Speaker: Vodafone, Sky and the Commerce Commission: it's all about the Internet
As one of the economists to whom Jordan refers (four of my Covec reports are on the ComCom website) I generally agree with this analysis. The statutory test requires that the ComCom be satisfied that there will be no substantial lessening of competition, and the self-favouring that underpins Jordan's first concern was a very serious risk.
All the more so since
(a) NZ has no effective "abuse of market power" law, so if this merger proceeded we'd have no way of stopping them from discriminating against other telcos;
(b) it's not just fixed broadband - the trend towards video to mobile devices is not going away; and
(c) people who can afford sky sports are unusually valuable customers, not just average customers.
So, well done ComCom.
Do the various rights packages allow for wholesaling, though? I'd be surprised if the UK Premiership would want Vodafone/Sky to take a margin on selling their content through other ISPs when ideally they'd want this business themselves.
The flip side of discussions on sports rights that is frequently overlooked is where the income from rights revenue is spent. In New Zealand it's invested in grassroots sport. While the internet obviously creates many opportunities for NZ and is changing business models for all industries, we should be mindful that many of the sports that NZers not only value viewing, but also participating in (along with children, family and friends) rely on rights revenue. I'm sure we wouldn't want sport participation to become less accessible than it is now if sports codes are not able to derive maximum revenue from selling rights.
John Small, in reply to
Nothing in this decision limits the ability of sport codes to derive maximum revenue from selling rights.
Thanks John. I was referring more to Jordan's comments. The notion that the internet is a one-stop distribution tool for content and that content can be let loose online and will find an audience by itself is a huge leap away from what sports organisations are used to in doing one-to-one rights deals with broadcasters.
John Small, in reply to
I'm not sure how you read that into Jordan's comments Paula. The internet is a great distribution channel and plenty of firms use it to earn revenue. Sports organisations are permitted to post free material on the internet, but they aren't obliged to. As owners of the distribution rights to their own content, they will continue to sell in the most profitable way. The most profitable way might be a bit different next time rights come up for sale, but I'm really struggling to understand how you can interpret this decision as limiting the revenue opportunities of sports organisations.
“The flip side of discussions on sports rights that is frequently overlooked is where the income from rights revenue is spent. In New Zealand it's invested in grassroots sport.”
This is an argument quite often presented by media rights holders as part of the case against regulation. It is at best over-stated and at worst specious.
In 2015 income for NZRU was NZ$155m of which approximately NZ$30-40m (probably closer to $40m) was from broadcasting rights. SANZAAR unlike many sporting groups is big enough to argue a good deal for the four Unions represented. Of this NZRU spent NZ$16.8m on “Rugby Development” (not directly grassroots) and $9.5m on grants to Provincial Unions.
In 2105 Auckland Rugby Union (the real grassroots) received a $2.1m grant which made up approximately 20% of the Union’s income, a similar amount was raised from community trusts. With just over 20,000 players in Auckland that’s around $100 dollars per player from broadcast. This is the richest sport in New Zealand and its largest grass roots union. It is unlikely that any other sport receives a similar amount.
For perspective, it should be noted that cheap children’s boots cost about NZ$65 and injuries cost NZ$17m a year in Auckland alone (NZ$800 per player in Auckland). Add in coaching fees along with the cost of infrastructure (Auckland council facilities/School Sports grounds, clubhouses etc.) and the return on the community investment starts to look quite poor. A fag-packet estimate might place society's investment per player at well over $1000. Of course, broadcast media loves sport, it is diverse content that creates its own news stream, attracts advertising and requires remarkably little investment. Most of the content creation costs are covered by society.
For another perspective on the relationship between broadcast rights and sport read further into the ARU annual report. It is unclear whether the Oceania broadcasting rights or Schools Rugby made any money at all for ARU. This as I understand it, is the case for most other sports and especially minor sports. A quick look a Triathlon for example would suggest that it received nothing from broadcast in 2015; revenue came from grants, sponsorship, events and memberships. But perhaps one of the real basket cases is Swimming which has a massive investment from sport governance and community infrastructure but gets very little in return from media at the grass-roots. What comes back is channeled through the IOC. It has been argued quite cogently elsewhere that media rights organisations have become very effective at monetising community capital and volunteerism. For once I might find myself (partially) in agreement with Winston First.
Russell Brown, in reply to
Thanks John. I was referring more to Jordan’s comments. The notion that the internet is a one-stop distribution tool for content and that content can be let loose online and will find an audience by itself is a huge leap away from what sports organisations are used to in doing one-to-one rights deals with broadcasters.
I'm with John here: Jordan's not talking about content being "let loose" on the internet. He envisages a scenario where Sky continues to negotiate and secure rights to content which is then distributed in subsequent agreements with other companies.
The current situation, in which Sky controls both the content and the technical means of its distribution hasn't been particularly good for consumers or content creators, to the extent that it makes Sky the monopoly buyer and seller.
The prohibitive wholesale pricing Sky places on its content is reminiscent of the bad old days of Telecom, when that company sometimes wholesaled services at a rate higher than it charged at retail.
The use of the internet as a technical delivery mechanism doesn't mean a free-for-all. Netflix is delivery over the internet and people pay for that. With Brent Impey at the helm, it's not hard to see NZ Rugby seeking a different sales model for its content when the current Sky deal expires.
Bart Janssen, in reply to
we should be mindful that many of the sports that NZers not only value viewing, but also participating in (along with children, family and friends) rely on rights revenue.
From what I understand of what happens overseas when sports are limited to pay TV participation rates drop as does live attendance (probably because folks often watch sports they play). In NZ cricket has been the big loser when compared with Netball.
While the big lump sum that sports get from Sky would disappear I'm not certain that most sports would lose overall from widening the market for their sport away from pay TV.
Russell Brown, in reply to
While the big lump sum that sports get from Sky would disappear I’m not certain that most sports would lose overall from widening the market for their sport away from pay TV.
It's working fine in Britain. Ofcom imposed a "wholesale must offer" rule on BSkyB in 2010 – meaning it had to offer its Sky Sports 1 and 2 programming on a wholesale basis to other operators – and removed it in 2015, reasoning that a commercial market had become established and there was no further need for regulation.
While we're still on broadcasting, or what's left of it, NZ gets a name check from across the ditch in an article on the relentless attacks on public broadcasting the world over, particularly from Planet Murdoch. Bonus points for mentioning the old NZBC.
Grauniad: Michelle Guthrie, the ABC and the turning of a once-shining jewel into mainstream sludge
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