Fellet responds to watchdog's Sky TV-TVNZ investigation

RIGHT: At a briefing in Auckland Dec 7 (left-to-right) to announce the joint venture: Igloo general manager Chaz Savage (formerly Sky TV GM of product and subscriber marketing), Sky TV chief executive John Fellet and TVNZ chief executive Rick Ellis.

UPDATE: March 13: The Commerce Commission has told NBR it is investigating Sky TV and TVNZ's joint pay TV venture, igloo, under Section 47 of the Commerce Act.

"The Commerce Commission has to follow up on every complaint, but historically they act in the best interest on the consumer not the industry players," Sky TV chief executive John Fellet told NBR.

"Igloo is a service going after a low cost end of the market as oppose to the traditional Sky TV market," Mr Fellet said.

"No other competitors have announced their desire to serve this market and even if there was a potential competitor they have 20 years to get into this business."

A MediaWorks insider told NBR, "We understand there is mounting concern within the industry on this matter," hinting that the TV3 and FOUR broadcaster at least supports the complaint.

TVNZ declined to comment.

Freeview GM Sam Irvine said the complaint was "nothing to do with us. He added. "It is an interesting investigation."

Igloo is scheduled to launch mid-year.

"The investigation was initiated following complaints from third parties," a commission spokeswoman told NBR.

"It is our standard practice that we do not reveal the identity of individual complainants."

Those left in the cold by Igloo's business model include Freeview (which one TVNZ insider told NBR was once seen as a vehicle for pay TV add-on channels) and TV3 and FOUR broadcaster MediaWorks. At Igloo's December launch event, there was little detail about whether MediaWorks would supply its electronic programming guide to the joint venture (which will see Sky TV and TVNZ split subscription and advertising profit, but potentially garner MediaWorks revenue from paid, on-demand content). Sky TV chief executive John Fellet told NBR he was confident Igloo would feature MediaWorks' EPG by the time of its May or June commercial launch.

Section 47 of the act stats that, "A person must not acquire assets of a business or shares if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market."

"Due to the nature of investigations, they can vary widely in how long they take to complete. So, we have no defined timeframe at this stage," the spokeswoman.

Sky TV has invested $12.75 million for its 51% share, TVNZ $12.25 million for its 49% share.

The venture is seen by analysts as strengthening Sky TV's position. It allows the pay TV broadcaster to target lower-spending consumers (who may eventually be spurred by Igloo's lack of a hard drive recorder to upgrade to My SkyHD), and brings TVNZ - formerly a pay TV competitor with the Caspa paid download service offered by Caspa - inside its tent. 

Another potential competitor in the looming Crown fibre environment - Telecom (also one of TiVo's original backers) came back into the Sky TV camp last year, signing a marketing agreement that also allows the broadcaster to make cloned, re-branded MySky boxes.

On February 12, ICT minister Amy Adams said she was monitoring the situation, but saw no immediate need for pay TV regulation.

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.

Sky TV warns of $6.7m Igloo earnings hit

Dec 8, 2011: Sky TV expects two years of losses from Igloo, its pay TV joint venture with TVNZ formally announced yesterday.

The company told the NZX yesterday that Igloo will reduce Sky TV ebitda by $3.7 million in 2012 financial year and $3 million in 2013.

After tax, the negative impact will be $1.6 million in 2012 and $1.6 million in 2013.

The numbers are modest in relation to Sky TV’s overall financials (in the 12 months to June 2011, the company reported ebitda of $322 million and net profit of $120 million).

The Igloo financials were released 15 minutes before the close of trading. Sky TV shares [NZX:SKT] finished down 5c or 0.75% for the day at $5.28, with 1c of the decline after Igloo was announced.

Sky TV expects the new service, due to launch in the first half of next year, to gain 50,000 subscribers by the end of 2012.

Subscribers will pay $25 a month (on a pre-pay, no-term basis) for access to all free-to-air channels, 11 pay channels, and a library of around 1000 pay-per-view, on demand movies and TV programmes. Igloo will also feature a pay-per-view sports channel.

An Igloo set-top box will cost “under $200,” the joint venture's chief executive, Chaz Savage, told a media briefing yesterday.

Sky TV has invested $12.75 million for its 51% share, TVNZ $12.25 million for its 49% share.

Strengthens Sky
Earlier, with most of the details of the deal already on the table, Forsyth Barr analyst Rob Mercer told NBR that Sky TV’s penetration was stalled at around 51%. Igloo represented a cost-efficient way for the company to push its penetration up to 60% to 70% over the next five years.

With the paid channels drawn from Sky TV’s existing content pool, transmission over UHF frequencies already held by Sky TV, and subscribers paying full price for a set-top box, Igloo involves no major capital expenditure. It was a low-risk, low-cost approach, the Forsyth Barr analyst said.

Mr Mercer said Sky TV had struggled to monetise its online rights to programming so far; Igloo would give the company greater opportunity to increase revenue from on-demand content delivered over broadband.

On-demand movies will cost $3 to $7 via Igloo, on-demand TV series $3 an episode. Mr Mercer anticipated a 50:50 revenue split with content providers.

This morning, Mr Mercer said while details of a key commercial detail had yet to be finalised - uncapped data deals with ISPs for on-demand content - Igloo was both a defensive and strategic position for Sky TV, and strenthened the company's market position.

MediaWorks yet to sign on
At an Igloo press conference yesterday, chief executive Chaz Savage said he had a verbal commitment from MediaWorks to provide electronic programming guide (EPG) data for TV3 and Four.

Sky TV subsequently told NBR that if MediaWorks does not ink a deal in time for Igloo’s launch, the new set-top box will have basic “what’s now and what’s next” listings for TV3 and Four.

Asked if MediaWorks had any financial incentive to provide its EPG for Igloo, Sky TV chief executive John Fellet said the broadcaster could earn revenue from Igloo on-demand content. However, he was not aware of MediaWorks owning on-demand rights to any on-demand content.

NBR's take is that a full EPG matters. The lack of an EPG for Prime has been one of the major reasons that TiVo has proved such a failure (TVNZ recently wrote off $17.7 million on the venture). Key stakeholders were simply unaware how annoying this draw-back was in everyday TiVo usage. Management at Australasian TiVo licensee Hybrid TV (one-third owned by TVNZ) sit across the Tasman. Managers at Telecom - TiVo's exclusive retailer - subscribe to Sky TV. At the time of TiVo's launch, Telecom's head of retail was ignorant of the difficulties recording Prime on the service.

Life in the cheat seats
Sky TV has yet to release full technical specifications for its Igloo set-top box, but has set a USB stick will have to be plugged in to enable live pause – indicating a modest amount of storage.

The 12 paid channels will be SD (standard definition digital) rather than HD (high definition digital). Free-to-air channels broadcast in HD will also be HD on Igloo.

And while on-demand movies can be stored on MySkyHDi (and other services), Igloo will offer live streaming only.

There is no built-in hard drive for recording shows, though up to four hours of broadcast can be buffered to a USB stick.

Another drawback, while all major internet service providers unmeter iSky (that is, don't count movies and other content downloaded on Sky TV's service toward a monthly data cap), Igloo downloads will be metered (although Telecom chief marketing officer Jason Paris told NBR his company was open to talks).

Sky TV pointed to a recent Statistics NZ survey that showed most people now have data caps between 5GB and 20GB (a downloaded movie typically accounts for around 1.2GB). But among the 49% yet to succumb to the charms of Sky TV and the 21% who have neither Sky TV nor Freeview, data caps can be a pressing issue.