Watchdog clears Sky TV-TVNZ igloo joint venture - but opens content acquisition investigation

Low-cost pay TV and internet download platform set to launch next month as complaints dismissed. But Sky TV faces fresh grief over its ISP partnerships, recently questioned by TelstraClear.

UPDATE May 16: As widely expected by friends, foes and analysts, the Commerce Commission has given Sky TV and TVNZ's igloo joint venture the thumbs up - but opened the door to an investigation into Sky TV's partnerships with ISPs, which TelstraClear has labeled restictive.

LATEST: Sky responds to investigation into its ISP contracts; shares fall 5%

The watchdog said it received a number of complaints that the joint venture had the potential to substantially lessen competition. It opened an investigation to determine whether there was any likely breach of sections 47 or 27 of the Commerce Act. Today, the Commission advised TVNZ and Sky that it had found no likely breach.

“While this was not part of this investigation, we are aware of concerns that access to content and Sky’s contracts with internet service providers may be hindering competition. As a result, we have now opened a separate investigation under sections 27 and 36 of the Commerce Act.”

The Commisssion will also look at "whether Sky’s agreements for the acquisition of content harm competition by denying actual or potential rivals access to a critical mass of quality content."

Chair Dr Mark Berry said the Commission had done a full investigation and found that the joint venture would make little difference to the level of competition in the pay TV market.

“Our role in this investigation was not to judge the level of competition in the market, but whether the joint venture would change the level of competition. When we looked at two possible future scenarios, one with TVNZ’s involvement in the joint venture, and one without, we found the level of competition was essentially unchanged.”

Dr Berry said the contractual restrictions on TVNZ in the joint venture agreement are relatively narrow, relating only to the service that Igloo will offer – linear pay TV via digital terrestrial television. This leaves scope for TVNZ and Sky to compete across a range of other pay TV services, including video on demand and pay TV over the internet.

“We also found that a number of other potential competitors may enter the market.”

Sky TV CEO John Fellet - looking to shake accusations of near-monopoly, expecially given the new TVNZ tie-up - has touted the potential competitive threat from so-called over-the-top services that allow audiences to skirt tradtional broadcasters.

But recent efforts have proved wobbly.

Online movie and TV streaming service Quickflix has got in a war of words with Sky TV over who is to blame for its starved content (read Sky strikes back).

And new ISP FYX pulled its Global Mode (which among other things allowed customers easier access to geo-blocked US commercial download services like Netflix and Hulu) after only a couple of days.

Mr Fellet said his guess was that content suppliers had complained (read: Sky pleads ignorant).

And while TelstraClear has complained that Sky TV's partnerships with ISPs and phone companies are too restrictive (read: TelstraClear boss - Sky TV partnership reaching 'pain point'), it has yet to walk the talk and stirke out on its own.

So it was telling that Dr Berry added today that the Commission’s investigation did highlight potential difficulties that any entrant would face in entering the pay TV market.

“While this was not part of this investigation, we are aware of concerns that access to content and Sky’s contracts with internet service providers may be hindering competition. As a result, we have now opened a separate investigation under sections 27 and 36 of the Commerce Act.”

On April 17, TelstraClear CEO Allan Freeth told NBR ONLINE his company's contract with Sky TV “Prevents us charging for content not sourced through Sky TV."

Commission will give igloo the thumbs up – analyst

March 14: Forsyth Barr is confident the Commerce Commission will support igloo in its current form (51% owned by Sky TV and 49% by TVNZ).

In the likely event it didn't, Sky TV could go it alone on igloo, ForBarr research director Rob Mercer says.

This morning, the watchdog said it had launched an investigation into the $25 million joint venture, following complaints from un-named parties (no major players would admit laying a complaint, but there were noises of support from MediaWorks).

igloo is due to launch mid-year.

Mr Mercer told NBR a key point was that an igloo set-top box could be used, on $25 a month pre-pay, to receive a selection of "Sky Lite" premium channels. But if the viewer couldn't or wouldn't pay in any given monthy, they could still use igloo to watch free-to-air channels, effectively using it as a Freeview box.

Mr Mercer saw igloo expanding competition by offering a low-cost pay TV alternative.

He pointed out that Sky TV faced looming competition from emerging internet-based platforms such as Apple TV and Netflix (an argument frequently raised by Sky TV chief executive John Fellet and, tellingly, former ICT Minister Steven Joyce and his successor in the portfolio, Amy Adams).

TVNZ retained the right to launch its own business in the pay TV segment, Mr Mercer said.

igloo was not a content-buying platform. TVNZ and Sky TV would continue to "fiercely compete" to buy content.

If TVNZ was barred from igloo it would “benefit no-one,” Mr Mercer said.

Regardless, igloo could go ahead without TVNZ, Mr Mercer said.

ForBarr has a buy rating on Sky TV, and a valuation of $6.37.

Sky TV shares [NZX:SKT] were up 0.95% to $5.29 in late afternoon trading.

Sky TV and TVNZ have invested around $25 million in igloo, the majority in upfront costs associated with set-top boxes, which will be paid for in full by customers.


ABOVE: An Igloo set-top box and remote (click to enlarge). The box can receive all free-to-air channels plus, for $25 pre-pay a month, BBC News, BBC Knowledge, UKTV, National Geographic, Animal Planet,
Heartland, Vibe, Food Television, Kidzone24, MTV Hits and Comedy Central. Igloo will also feature around 1000 on-demand movies ($3 to $7) and TV series ($3 per episode), delivered over broadband, plus a pay-per-view sports channel. There is no built-in hard drive for recording programmes.

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