"Good grief. Wouldn't want the government to get in the way of a nice, profitable monopoly."Featured comment
UPDATE / Oct 8: The Commerce Commission has wrapped up its 18-month invesitgation into Sky TV's partnerships with ISPs, and the related whether Sky TV's deals stop new market entrants, such as Quickflix, from gaining a critical mass of content.
The pay TV broadcaster has been let off with a warning. No legal action will be taken.
It's a signature victory for Sky, whose very business model would have been threatened had the regulator decided to pursue legal action for alleged breaches of sections 27 and 32 of the Commerce Act.
In an opinion piece for NBR, lawyer Michael Wigley argued that Sky TV could be playing a "Tall Dwarf" game; allowing newcomver Coliseum Sports Media to win English Premier League soccer rights - a minor loss for the pay TV provider in the great scheme of things, but one that gave the appearance of competition from new broadband technology.
However, it's not an argument bought by the Commission, which sites Coliseum's PremierLeaguePass.com as its hero example of new market developments providing new competition.
The Commerce Commission's warning letter to Sky TV describes the pay TV broadcaster as a "near monopoly", and that any new market entry would have significant benefits for New Zealand consumers.
It also notes that its content deals with ISPs prevent them from obtaining content from another source without Sky's consent and that “We believe that Sky entered into historical agreements with RSPs [retail ISPs] that had the purpose, effect, or likely effect of substantially lessening competition.”
The letter notes the Commission canvassed the views of ISPs, as well as possible new market entrants such as Apple (iTunes NZ does not offer TV programmes, as in other territories), Fetch TV and Netflix.
The Commission says there is nothing to stop any broadcaster bidding for content rights, but that Sky's large subscriber base gives it an advantage given that some content is expensive. However, the high cost of content in itself is not a matter for sections 27 or 32 of the Commerce Act, the regulator notes.
The Commission's letter also notes that Telecom was recently granted an exemption by Sky TV - presumably for its minor marketing push for Coliseum's PremierLeaguePass.com (which new customers can choose in lieu of the usual free month of service).
UFB needs content competition
Telecommunications Users' Association CEO Paul Brislen tells NBR, "The [Commerce Commission] notes that "There appeared to be sufficient content of all types available outside of Sky’s exclusive contracts to put together an appealing pay TV package. These contracts were similar in nature to other broadcaster contracts with content providers" - which is an interesting statement. Currently there is no comprehensive alternative to Sky TV in either traditional channel-based pay TV or online, yet the Commission seems to believe there is no restriction on other content providers from delivering that content."
Mr Brislen says his organisation firmly believes that if the UFB and RBI projects are to be deemed successful then uptake rates must increase dramatically and the only real way to do that in residential New Zealand is to provide more legal choice in the content market.
The investigation kicked off soon after then TelstraClear CEO Allan Freeth told NBR his organisation's content partnership with Sky TV had reached a pain point, due to the telco not being allowed to source pay TV content from any other source. After buying TelstraClear, Vodafone rolled over the agreement with Sky TV for another five years, with terms confidential (last week, Vodafone launched its UFB plans, including a TV component with Freeview, on-demand movies and Sky TV content).
Sky TV CEO John Fellet says, "The investigation has been a long and detailed exercise but we’re glad a robust decision making process has taken place. I look forward to reading the full final decision and welcome the end of the investigation."
Although the regulatory threat melted away, and above-board competitor Quickflix is struggling, the irony is that Sky TV does face grey market competion. That includes kingpin US video streaming service Netflix - championed last week by Orcon's CEO.
The question now: with the Commerce Commission investigation safely behind it, will Sky feel emboldened to go after those promoting Netflix and its ilk?
RAW DATA: Commerce Commission statement:
Commerce Commission issues warning to Sky
The Commerce Commission has issued Sky Network Television Ltd (Sky) with a warning that it believes certain provisions in Sky’s contracts with telecommunications retail service providers (RSPs) are likely to have previously breached section 27 of the Commerce Act 1986 (the Commerce Act).
The Commission issued Sky with a warning after its investigation found that currently those provisions are unlikely to have the effect of substantially lessening competition and are unlikely to cause harm in the future. However the Commission has put Sky on notice that it will continue to monitor Sky’s contracts and conduct. It will take no further action at this time in relation to the historical breaches.
Commerce Commission Chairman Dr Mark Berry said the Commission had investigated Sky’s contracts with RSPs thoroughly and says this was the most efficient course of action to take.
“We believe that Sky entered into historical agreements with RSPs that had the purpose, effect, or likely effect of substantially lessening competition.”
“However due to market developments, the key commitments Sky has with RSPs are unlikely to continue to have the same effect. For example the new sports pay TV product from Coliseum and the recent exemption granted by Sky to Telecom to market this product. ” Dr Berry said.
“As a consequence, a warning letter and notice that we will continue monitoring Sky’s contracts and conduct was the prudent course of action,” Dr Berry said.
“However, if evidence is brought to the Commission’s attention that competition is, or is likely to be substantially lessened, we will take the necessary enforcement action to remedy the situation and ensure that the long term interests of consumers are protected. In this respect we reserve the right to draw the warning letter that has been sent to Sky, to the attention of a court in any subsequent proceedings against Sky.”
“A case like this could take several years to conclude, costing several million dollars and finish in an era that is likely to be vastly different to the one we lived in when this breach occurred,” said Dr Berry.
As part of the investigation, the Commission also concluded that Sky’s contracts with content providers were not likely to have breached the Commerce Act. There appeared to be sufficient content of all types available outside of Sky’s exclusive contracts to put together an appealing pay TV package. These contracts were similar in nature to other broadcaster contracts with content providers.
A detailed report outlining the Commission’s investigation and findings will be published shortly, once it has discussed confidentiality with relevant parties.
The Commission’s decision does not stop other parties from taking their own private action.
A copy of the warning letter to Sky can be viewed at here.
Endless Commerce Commission Sky TV investigation is endless
UPDATE / Aug 21: The Commerce Commission's endless investigation into Sky TV's partnerships with ISPs, and whether its more general content deals "harm competition by denying actual or potential rivals access to a critical mass of quality content" remains, well, endless.
The investigation has now been going for 16 months, and it's two months since Wellington media tipped a resolution within a month.
Any result has come too late to impact Sky TV's resale partnership with Vodafone (now including TelstraClear), which today the pair said has been rolled over for another five years (Vodafone CEO Russell Stanners sharing none of TelstraClear CEO Allan Freeth's pain point qualms. NBR queried Sky TV and Vodafone on whether the renewed deal has any restictions on Vodafone accessing pay-per-view content from another provider; Sky TV replied the details are confidential. Vodafone offered: "Clearly there are a number of commitments in the agreement on both sides, but I’m afraid we can’t disclose what those are for reasons of commercial sensitivity."
It seems the investigation has a reasonable level of intensity.
Sky TV's single inhouse lawyer has most of their time taken up by it, an insider at the pay TV broadcaster tells NBR.
But there is still no end in sight. An anticipated negotiation phase does not seem to be on the horizon.
Once the investigation finally wraps up, the Commerce Commission will then (if it discovers issues) hold an inquiry into whether there has been a breach of the Commerce Act. And if that is decided we will then have to see how much regulatory or political will exists to actually pursue a case.
So: there appears to be no immediate threat to Sky TV's (admittedly hard-won) hold on the stuff people actually want to pay for: HBO shows, rugby and recent release movies.
An update on the Commerce Commission's Sky TV content deal probe
Feb 21, 2013: The Commerce Commission has been probing Sky TV's content deals continues for the best part of a year.
Given Sky TV reports its results tomorrow, NBR thought it would check in on progress.
The investigation continues, a spokeswoman told NBR - and there's no deadline.
"Investigations are very hard to determine a timeframe on, as there are so many variables," NBR was told.
"The next step would be a decision as to whether there are issues under the Commerce Act, and then how we might resolve any issues."
But when that will happen is anyone's guess.
The story so far:
On May 16 last year, the Commerce Commission cleared the Sky TV (51%) - TVNZ (49%) joint venture igloo, but added the kicker:
“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.”
That comment came after (then) TelstraClear CEO Allan Freeth complained his company's partnership with Sky TV was nearing a commercial "pain point."
Dr Freeth said while TestraClear could source movies, TV shows or channels from anywere for the T-box used by some of its cable internet customers, its contract with Sky TV forbid it charging for any content unless it was sourced from Sky TV.
The second part of the Commission's statement was more intriguing, and potentially a lot more sweeping. To wit:
The Commission said it would also look at 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."
It's an intriguing question.
On the one hand, Sky TV has long argued that it's not like Telecom, which inherited a state monopoly. Rather, it built its position in the market over years of blood, sweat, tears and hundreds of millions in losses. It's investors took the risk, and now they're enjoying the reward. Looking at the immediate situation, CEO John Fellet says his company has paid for local rights for HBO shows like Game of Thrones, and has a right to recoup its costs as through the exclusive broadcast (online and offline) of those shows in NZ.
Against this, new entrants clearly are having trouble gainiing a critical mass of content - a problem brought into focus by Quickflix near-death experience late last year. In the end, the online streaming service cobbled together a $A5 million lifeline, but its content line-ups still draws guffaws on social media.
Sky TV's nightmare scenario is so-called anti-siphoning legislation, as we've seen overseas, which prevents a pay TV provider from monopolising a sports event. A number of countries have also put a single regulator in charge of both telecommunications and television as the industries converge.
I'm not sensing any regulatory or politcal will to push through such a change here - but Sky TV investors will still be a touch nervous until the ComCom puts its content investigation to bed.
And, done the track, I think Telecom CEO Simon Moutter is right. As the likes of HBO have their regional contracts up for renewal, technology changes could well let to them entering non-exclusive arrangements, or otherwise seeking to directly reach consumers "over the top" of Sky TV via the likes of iTiunes.