Sky TV content agreements need more investigation: regulator

The Commerce Commission says it needs to dig a little deeper into pay-TV operator Sky Network Television's content arrangements with internet service providers after completing the first stage of its investigation.

The anti-trust regulator has told Sky TV, whose biggest shareholder is Rupert Murdoch's News Corp, it believes further investigation into the company's agreements is necessary.

Sky TV shares [NZX:SKT] were down 1.38% to $4.99 in mid-afternoon trading.

Sky's content arrangements have come under scrutiny since the commission began researching potential impediments to broadband uptake after the government stumped up $1.35 billion to build a national high-speed internet fibre network.

In May, the Commerce Commission cleared Sky TV and TVNZ to launch their joint venture igloo (subsequently delayed for technical reasons). But at the same time, the regulator said.

“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 would 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."

Sky TV 12-month NZX performance (Source: S&P Capital IQ; click to zoom).

This morning, Sky TV CEO John Fellet told NBR "We'd rather it just be done."

But he could see why it would take a while for the Commission "to get to grips with deal points that have been in our contracts for a decade."

Sky TV had no plans to change its contracts because of regulatory pressure. However, new technology could see changes when wholesale partners CallPlus, Telecom, TelstraClear and Vodafone renewed contracts.

No one had conceived of a video streaming service like Quickflix 10 years ago, Mr Fellet said. 

Earlier this year, TestraClear CEO Allan Freeth complained Sky TV's contract was too restrictive, and forbid ISPs offering paid content from rivals. Mr Fellet said today Sky's interpretation of its contract was that ISPs could unbundle a service like Quickflix. A note had been sent to partners to this effect.

Australian-based Quickflix has also complained that although HBO is one of its investors, it cannot offer HBO content through the New Zealand version of its service, as Sky TV holds local rights. Mr Fellet says Sky TV bid for the rights on the open market, and needs to recoup its expenses.

While TestraClear boss Dr Freeth agitated aggressively against Sky TV's contract terms, which he said had reached "a commercial pain point", Vodafone CEO Russell Stanners told NBR he had no issues.

"We don’t find our contract with Sky TV restrictive,” Mr Stanners told NBR. “We have a good commercial relationship with Sky.” (Vodafone NZ's takeover of TelstraClear is still before the Commerce Commission for approval.)

Sky TV recently reported a record $123.7 million full-year profit. But Forsyth Barr analyst Rob Mercer said net subscriber growth was "surprisingly flat." Mr Fellet told NBR that, with hindsight, the company has over-committed to the London Olympics. The broadcaster should probably have stuck to its original plan to have Prime TV coverage plus two Sky Channels, the CEO said.

With reporting by Business Desk.