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The Conversation

  • Written by The Conversation
imageBetween then, Rupert and Lachlan Murdoch have significant media holdings.Andrew Gombert/EPA/AAP

Foxtel’s proposal to acquire up to 15% of Ten Network Holdings for A$77 million would further complicate the already very complex ownership structure in Australia’s media landscape.

The deal looks set to receive some serious scrutiny from the Australian Competition and Consumer Commission. ACCC Chairman Rod Sims has said the regulator will look at all Murdoch family interests as it considers whether the deal could lessen competition. Rupert Murdoch’s News Corporation owns a 50% stake in Foxtel, and Murdoch’s son Lachlan an 8.5% share of Ten.

The proposal would see Foxtel acquire up to 15% of Network Ten while Ten would acquire up to 24.99% of Multi Channel Network (MCN). MCN is a supplier of advertising opportunities across a number of subscription television channels and is currently owned by Foxtel and Fox sports. Ten also has an option to acquire 10% of Presto, which is a subscription video on demand service. Presto is a joint venture between the Seven Network and Foxtel.

The main issue is likely to be concern over potential bids for premium sporting content and what a Foxtel-Ten tie up might mean for other free to air competitors.

Muddy waters

A media merger in Australia faces two sets of hurdles. It must satisfy the merger laws administered by the ACCC designed to protect competition, and it must also satisfy various diversity rules administered by the Australian Communications and Media Authority (ACMA).

The diversity rules set out various requirements. An operator should not be able to exercise control of commercial broadcasting licences whose total licence area population exceeds 75% of the population of Australia; nor control more than one television broadcasting licence in the same licence area.

There are also rules which aim to retain a minimum number of media voices, not less than five in major cities and four in regional areas (the 4/5 rule). Transactions that lead to control of a commercial television broadcasting licence, a radio broadcasting licence and a newspaper in the same area are also prohibited.

The ACMA rules tend to be rather more mechanical than the competition laws, which are likely to present some real challenges for this proposed transaction.

The media sector has experienced significant disruption in recent years. In broadcasting Pay TV has become entrenched while various online offerings now compete with free to air. The pressure is clearly being felt in the sector and in particular the difficulties faced by Ten have been well documented.

Inevitably the sector will respond to these pressures in various ways. This has included lobbying the Minister for Communications to reduce licence fees. A recent paper from the Monash Business Policy Forum on the reform of spectrum licencing provides some suggestions for a way forward in that area, including eliminating the commercial broadcasters’ public service obligations and transferring them to public broadcasters.

The pressure for structural change within the sector is high. However this is likely to continue to rub up against the competition laws for some time. As competition from new areas grows the question might be asked why the ACCC should have concerns.

Sport is the crunch point

The ACCC’s request for submissions to interested parties gives some insights around its potential concerns. These centre on the question of whether Foxtel will be able to control or influence Ten and how this might affect competition for content, particularly sporting content. The ACCC has a long list of questions but these are likely to be the core issues.

The concern seems to be that as a result of the transaction Foxtel and Ten might be more likely to partner with each other in bidding for premium sporting content, essentially AFL and NRL, and this might make it difficult for other free to air operators to compete. The result may be a lessening of competition for the acquisition of these rights.

The ACCC’s 2012 decision to oppose the then proposed acquisition by Seven Group Holdings of Consolidated Media Holdings' shares in Foxtel makes interesting reading. While all mergers are different and circumstances may vary there does appear to be some common issues between that transaction and this one.

In this case the ACCC found:

“Due to the benefits that premium sports rights can provide to free to air networks, the ACCC considered that the potential impact on the ability of Seven Network’s competitors to acquire sports rights jointly with FSA and FOXTEL as a result of the indirect ownership interests and board representation which would be acquired by Seven…would have a significant effect on their ability to compete effectively in the free to air television market.”

The questions asked by the ACCC to interested parties do not single out premium sporting content, but nevertheless the submissions from the AFL and NRL are likely to be read with particular interest.

Joe Dimasi is a former Commissioner and Senior Executive of the ACCC and was a member of the ACCC's Mergers Committee.

Authors: The Conversation

Read more http://theconversation.com/sport-the-crunch-point-for-regulator-in-foxtel-ten-deal-45238

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