reportedly told the same panel that a Netflix-style service would "definitely" come to New Zealand. In fact, a crew from Netflix recently visited, rejecting a local operation on the basis of our lousy data caps. And regardless, Apple's iTunes movie and TV download service, and Microsoft and Sony equivalents are already here - they're just starved of content rights in this part of the world.

Price most important - but with a nasty twist.
Ms Adams told NBR that price would be one of the most important factor's in broadband uptake.

Here, on the face of it, UFB companies face hard yakka.

The commission's Content and Willingness to Pay paper, drawing on Roy Morgan and Nielsen Research, reported three-quarters of small-to-medium businesses were happy with the broadband service they receive today. And most households were not willing to pay more than $5 or $10 more a month for fibre.

Maxine Elliot, chief executive of Ultrafast Fibre, told NBR that was no particular problem for her company. From June, it would offer its Tauranga, Rotorua and Whanganui fibre connections that were around the same price as copper but offered more bundled services (VoIP will be standard with all fibre providers).

But not that it matters, for while remains totally hands-off with pay TV, it's cheerfully interventionist with wholesale fibre pricing.

Specifically, The Telecommunications Amendment Act (2011) - the  legislation that set the framework for the UFB – allowed for something called “averaging”, which is progressively kicking in over the next 18 months.

Much vilified by Orcon and other retail ISPs, the provision will allow the dominant Chorus to average the cost of rural and urban copper connections. There many more urban connections, and today they cost less. This means averaging will push up a monthly residential bill by an estimated 20% – providing a robust negative incentive to upgrade from copper to fibre.

Sky TV shares (NZX:SKT) were up 0.79% to $5.10 in midday trading.