Foxtel cleared for Austar acquisition

The Australian Competition and Consumer Commission will not oppose the proposed A$1.9 billion acquisition of Austar by Foxtel after accepting court-enforceable undertakings from Foxtel. Austar shareholders voted March 30 to approve the deal.

“This is a great outcome for consumers because we will now be able to create a company of scale that will deliver innovative new digital products and services, and parity for regional and city customers,” said Foxtel’s Chief Executive Officer, Richard Freudenstein.

“The new national Foxtel will be one of Australia’s most progressive and dynamic media companies, it will directly employ 2500 people and support a subscription television sector which spends close to $600 million a year on new and original Australian content,” Freudenstein added.

Foxtel currently services the major metropolitan cities and Western Australia, while Austar services rural and regional Australia. Foxtel and Austar share 50:50 ownership of the major subscription TV channels group XYZ Entertainment. When the merger is completed, Foxtel will own 100 per cent of XYZ.

“Bringing together Austar, Foxtel and XYZ will unite a number of the most watched channels in the lifestyle and entertainment genres. Importantly, it will enable us to keep building our offering of high quality, compelling content including sport, movies, news, music, children’s, and documentary channels using world-leading technology. This will benefit the 2.2 million subscriber households and over six million viewers of our combined platforms, as well as potential consumers,” said  Freudenstein.

Foxtel expects to complete the merger in late May 2012.

The undertakings will prevent Foxtel from acquiring exclusive IPTV rights for a range of attractive television programme and movie content, including:

  • Linear channels supplied by independent content suppliers, including  more than 60 linear channels that are currently broadcast by Foxtel and many more that are broadcast internationally
  • Subscription Video on Demand (SVoD) rights to current or past seasons of television programs that form part of a linear channel supplied by an independent content supplier
  • Movie linear channels (or movies for inclusion in a linear channel) from more than 50 per cent of the eight major movie studios or more than 50 per cent of the eight specified independent movie studios
  • SVOD rights to movies, except for an 18 month window in relation to the movie studios from which Foxtel is not prohibited from acquiring exclusive linear rights.

The undertaking further prohibits Foxtel from exclusively acquiring any movie delivered on a Transactional Video on Demand (TVoD) basis.

The undertaking also prevents Foxtel from acquiring exclusive mobile rights to the content referred to above where those rights are sought by competitors to combine with IPTV rights. This will allow competitors the opportunity to deliver a seamless and integrated package of programming across a number of devices.

In addition to the list of channels covered by the undertaking, the ACCC notes that there are many more channels available internationally that are presently not carried by Foxtel that Foxtel would be prevented from acquiring on an exclusive basis for the eight- year duration of the undertaking.

The ACCC’s main areas of concern with the proposed acquisition were in the national market for the retail supply of subscription television services, particularly in relation to the developing IPTV field, and a number of regional markets for the supply of fixed broadband and fixed voice telephony products.

The concerns in regional markets for fixed broadband and telephony markets arise because of Telstra’s 50 per cent ownership of Foxtel and Telstra’s ability post merger to acquire preferential access to Austar’s existing subscriber base in combination with its existing content delivery infrastructure in regional areas. This will allow Telstra to offer a superior “triple play” of fixed voice, broadband and IPTV services.

“The proposed acquisition would bring together the two main subscription TV industry players in Australia each with a substantial customer base and significant access to key content. This would in turn give Telstra, Foxtel’s largest shareholder, greater market power in regional fixed broadband and telephony markets,” ACCC chairman Rod Sims said.

“By reducing content exclusivity, the undertakings will lower barriers to entry and promote new and effective competition in metropolitan and regional telecommunications and subscription television markets,” he suggested.

“Taking into account the undertaking which has been offered by Foxtel, the ACCC is satisfied that the proposed acquisition is unlikely to substantially lessen competition,” he concluded.

The ACCC expects that as telecommunications networks develop, the undertaking will create opportunities for new and existing competitors to develop differentiated and more affordable subscription television offerings that are attractive to consumers.

The ACCC suggests that  these offerings, which could be bundled with other telecommunications services, would be likely to improve competition in both subscription television and telecommunications markets as retailers increasingly seek to bundle IPTV services with other telecommunications products.

The undertaking also aims to further lower barriers by requiring Foxtel to provide necessary signal access to linear channels distributed by independent content suppliers (and which Foxtel itself distributes to its subscribers) to third parties.

The undertaking will also extend Foxtel’s Special Access Undertaking (given by Foxtel to the ACCC in 2006) so that content suppliers can gain access to Austar subscribers as well as Foxtel subscribers, as is presently the case.

The ACCC conducted extensive market inquiries in relation to a draft version of the undertaking. Following market feedback on this draft undertaking and further discussions with Foxtel, the nature and scope of content addressed by the non-exclusivity provisions in the undertaking was significantly broadened. In particular, the undertaking now prohibits Foxtel from acquiring exclusive SVOD rights to a broad range of television programme and movie content.

The undertaking does not prevent Foxtel from acquiring exclusive rights in relation to individual sports. The ACCC considers that to the extent that Foxtel’s (and its shareholders’) ownership of exclusive sports rights may raise competition concerns, these concerns exist independently of the proposed acquisition.

“The proposed undertaking has been offered by Foxtel to address the harm to competition which is likely to arise as a result of the proposed acquisition,” Sims explained. “However it is not intended to resolve competition or structural issues that may already exist in the relevant markets and are unrelated to the proposed acquisition.”

Sims said the ACCC remained alive to competition concerns in existing and emerging media markets, and would continue to consider these issues as part of its usual functions under the Competition and Consumer Act, including consideration of whether exclusive content arrangements had the purpose or effect of substantially lessening competition or involve a misuse of market power. “The ACCC will also continue to consider whether there is a need to advocate for regulatory intervention in these markets,” he confirmed.

The undertakings will be available on the ACCC’s website. A Public Competition Assessment will be issued by the ACCC in due course.

 

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