MediaWorks, Quickflix welcome probe of Sky TV content deals

BUSINESSDESK: ASX-listed Quickflix has welcomed the New Zealand anti-trust regulator's probe into Sky Network Television's content deals with internet service providers, saying the issues raised by the Commerce Commission are "serious and real".

And MediaWorks, which operates TV3 and Four and radio stations including the Rock and More FM, says the deal "will hamper any potential for competition in the pay market and undermine the strength and diversity of free-to-air television in New Zealand".

It will "further cement Sky's control of premium content and dominance of the pay sector of New Zealand television while at the same time creating a conflict for TVNZ regarding its role in Freeview", MediaWorks said.

"New Zealanders are again being told that they must enter into contracts and be prepared to pay to watch premium content on television - even content (like that shown on TVNZ's Heartland) that has been taxpayer funded," it said.

Sky's shares sank 8.3% to a two and a half month low $5 after the regulator said it will investigate the pay-TV operator's contracts with ISPs and potential barriers to accessing content.

The announcement was made after the commission approved a joint venture between Sky and state-owned Television New Zealand to launch budget pay-TV platform Igloo.

"Our own experiences in launching Quickflix here have illustrated that the issues raised by the commission are serious and real," Quickflix managing director Paddy Buckley said.

"We will be sharing our information with the commission and assisting it with its investigation."

Sky's content arrangements have come under greater scrutiny since the anti-trust regulator launched an investigation into the drivers of broadband uptake after the government stumped up $1.5 billion to build a national high-speed internet fibre network.

Quickflix used the regulator's investigation into demand-side drivers for broadband uptake to criticise Sky's content arrangements, saying they are a barrier to the uptake of streaming and on-demand video services.

Its shares were unchanged at 12 Australian cents on the ASX.

Sky failed in its bid to have content excluded from the commission’s review, which it had argued could become a quasi-regulatory inquiry if content arrangements were found to be a barrier to uptake.

Retail service providers (RSPs), which offer access to the internet and enable bundling of Sky's video content, said their "reseller and retransmission agreements restrict RSPs' ability and incentive to partner with new entrants", according to the regulator’s Igloo investigation report.

The content deals last several years, and mean RSPs can't charge for their own content, nor offer assistance to rival pay-TV operators, the report said.

The RSPs also have incentives not to breach their agreement.

Sky chief executive John Fellett said the new probe was "because of complaints from our competitors" and that the company will co-operate with the regulator.

Sky is confident its arrangements don't breach the Commerce Act, the Sky statement said.

Rob Mercer, head of research at Forsyth Barr, said Sky's resale arrangements don't disadvantage rivals and buyers of Sky content have to accept if they want to select smaller content bundles they will have to pay extra for that.

"The telcos and ISPs don't want to buy content, they want to toll it," he said. "If they want to take part [of the full Sky bundle], they will have to pay a premium for that portion."

Mr Mercer said the sector faces "fierce" competition as content resellers target new platforms such as smart devices.

Sky still has a good position in the market, having invested heavily over its 22-year history in New Zealand in building a digital platform and securing a content library, he said.

"If you don't have sport and you don't have local content, then it's hard to build revenue and a profit-model around international content." 

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