 |
 |
|
|
|
 Archives |
NewsletterTell Me Now Review, Issue 6, November 2003Welcome to the sixth issue of the Tell Me Now Review. In this review, we look at Pay TV in Australia, particularly the Foxtel - Optus deal, the broadcasting environment and also the effects of regulation and competition in the pay TV industry as a result of digitisation and the development of broadband services. In our examination of this area we have covered the following areas.
We have undertaken both primary and secondary research to provide a detailed analysis of the issue and hope that our findings will be of interest and value to your and your organisation. At the end of the Tell Me Now Review you will a rich digest of links to recent articles and other resources. PAY TV in Australia Contents
In this review, we look at the Foxtel - Optus deal, the broadcasting environment and also the effects of regulation and competition in the pay TV industry as a result of digitisation and the development of broadband services. The latest PricewaterhouseCoopers report on entertainment and media comments on 2003: ‘It's been a watershed year for subscription TV: the ACCC approval of the Foxtel/Optus agreement has effectively 'reset' the industry and provides a solid foundation for profitability, giving Australians the levels of programming and types of interactive services already available in numerous other countries.' 1. Background Subscription television services, known as pay TV, have been available in Australia since 1995. Growth has been stagnant and the sector has been a loss leader since its beginning. In 2001, it was estimated that 20% of households subscribed to pay TV. On current estimates, approximately 1.5 million households subscribe to pay television, with a viewing potential of 5 million people and a penetration rate of about 25%. Both free to air and pay TV broadcasting sectors are highly regulated. Many of these regulations, including the anti-siphoning regulations, have a direct impact upon competition within and between the free to air and pay TV broadcasting sectors. Media regulation restricts competition between existing services, particularly pay TV and free to air broadcasting. Sports broadcasting is restricted as a result of the anti-siphoning provisions, and there are also restrictions in the use of the free to air broadcast spectrum. Digital television will eventually replace existing free-to-air analog television services. It is expected that virtually all entertainment and media will be in digital format by the end of this decade. Foxtel and Austar satellite subscribers are already watching digital satellite television via a digital ‘set-top-box' connected to their TV set. To watch Foxtel's planned new digital television services on cable or satellite, consumers will need a digital set-top-box. Foxtel says this will be supplied to every digital subscriber as part of the service. In November 2002, the pay TV content supply arrangements between Foxtel and Optus and Foxtel and Telstra, were announced and accepted by the Australian Competition and Consumer Commission, though subject to conditions. Almost 12 months later, the ACCC is concerned that these undertakings are not being met. Foxtel's $600 million digital upgrade and roll out in 2004 is in jeopardy unless it agrees to significant changes to its business plan. The eventual lifting of the current anti-siphoning restrictions in 2005 will improve content offerings and allow subscription TV to differentiate itself from other forms of entertainment and media. This will drive subscription revenue by 9.0 per cent CAGR, to $2.1 billion by 2007. 2. Key Players There are three main retail pay TV service providers in Australia:
In addition, there are a number of smaller operators including Neighbourhood Cable, Television & Radio Broadcasting Services Australia (TARBS), TransACT Communications and Bright, which deliver subscription broadcasting and bundled services to niche and regional markets. 3. Pay TV Take-up According to the ratings agency OzTam, almost 25% of Australian households subscribe and about 14% of programs watched are on pay TV. In those households with pay TV, viewing is split 50-50 between pay and free channels. The problem for pay TV is that viewing is spread over so many channels. Foxtel alone has over 40. Each has a tiny audience compared with free-to-air channels. Sport and movies are pay TV's main attraction – the so-called ‘premium content.' A key factor is content, or lack of content. The growth of pay TV has been driven by two key categories - movies and sport.
Foxtel will have over 120 channels when it converts to digital technology in the first part of 2004, but without content it will continue to struggle for subscribers. Whilst the recent content supply agreements have strengthened Optus' pay TV offering, the similarity of the services offered by Foxtel and Optus may mean that customers see little choice in programming and pricing. It seems that consumers are becoming more fickle in their buying habits and won't commit to long term purchasing arrangements – for example, theatre tickets and holidays are not booked in advance to the degree they once were. The ‘golden calf imagined by Foxtel and other providers has yet to grow into a cash cow'. Pay TV subscriptions require a long term commitment, but there is a strong churn rate, with 11.5% of subscriber households having pulled out of deals. 4. The Foxtel-Optus Content Supply Agreement A content-sharing deal was struck between Foxtel and SingTel Optus in 2002 and was expected to draw more people to pay TV. Foxtel says its subscriber base is growing at an annualised rate of 7%, but Optus is losing subscribers. Concerns about the viability of the industry in Australia were greater than the anti-competitive effects of the two rival companies getting together. The deal is subject to undertakings which provide access to programs for all pay TV operators, including regional operator Austar, broad choice for consumers, and access to Telstra's cable network and Foxtel's set-top boxes. The deal means providers of television content could make their programs available to the public through pay-TV on the Foxtel network on fair and commercial terms. Foxtel can now be purchased directly through Telstra and Optus as part of bundled telephony and subscription television packages. In Canberra Foxtel is available through the TransACT cable network, in Geelong through the Neighborhood Cable network and through AAPT. The ACCC in its recent draft rules has raised concerns over the implementation of the content sharing arrangements. It believes that the price that Foxtel intends charging new pay TV channels to access its network is too high. Foxtel has sought exemption from the access obligations imposed by the Trade Practices Act. Both Telstra and Foxtel want to be able to make a commercial return on the significant investment required to create a digital TV platform in Australia. The free to air broadcasters are being forced to buy satellite capacity from Optus in order to keep their broadcasts on Foxtel's network when it goes digital. Foxtel has digital cable and satellite retransmission arrangements with the free to air broadcasters - Nine and SBS have agreed to the purchase of satellite capacity from Optus. Foxtel now retransmits Seven, Nine, Ten, the ABC and SBS over its cable TV platform. Industry watchers say that Foxtel would want its subscribers to have full free-to air access over its satellite platform in order to drive pay TV take-up. Telstra's interest in FoxtelTelstra's 50 per cent ownership of Foxtel also concerns the ACCC as Telstra has the ability to veto supply of pay TV channels by Foxtel to other networks. This places Telstra in the unique position of controlling important inputs of supply for its potential and actual broadband network competitors, and for pay TV operators competing against Foxtel (on the Telstra HFC network). Telstra was only prepared to allow supply of pay TV content to one of its telecommunications competitors (Optus) if Telstra was also able to bundle Foxtel's pay TV service. This is even though Foxtel had identified the content supply arrangements with Optus to be in Foxtel's commercial interest. The Commission also expects that digitisation of the Telstra/Foxtel HFC network will provide increased opportunities for Foxtel to provide interactive pay TV services which can be increasingly competitive with Telstra's communications services. Following digitisation, Foxtel will be able to provide data services like e-mail and internet access over its pay TV network. However, Telstra will have every incentive to restrict the development of such services by Foxtel where they would compete with services provided by Telstra. In so doing, a potential new source of competition in the future may therefore be diminished by Telstra's ownership of Foxtel. Effective access to the Telstra/Foxtel HFC network for the provision of pay TV services is yet to occur, notwithstanding continuing arbitrations before the Commission. Free to air broadcasters have raised concerns about not being allowed access to pay TV subscribers for the provision of free to air services over digital pay TV networks, when such networks are introduced. One of the key recommendations in the ACCC Report is that the government introduce legislation requiring Telstra to:
Telstra's market power in telecommunications and its ownership interest in Foxtel give Telstra considerable scope to extend its market power into markets for the delivery of new services. 5. The ACCC Report In 2002 the Minister asked the Commission to advise on:
Areas of particular concern to the government include the implications for:
6. Importance of Access to Premium Pay TV Content Pay TV providers require the use of infrastructure, or a ‘delivery platform', to supply services to its customers. In Australia, pay TV is predominantly broadcast on hybrid fibre coaxial (HFC) cable, satellite, and to a lesser extent by broadband wireless (MDS) Broadband networks are capable of providing a range of services such as telephony, high-speed internet and e-commerce as well as pay TV. There are significant sunk costs associated with the development of broadband networks. In order to achieve adequate returns on such a substantial investment it is necessary to offer a full range of broadband services, including pay TV. Digitisation and the ability to offer broadband services over existing networks present a real opportunity for genuine competition in the delivery of broadband services. Premium pay TV content is critical to the development of pay TV offerings. An inability to access premium pay TV content may act as a barrier to entry to new broadband investment. This may lead to less competition in the supply of broadband and telecommunications services. Although in-roads have been made to ensure pay TV content, including premium pay TV content, is distributed beyond Foxtel's and Austar's pay TV networks, access to key pay TV content remains an important issue that requires the policy attention of government. 7. Regulation The Commission believes that there is a strong case for bringing forward the review of the moratorium on the number of commercial free to air licences. The Commission recommends the government should conduct an ‘across-the-board' review of the regulations applying to the media sector, in particular those that have a direct impact upon competition. These include regulations that apply to multi-channelling, datacasting and anti-siphoning. In its 2000 review of broadcasting regulation, the Productivity Commission came to the conclusion that the costs imposed by many media regulations often exceeded the benefits delivered to consumers by such regulation. The recent developments in free to air and pay TV, and the proposed digitisation of the Foxtel/Telstra pay TV network strengthens the case for an early review. Authorities such as the ACCC, the Australian Broadcasting Authority and the Productivity Commission want the anti-siphoning list abolished in favour of a dual rights regime. The government continues to support the view that Australians should be able to watch popular sport on free-to-air TV which was the objective of the anti-siphoning scheme. It ensures that certain events are available to the whole viewing public by preventing pay TV licensees from acquiring exclusive rights to listed events. 8. Access to Pay TV Content The Commission recommends that the government introduce legislation to increase access to pay TV content for broadband networks.In order to promote competition in the supply of broadband and telecommunications services, the Commission considers that a legislated framework should enable network providers to re-transmit Foxtel and Austar's basic and tiered packages. Wider competition benefits would result if access is provided to individual premium sports and movie channels, as pay TV competition would also be promoted. 9. International Comparisons The Broadband Advisory Group and the OECD have both noted the importance of infrastructure competition for the provision of broadband services. International comparisons of broadband penetration suggest a correlation between broadband take-up and competition between independent network providers. A major reason for Canada's rapid development of broadband services is competition between different networks owned by independent carriers. It has also stated that separation of cable TV and the copper networks may help infrastructure competition. The penetration rate of pay TV in Australia is relatively low by OECD standards (22 per cent of Australian households, compared to the OECD average of approximately 52 per cent, in 1999). Penetration rates in other countries are higher e.g. United States - 69%, United Kingdom 44% and New Zealand 43%. There are a number of possible reasons for a lower penetration rate in Australia. These include:
Infrastructure competition would place pressure on Telstra to upgrade its PSTN network to a fully integrated broadband network that would be capable of delivering various services such as the supply of advanced broadband services, and potentially including pay TV or advanced video services. Telstra would not be precluded from competing in this market, but its divestiture of the HFC and Foxtel would increase the opportunities for other media companies to enter the pay TV market if they chose to do so. 10. Bundling of Telecommunications and Other Services There is evidence that bundling is being used as a strategic tool to create barriers to entry in the supply of new or emerging services. Telstra and other telecommunications carriers have increased the number and scope of bundled telecommunications offerings. Telstra, for example, offers bundled telephony, internet, pay TV and mobile services in the ‘Telstra Rewards Packages'. Austar is the latest entrant to the Telstra bundling arrangements. Optus bundles most Foxtel channels with its telephony and internet services in Sydney, Melbourne and Brisbane. Bundling of Foxtel programming is also available from TransACT and AAPT in some areas. 11. Trends Subscription television is expected to grow by 9.4 per cent, off the back of the Foxtel/Optus agreement and the roll-out of digitised and interactive services. (PwC report) Growth is forecast to accelerate from 2004 as bundling discounts, interactive services and additional channels compel/ attract? new viewers to subscribe, and reduce existing customer 'churn'. The sector's revenue is predicted to rise from $1.4 billion in 2002 to $2.3 billion in 2007. Advertising revenue for subscription TV is expected to represent 8.2 per cent of total TV advertising by 2007, compared with current levels at just 3 per cent. Piracy is regarded as a strong threat to industry expansion. Tackling this issue will be the key challenge for the subscription TV industry over the forecast period – as is the case for the other media sectors. 12. Sources
13. Useful Websites
|
| Privacy Statement ©2002 Tell Me Now Site Map |
 |
 |
 |
