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What the Commerce Commission got wrong: Sky / Vodafone wasn’t about broadband. It was about rugby

The Commerce Commission’s decision to deny the Vodafone / Sky merger could have grave consequences for New Zealand sports fans in years to come, writes Tim Martin, CEO of RugbyPass.com.

The Commerce Commission’s decision to deny Sky and Vodafone the right to merge has been met with applause in New Zealand, yet I believe it might be viewed very differently in years to come. These sorts of decisions have a long-term and far reaching impact on not only sports rights, but on how New Zealanders get to watch sports. In the worst case there are scenarios where access to sports becomes considerably more expensive – or simply vanishes from our screens entirely.

It looks to me like the decision was framed very much in a local telecommunications context. The international broadcasting aspect, which is where sports rights are sold and controlled, doesn’t seem to be a priority.

Having been in broadcasting for over five years now, and seeing how international rights work, I wonder if we might have just gotten rugby into real trouble.

I know this from first hand experience buying rugby rights. After proving concept with our first foray into operating a streaming sports service, Premier League Pass, the Coliseum team last year launched RugbyPass.com.

RugbyPass has the broadcasting rights to every top tier rugby game on earth, and sells online access to them for a low monthly fee. Across 23 countries in Asia we stream every Super Rugby Match, every Mitre 10 Cup game, the Currie Cup, all the TOP14, the Aviva Premiership, Rabo Pro 12, Anglo Welsh Cup – we even show the Asian Rugby Championship. We have every test match in the international calendar. We covered the Brisbane 10’s – which went great for us by the way – and we just picked up the complete NRL season for 2017. The service is the most comprehensive rugby service on earth. And it has bought us into close contact with the global rugby industry.

The Blues could be off screen, or far more expensive to access, after the Commerce Commission’s decision (image: Getty)

To establish RugbyPass we have executed 14 different rights agreements across a multitude of agencies, sports federations and broadcasters. We have accepted investment from Discovery Networks, the American giants and owners of Eurosport.

The rugby broadcast industry is an industry I know. And the All Blacks is the real prize within it, and everyone knows it.

Global competition for rights is real and Sky is the one company from New Zealand that represents New Zealand’s interests on the world stage. Any one of our other “media companies” could: there is nothing stopping Spark, TVNZ, Vodafone, 2 Degrees, MediaWorks or even Coliseum from doing so. It’s an open market and all are welcome. But only Sky participate – they’re the only ones who step up to the plate, pay the money and take the risk. And love them or hate them, Sky are a New Zealand focussed business with New Zealand viewer interests at heart (even if you consider that heart to be cold and commercial, they do have obligations to their shareholders).

So Commerce Commission decision or no, Spark or 2 Degrees could have competed for premium sports rights if they had were willing to take on the immense risk involved – and they still could at any stage. It doesn’t take regulation to establish competition in the market. The barriers to entry are low – we did it with Coliseum working out of my colleague Simon’s kitchen. And if Spark or 2 Degrees bought some rights (and went round to Simons kitchen), then you’d have proper, market driven competition. And that seems the natural route to more choice and lower prices. Just look at what Lightbox has delivered to the television – you can’t get cheaper than free.

But to my mind the commerce commission’s decision means that Spark, 2 Degrees, TVNZ, MediaWorks and the rest won’t bid now. They can (and will) all sit back and wait for Sky to simply take all the financial risk and then be forced to wholesale rights and content back to them. Sounds like a great plan.

Or is it?

What if Sky didn’t own the rights either – what would happen then?

Sky is currently under real competitive threat for rights on its premium properties and it’s competition coming from global players. And they are some of the biggest and baddest broadcasting businesses in the world.

John Fellet frequently advises that profit is being hit by an escalation in rights costs. Because they are! Just this week they announced profits were down 32% – part of the cocktail which saw their share price at its lowest level since the GFC hit. The market for rights is getting incredibly competitive. International guys are driving costs for content up in New Zealand – I see it on a daily basis. The prospect of big international organisations buying up premium New Zealand sports rights – including rugby – is very real.

Those businesses are far less interested in the local market than Sky, and could well lead to a scenario in which sports get even more expensive and exclusive. The only guys stepping up to the plate to defend locally owned sports rights for us are Sky. And we just hobbled them.

This isn’t just speculation – it’s already happening. I know from firsthand experience. Coliseum was involved in the 2015 English Premier League tender, which attracted four bidding parties: a broadcaster from the Middle East, a broadcaster from Singapore, Spark and Sky.

BeIN Sport from of the Middle East won, and are rumoured to have paid in excess of an eye watering US$10 million for the privilege. Three years previous, Coliseum paid around US$4m – and even that was a big jump on the previous cycle.

In no way can Sky be blamed for not getting the rights under these circumstances. No one can (or should) compete with that kind of money.

BeIN are good guys and very smart executives and I like them a lot. But their care for the New Zealand Sports fan and EPL customer is literally zero. The fact that they haven’t bothered with a digital service in New Zealand to support the TV offering is because it’s a tiny market and they just can’t be bothered – it’s not worth it. In fact, if it wasn’t for some very clever manoeuvring at the last minute from Sky, BeIN may well have sat on the rights and not shown it at all.

It sounds crazy – but it happens all over the world, all the time.

So why did BeIN buy the rights then? Pretty simple really: they want to be the biggest owner of EPL rights in the world so they can influence that position with affiliate platforms and with the EPL itself. And every little market helps. It’s real big time stuff, a global strategy that costs billions – a game they and very few others can afford to play. And they do it very, very well.

Think the All Blacks are expensive now? It could be a lot worse after 2021 (Photo by Phil Walter/Getty Images)

“So what, it’s football and who cares?” I hear you say.

Fair enough, but lets fast forward to 2021 when the SANZAAR rights are up for renewal in New Zealand.

What is now almost certain, as this decision completely releases any form of pressure on other local entities to create a competitive environment for rights locally, is that rights for SANZAAR will be bid for by major International platforms. Sky could well face intense International competition from companies much, much bigger than them. Take Discovery, our partner on RugbyPass for example. They have a market cap over 10 times that of Sky.

And what should really give New Zealanders pause is that strong interest is likely to come from companies like BeIN again. BeIN, for example, own major rugby rights in markets like France, which dwarf New Zealand in terms of rugby viewership. They are already in the rugby business.

This Commerce Commission decision makes it far, far harder for Sky to compete with these sorts of guys.

A future exists where Sky may well lose control of the rights, which means New Zealand loses control of All Blacks coverage. I have no doubt the NZRU will do everything they can to protect and serve the best interests of the New Zealand viewer (as they always do with very little gratitude or recognition), but they can’t be blamed in any way – they need to take the money when and where it’s offered – the game depends on it.

It’s not as if their competitive landscape is getting any easier. And broadcasters out in the world are paying stupid money for rights they see as particularly strategic. If you’re already in the rugby business, owning the All Black rights in New Zealand offers immense strategic value. If you can afford it.

And do you really think a big, big International broadcaster will ultimately care about how New Zealand viewers see it? The answer to that, ladies and gentlemen, is no, they will not.

Far more likely they’ll strip costs out and run an efficient and very well put together TV channel. Sky will pay to have it and they’ll secure it on an exclusive basis, as that’s still how these things are sold whether the Commerce Commission like it or not. Digital services will be restricted as part of the deal and anyway, big broadcasters won’t offer those because it’s not in their best commercial interests – they’ll make more money on a TV deal. Sky won’t own the rights so won’t be able to help. As New Zealand rugby fans, we’ll just have to suck it. There won’t even be a local office to complain to.

In an extreme case, if they can’t get the right deal, they may not even show it at all. They’ll hold out until someone buckles and meets their price. Think that’s far fetched? It happens all the time, all over the world. Some of the guys I know will have no hesitation in denying the New Zealand public coverage of Super Rugby if they don’t think they’ve got the right money for it yet. They’ll hold out, squeezing, knowing the International season is starting soon, waiting for the pubic pressure to overwhelm and someone to step in and pay them the money they want. Welcome to the business of sports broadcasting.

The battle for sports rights isn’t a local New Zealand telco battle at all. It’s an international broadcasters battle and I think the Commerce Commissions decision has been blind to that.

Despite their having been perceived as the bogeyman for decades, New Zealand sports fans need a strong Sky to fight these content battles on their behalf. Because no one else is going to.

Disclosure: RugbyPass.com is a custom content client of The Spinoff.

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