An NBN bonus for News Corp Australia

A fibre-to-the-premises NBN is a blessing not a curse for Foxtel. The NBN might give equality on access to content providers but that’s where the level playing field ends.

Has News Corp Australia really been waging a local media campaign these last few years against the fibre-to-the-premises (FttP) National Broadband Network in order to protect its local pay TV operator Foxtel?

That’s the charge made by many of the NBN’s backers who claim that News is conducting a fierce media campaign against the network because it will enable the launch of rival IPTV-based pay TV services to compete with Foxtel.

While it is intriguing to believe that News is personally committed to destroying the NBN in order to protect Foxtel, the argument does not really stand up to close scrutiny – although that’s not denying its media outlets have been strong critics of the network.

Firstly, as much as former Communications Minister Stephen Conroy may have desperately wanted to impose one, there is no ban in place on Foxtel launching services on the NBN – the NBN is as open to News as it is to anyone else.

Of course, News already has an established local pay TV base of 2.5 million subs via Foxtel and Austar via cable and satellite – but that represents a household penetration of only around 30 per cent.

As a result – and bearing in mind Foxtel is already offering a scaled-down Over-the-Top (OTT) product via various retail devices – the NBN enables Foxtel to target the 70 per cent of homes not taking its content, and to do so with even better quality OTT services – what’s not to like about that from Rupert Murdoch's point of view?

What’s more, any new pay TV service being launched on the NBN will need to have a sustainable business model and its backers will need a lot of cash to secure the kind of premium content that people will pay for – the history of Murdoch’s global pay TV businesses prove that.

A different kettle of fish

Making money from pay TV is very hard and it is getting harder because of the huge amount of free – often pirated - content that is available on the internet.

Anyone can put content on the internet, getting people to pay for it is a different kettle of fish altogether.

Now, while  it is true that ‘independent’ online video players like Netflix have prospered, Netflix and other content aggregators are in a very vulnerable position, just look at the local struggles of Quickflix as evidence of that.

Netflix has forged its success on the extraordinary value it offers – unlimited content for just US$7.99 per month – but this is largely based on its early content acquisition deals when its niche status enabled it to get cut-price deals from key content players such as Starz.

As Netflix has become more successful it has become ever more difficult for it to keep prices down because the price of the content it is buying is getting much more expensive as content producers tighten the screw and demand higher prices – and Netflix has already lost some key content.

This is why it is likely that the online video market will likely be ruled by the content producers themselves with players like Hulu - backed by NBC-Universal, Disney-ABC and News Corp’s Fox itself – playing a major role – although Hulu has always struggled to forge a path separate to its owners broadcast interests.

Some people have argued that the real Achilles heel of Foxtel will be that universal high-speed broadband will enabled sporting bodies such as the AFL and NRL to bypass pay TV and sell their content direct to subscribers.

While this is certainly a possibility, many in the pay TV industry are highly sceptical that the sports bodies will kill the golden goose offered by pay TV players.

“At the moment we are paying them [the sports bodies] billions of dollars for their content, they don’t have to do anything apart from deliver the sport,” one Asia-based pay TV CEO told me.

“We then do all the hard work of advertising, marketing, customer support, billing and technical delivery – if they think they can take on all that and make more money than we give them now then I think they are badly mistaken.”

Indeed, if you look across the Asia Pacific region where high-speed FTTP broadband has been around for a number of years, you find that there has not really been much of a revolution in the pay TV market.

All that has really happened since ultra-fast broadband services came to Asia has been that a number of incumbent telcos – most notably PCCW in Hong Kong, SingTel in Singapore and KT in Korea – have burned huge piles of cash to take on incumbent pay TV operators.

In some cases – most notably in Hong Kong and Singapore – those services have been relatively successful whilst in others operators have not made much progress against the established cable TV broadcasters.

In some markets such as South Korea, Japan and Taiwan although the telcos have added plenty of IPTV subscribers this has largely been achieved by giving services free to broadband subs.

In fact, in many Asian markets the real beneficiaries of the FTTP bandwidth bonanza have been local terrestrial broadcasters who have been able to launch their own high-quality online video services – similar to iView in Australia - because they already have the best content, which as the old saying goes, is king.

The bottom line on pay TV is that success doesn’t come cheap and those with the deepest pockets are perfectly able to bring their dominance from the broadcast world to the online world.

The NBN might give equality on access to content providers but that’s where the level playing field ends, when it comes to securing the best content my money is on News Corp Australia rather than any plucky underdog out there.

The only way that this might change would be if the government copied the actions of its Singaporean counterpart and banned exclusive deals between content providers and pay TV operators – thereby creating a level-playing field in the pay TV market.

Tony Brown is a senior analyst with Informa Telecoms & Media. He is a key member of the Broadband and Internet Intelligence Centre team, covering the broadband and Internet markets of the Asia Pacific region.

Business Spectator is owned by News Corp Australia, a division of New News Corp.