Watchdog would feature in any Foxtel-Ten script

Any planned tie-up between the two TV networks will attract plenty of viewing interest, and the ACCC’s Rod Sims will make sure he’s in the front row.

Sports administrators, the rival networks and, of course, the Australian Competition and Consumer Commission will be monitoring the continuing reports of a buyout of Ten Network with considerable interest and, perhaps, some concern.

That’s because the reports, which have been circulating for months, have linked Foxtel to the buyout of the struggling television network.

The initial reports, some months ago, had Foxtel tying up with a US private equity firm, Providence Equity Partners, to take Ten private in a buyout group that would also have included Ten’s key shareholders -- Lachlan Murdoch, Gina Rinehart, Bruce Gordon and James Packer. While there have been reports of other private equity interest, the latest report, in The Australian Financial Review, has Foxtel joining up with the US cable television group, Discovery Communications.

In both the instances citing its potential involvement Foxtel would emerge with a Ten shareholding of less than 15 per cent to avoid breaching current media ownership laws. Those laws are being reviewed by Malcolm Turnbull.

Why would Foxtel be interested in a minority stake in a loss-making free-to-air network that runs a very distant third to the Seven and Nine networks?

At a straightforward commercial level there could be a range of attractions.

The obvious one is that, while Ten has really struggled in terms of ratings and advertising revenues in recent years, there is potentially both a floor under its position and upside.

The floor is the reality that advertisers will provide some level of support in order to ensure they retain a third network and the competitive pressures that creates for Seven and Nine. Ten still has more than $600 million of television revenue.

The upside comes from what might be achieved over the medium term if Ten, removed from public scrutiny, had access to capital and better programming. Hamish McLennan has overseen a recent modest lift in ratings but has had to continue to cut television costs to generate the capacity to invest in new programming.

Access to more capital and better content could significantly strengthen and accelerate a recovery and, with a market capitalisation of less than $600 million, the risk/reward equation might be seen as quite attractive. It could be even more attractive if Turnbull were to deregulate media ownership.

The more complex motivation might be the still-privileged access free-to-air networks have to prime sporting events.

It’s not quite as privileged as it once was, after Stephen Conroy’s revisions to the anti-siphoning regime in 2011, but the networks still have the ability to bid for the best four AFL games and best three NRL games a week without competition from pay television operators, which currently means Foxtel.

At face value a tie-up between Foxtel, owned jointly by Telstra and News Corporation (publisher of Business Spectator) would sound alarm bells within the ACCC and the major sporting bodies because it would appear to give that grouping a major, potentially decisive, advantage over the other networks in bidding for the broadcasting rights to the major sports.

An exclusive arrangement between a network and Foxtel would be able to easily out-bid a network bidding on its own -- in the last $1 billion-plus AFL deal Foxtel provided a majority of the funding to gain five exclusive games and to simulcast Seven’s four -- and Telstra’s presence within the camp would add another dimension, given its interest in acquiring content for its online distribution channels.

In practice, however, it probably wouldn’t be that straightforward. Seven or Nine could out-bid Ten for the AFL or NRL games, either separately or in partnership, in the knowledge that Foxtel has to get access to that content and would subsequently need to deal if it wanted to be able to continue to show all the games live. Sport and movies are the drivers of pay TV.

They would also have the IPTV option if they wanted their own subscription businesses or wanted to partner with one of the number of new entrants and aspirants seeking to use the internet to chip away at Foxtel’s (and Telstra’s) dominance of their sectors.

The ACCC has long been sensitive to the implications of content ownership for competition in media and for the value of the broadcast rights for major sports. Former ACCC chairman Graeme Samuel made the issue a major focus of his public commentary (he was on the theme again today) and current chairman Rod Sims is equally concerned about the relationships between content and competition.

If Telstra and News were involved in any media acquisition via the Foxtel joint venture, even at levels below 15 per cent, the ACCC would inevitably pore over the details and implications of any proposal. Its reflexive position would inevitably be a cynical one.

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