When the Olympics open in London in July, New Zealanders will for the first time have to watch the Games on Sky. State broadcaster TVNZ lost the rights in a bidding war with Sky, whose controlling shareholder is Rupert Murdoch’s News Corp. Although Sky will screen hours of coverage each day on its free-to-air channel, Prime, the best events will be accessible only to those willing to pay the $72 a month for a basic subscription and Sky’s sports channels. The Olympics are just the latest sign of Sky’s slow-rolling conquest of the nation’s TV screens, courtesy of a broadcasting industry that, unusually in world terms, faces no special rules designed to thwart the emergence of outsized players. More and more premium content is disappearing behind Sky’s pay walls.
Once upon a time, a BBC show like The Hour would have been prime TVNZ fare. Today, you can only watch it on Sky. Ditto Mildred Pierce, Mad Men and Game of Thrones, which are all behind two Sky pay walls, requiring a basic sub and another $10 a month for the SoHo channel. A full package of sports, movie and other options costs over $150. This month, the launch of a SKY-TVNZ joint venture, a cheaper Sky subscription called the Igloo channel, will extend Sky’s reach, tempting some of the half of households that aren’t yet subscribers.
“Sky is overwhelmingly, unhelpfully dominant in New Zealand,” says an international expert on media regulation, Professor Dwayne Winseck of Carleton University in Ottawa. And as we stand on the brink of a revolution in media that should be bringing cheaper, on-demand content, Sky may be on the way to locking up access to that, too. With the laying of the Government’s $1.5 billion ultra-fast broadband (UFB) network under way, we were promised a new “a la carte” world of media, in which we would be able to watch movies and television shows when we want, via the internet, hopefully at a fraction of the cost of a Sky subscription. Pundits predict that by 2015, 80% of this country’s internet use will be video-watching.
But last month the Commerce Commission launched an investigation into whether Sky has unfairly shut out competitors in the growing market for entertainment delivered by broadband. At the heart of the commission’s probe is Sky’s confidential contracts with the major internet service providers, which Sky chief executive John Fellet confirms stop the providers entering into relationships with any other entertainment providers without Sky’s approval. The deals also prevent internet providers seeking their own broadcasting content, instead requiring them to ask Sky to get content for them. The commission is also investigating whether the media giant’s exclusive deals with Hollywood studios will keep newcomers from offering an attractive variety of film and television content to customers. And behind these concerns is a bigger one that Sky, a privately owned company, might hog the benefits of the taxpayer’s massive investment in broadband by being the player best positioned to deliver internet content.
The Government has promised that UFB will be available to 75% of households within 10 years. Says Winseck: “You have this $1.5 billion broadband initiative under way and the whole thing seems to be being geared for delivering Sky’s television package, as another distribution channel for Sky. It seems to me being bent very substantially to Sky’s interest. That seems to me to be a bit rich as a use of a government subsidy. The ISPs have entered into these contractual arrangements with Sky to only offer a full suite of television and entertainment-like services from Sky. “In most countries broadcasters are a lot weaker than the telecom providers and the internet companies; they’re a lot smaller. But the situation is upside-down in New Zealand. Sky’s dominance is everywhere, and in particular its infl uence on the internet service providers,” says Winseck, who was invited to speak at a Commerce Commission conference on broadband earlier this year.
Other commentators are worried lack of competition could turn the taxpayer’s broadband investment into an expensive white elephant, as without varied and cheap video content there will be little incentive for households to pay for faster broadband. Mediaworks has suggested Sky could end up reaching 62% of households once it adds its Igloo service, meaning a large portion of householders might not see ultra-fast broadband as necessary because they are already getting TV through Sky.
THE MAN IN CHARGE
The man who has presided over Sky’s rise and rise in New Zealand is John Fellet, who opponents say has been a master of the business and political strategy needed to build his profits and keep the regulators at bay. Raised in Arizona, he trained as an accountant and then went into pay TV in the US, taking the helm here in 2001. Fellet, speaking from Sky’s headquarters in Auckland, acts puzzled when asked about Sky’s dominance. “If you look at all the hours of viewing that is done in the week, Sky channels and Prime represent about 37% of the total viewing. We would have less of a market share than Toyota. No one thinks that Toyota is huge. Certainly we would have a lesser footprint than the Warehouse or Trade Me in their respective genres.”
And he says he doesn’t have a grip on content, either. “I don’t own any content, I rent it,” he says, adding there are probably about 1000 individual contracts up for grabs each year. “Anyone can come along and say ‘Jeez, we can do that better, we’ll have a go at that.’ For instance, I lost Wimbledon to TVNZ; Maori TV owns the rights to Super League, they outbid me.” However, Sky in New Zealand is a standout for a number of reasons. First, it has a mammoth market share compared with the leading pay TV operators in other markets. Against Sky’s 49% of New Zealand households, the US’s leading pay TV company has 19.5% of its market, Australia’s 27%, the UK and Ireland’s 37% and Canada’s 18%. Second, Sky has mushroomed in an unusually deregulated environment. New Zealand’s competitive broadcasting industry was born with the launch of TV3 in 1989, when free-market thinking was ascendant. Winseck says he can’t think of any other OECD country with such light-handed broadcasting regulation as New Zealand’s.
“Most countries around the world have a pretty formalised regulatory framework, more formalised than yours, and have more definite guides on media ownership.” Here the only safeguards of competition are the comparatively weak general provisions of the Commerce Act. The Commerce Commission has taken a relaxed attitude towards the growing market power of Sky. In 2006, it green-lighted Sky’s purchase of free-to-air channel Prime, and in May, it okayed the Igloo venture between two of the three biggest players in the market, Sky and TVNZ. Now, while other OECD countries are introducing new forms of regulation to ensure fair play as the telecommunications and media industries converge, New Zealand is looking even more out of step. The upshot is that Sky has quickly built formidable economic power in a tiny market, dwarfing competitors. Sky made $120 million in profit in the 2011 financial year, compared with a measly $2 million for TVNZ. TV3 is particularly weak, with its parent company,
Mediaworks, hobbled by debt. Controlling shareholder Ironbridge is finalising a debt-restructuring deal. Sky also has the advantage of being part of News Corp’s global media empire, giving added clout in content bidding wars. Sky has been smart, using its deep pockets to develop attractive offerings such as the MySky device, which users rave about. MySky offers a form of on-demand viewing by making it easy to record and store multiple programmes, building a library of content. But this is just the sort of control viewers would get if they had access to an online operator like America’s Netflix or Hulu, which offer open access to big libraries of content for just US$8 a month. For any new players that might want to enter the New Zealand media market, though, key entry points are blocked.
High above New Zealand, Optus D1 is the only available satellite, and Sky leases seven of its eight transponders. When it comes to digital transmission, limited capacity is available, and the bulk of that not used is owned by Sky. The big hope, as ultra-fast broadband’s fibre-optic cables are progressively laid across the country, is that the internet will be the portal for a new wave of competition. But according to new entrant Quickflix, from Australia, Sky makes it devilishly hard to get in. Quickflix has found it difficult to make deals with New Zealand internet service providers to deliver movies and TV shows in zero-rated form, in other words, so that downloaded content doesn’t count towards the consumer’s broadband data limit.
“There have been internet service providers who have first and foremost been concerned about the contracts they have with Sky, and while I’m not privy to those contracts, of course, there have been at least one or two that have indicated they may have difficulty completing a deal with us. What I do know is that the first consideration for a lot of these people with reseller agreements is Sky,” says Quickflix Australian chief executive Chris Taylor. “Pressure being applied in any way, shape or form, whether contractually or otherwise, around unmetering a service or collaborating with a service that’s going to provide a very different price point and a very different product to New Zealanders, is in my mind, a demonstration that Sky does wield an enormous amount of power in the market.”
NEW GENERATION OF SERVICES
Quickflix, like Netflix, offers a new-generation service in which subscribers can pick an unlimited number of movies and TV shows, download them over the internet, and watch them on their TV, iPad or games console for a monthly subscription fee. Fellet counters that there is nothing in its ISP contracts that prevents ISPs offering unmetered services to Quickfl ix, and that Sky itself can’t get unmetered deals with all of them for its online offerings. Quickflix has secured zero-rated deals with Orcon and Slingshot. Sky, which offers replays of programmes online for its subscribers through i-Sky, has a zero-rated deal with Vodafone, Orcon, Slingshot and a number of other small players.
Fellet rejects Taylor’s complaint that Quickflix has been unable to get rights to HBO shows because of Sky’s deals with HBO. He says although Sky has all the New Zealand rights for TV screening of HBO shows, it does not hold rights for later screenings through video streaming. TelstraClear and Mediaworks are two other trenchant critics of Sky’s market power and have taken aim at Sky in recent submissions to a Commerce Commission draft report on broadband uptake. TelstraClear, which sells Sky content to cable customers in Wellington, Kapiti and Christchurch, says video-on-demand is “woefully underdeveloped” in New Zealand and that effective competition is being “frozen out” by restrictions Sky imposes on its internet partners. Both TelstraClear and Mediaworks want to be able to buy Sky TV content and then add their own offerings on top.
TelstraClear argues that to survive, a provider of pay TV in New Zealand must be able to offer live premium sports, of which Sky is the only rights-holder. For this reason, TelstraClear has little choice but to deal with Sky, but then faces restrictions on adding other content to the Sky line-up. “Although Sky appears happy to tolerate limited, marginal competition, the restrictions present in its ISP agreements enable it to exert suffi cient control and ‘hold up’ ability to ensure that players like TCL are unable to develop into a source of real competition,” says Telstra Clear in a submission to the Commerce Commission For his part, Fellet says some of the complaints leave him feeling “hard done by”.
“I’m willing to listen and work through it.” But he says he would be nervous giving other players Sky’s content, “and them withholding exclusive content from me”. He also doesn’t accept Sky has enjoyed unusual freedom in a lightly regulated broadcasting environment. Australia and the US, he contends, are as lightly regulated. Yet Australia’s Communications and Media Authority (ACMA) has a brief that includes promoting competition and ensuring diversity of control of infl uential broadcasting services. Australia also has anti-siphoning legislation designed to ensure pay TV doesn’t corner the rights to all the mustwatch sporting events.
The Australian approach was seen in conditions recently imposed on top pay TV operator Foxtel in its $2 billion takeover of regional operator Austar. Competition watchdog ACCC put an eight-year restriction on additional acquisitions by Foxtel, banned full control of some channels and banned Foxtel from buying exclusive rights to some types of content. This despite the fact that only about 27% of householdssubscribe to Foxtel and Austar put together. In the US, the Federal Communications Commission also has wide regulatory powers, with a mandate to restrict media concentration in TV and radio markets, to protect communities from monopolies, and to enhance diversity in media ownership. It sets limits on the number of broadcast stations a company owns.
TIME HAS COME?
The Commerce Commission investigation for the first time puts Sky on the back foot. Fellet, however, is cheery, saying it is an opportunity for Sky to dispel a plethora of disinformation. “We’ll walk them through, show them our contracts. I don’t know that you can say I lead a charmed life, I just haven’t done anything that’s been illegal.” In line with Sky’s argument that there is nothing holding back competitors, Fellet bubbles with talk of competitors he expects will soon be breathing down his neck. “Sky would have probably the slowest net gain [in users] in its history this year. There are just too many ways to enjoy content.” Apple TV, for one, is taking Sky viewers. He told the Commerce Commission broadband inquiry that along with Quickflix, “Sky anticipates the imminent entry of other major international players into the New Zealand market”, such as Netflix and Hulu.
However, late last year a Netflix senior executive was quoted as saying the company was not yet interested in entering the New Zealand market because of poor internet services, low broadband caps and difficulty obtaining content licences. Fellet says there are no barriers to new entrants in terms of availability of rights to streaming video, and that Sky itself holds no streaming video-on-demand rights, or rights of first refusal to such content. Labour’s broadcasting spokesperson, Clare Curran, says Sky’s outsize market position has put the regulatory framework firmly on the agenda. “Sky has pushed back over and over and over again, against any form of regulation. The big question is, has its time come. It’s about fairness, ultimately. Should Sky have the power that it has in our market?”
But Communications Minister Amy Adams has repeatedly said she does not believe regulation is needed, saying it could stifle innovation in a fast-changing sector. She refused comment for this article, citing the Commerce Commission investigation. Telecommunications Users Association chief executive Paul Brislen is sceptical that the Commerce Commission inquiry will change much. “I haven’t seen the contracts, although the ISPs that have them assure me they are entirely onerous, and the sooner we get rid of them the better.” He thinks the forces Sky is up against are bigger than the Commerce Commission. He says tech-savvy viewers are increasingly bemused by Sky’s high pay walls, and are walking around them by pirating material or bypassing country restrictions and subscribing to Netflix and Hulu.
“Even my mother-in-law is quite happy to have a conversation about how to pirate TV content. The market has moved on. The gatekeepers are losing control. I can be watching a programme half an hour after it screens in the US, and I frequently do. I’m ashamed to be doing it, I would like to pay someone for it, but I don’t want to buy a whole lot of channels full of programmes I don’t want – thank you, Sky – or wait 18 months or a year to see the programme – thank you, TVNZ.” For those who don’t want to have to roam the back alleys of the internet in search of freer choice, things need to change in this country’s claustrophobic TV market, says Dwayne Winseck. “You guys have a small television market, and a small television industry. It seems to me what you want to be doing is loosening things up as much as you can to get as many providers and sources in as you can, as opposed to saying three is good enough.”
TV lover’s guide to the new world of on-screen entertainment
FREE TO AIR TELEVISION
TV1, TV2, TV3, Sky’s Prime, Maori Television, Four, CTV, Triangle Television and several smaller channels. Viewable on analogue and digital (Freeview) frequencies.
DOWNSIDE: Fewer of the most desirable TV programmes than there used to be, and few of the top sporting events.
Sky TV offers 110 channels, made up of a basic service of 57 channels and additional premium channels such as sports, movies, the Arts Channel and SoHo. TelstraClear resells Sky channels. MySky box allows viewers to record and store content to watch later. Sky also off ers pay-per-view options.
Igloo: cheaper version of Sky, launching in June. Requires $200 box, then a monthly subscription of $25 for 11 channels. Also access to pay-per-view sports events, movies and TV series.
UPSIDE: Lots of choice.
DOWNSIDE: Cost – average Sky customer pays $71 a month. No avoiding buying a lot of unwanted content.
À LA CARTE TV
Television shows and movies delivered over the internet, viewable on computers, TV and a variety of devices, some in high defi nition.
TVNZ and TV3 on demand: Watch recent shows through broadcasters’ websites.
TelstraClear broadband customers can watch TV3 content eff ectively for free: it is zero-rated and thus doesn’t count towards their broadband data cap.
iSky: Lets Sky TV subscribers watch programmes they have missed on their computer through the iSky website. Data is zero-rated for customers of Vodafone, Orcon, Slingshot and several other small providers.
Apple TV: With a $159 Apple TV box, movies can be downloaded through iTunes for watching on a TV, computer, iPad or iPod. New releases start at $6.99, library titles at $4.99. No broadband deals.
Quickflix: Pay an introductory subscription of $9.99 a month for the first year, rising to $16.99 after July 1, for unlimited movies and TV shows. Can be watched on a computer, internet-connected TV, iPad, iPhones and PlayStation 3 games consoles. Data zero-rated for Orcon and Slingshot customers.
NetFlix and Hulu:
The American services envied here. Cost US$8 a month for unlimited movies and TV shows. Not available if you have a New Zealand IP address. However, those who are technically confident can subscribe via a VPN (virtual private network) that links to a US address, at a cost of $5-$10 a month. Information on how to do this is on the internet, or hire a geek to do it for you. Pirating: Illegal, but it’s happening. Content available from a variety of peerto- peer websites.
UPSIDE: Control over what you watch, when you want to watch it. Cheaper than pay TV, more variety than Freeview.
DOWNSIDE: New Zealand’s slow broadband speeds. Consumes broadband data allocation – a movie chews through 2-4 gigabytes in high definition and 1-2 gigabytes in standard defi nition. Pirates risk running foul of the three-strikes copyright law that could mean a fine of $275-$15,000 after two written notices.