Former Channel Nine veteran Glenn Dyer has come up with another cracking exclusive on his old employer.
The ACCC is investigating whether a proposed deal between Optus and the Nine Network over a million dollars or more of money earmarked for Australian drama, breaches undertakings given at the time of the great pay TV rationalisations in 2002.
Independent TV producers have complained to the ACCC that the proposed deal could see the amount of independent production in this country hit, especially for Pay TV.
The proposed deal, as outlined for Crikey, would see Optus giving to Nine the more than $1 million dollars a year it spends on seeding production of telemovies and high quality series. By contributing to the funding Optus obtains the Pay TV rights to the series. These have included series of the ABC hit Sea Change, After the Deluge on the Ten Network, the Hell Has Harbour Views telemovie shown on the ABC a week ago, the three BlackJack telemovies, The Silence and My Brother Jack.
Optus screens these on its Ovation pay TV channel, the only one it has left, after the programs and series or telemovies have been shown on free to air television.
Independent production sources say that late last year they became aware of plans by Optus to give all its annual drama spend to the Nine Network, in exchange for concessional or free TV advertising.
Nine would use the Optus money to fund some of its drama series. The first candidate suggested was the series version of The Alice, the most watched movie of last year.
It is also suggested that the amount could be for three years worth of production as the independent sources say that the series produced for Nine would not become available for Ovation and Optus for that period of time.
The sources say this would mean a sharp cut in the number of series made for TV in this country as Optus has proven to be an important top up or seed funder of ideas, as shown by the quality of some of the series and movies already funded.
This in turn would see no money spent by Optus on Pay TV drama production, an apparent breach of the undertakings given at the time of the merger back in 2002.
It would also potentially constitute another possible breach, that Optus had agreed to acquire product from sources other than Foxtel group shareholders, such as Nine and PBL.
When this was raised with the ACCC in December, the first reaction was, “can’t see a problem, really”. But after further representations in reaction to that response the ACCC is now investigating the proposal to see if it breaches either the spirit or the letter of the undertakings.
In response to questions from Crikey this week an ACCC spokesperson gave this answer:
“We don’t comment on investigations that may or may not be under way due to reasons of privacy, possible defamation and, in enforcement matters, risk of loss of evidence. From time to time people make complaints which are groundless so we don’t comment as a policy matter. If a matter proceeds to a result – court action, undertakings and suchlike, that is made public at the appropriate time.”
But independent TV production sources say the ACCC has informed them of its investigation. Back in late 2002 Optus Vision, the Pay TV arm of Optus, now owned by Singapore Telecom, was taken over by Foxtel in the grand rationalisation of the struggling subscription TV industry.
The story to the ACCC at the time was that this would stem losses, promote future investment in technology, and in programming.
The Commission was hesitant, but after months of negotiations the deal got the greenlight, principally because Foxtel, Telstra and Optus gave a number of undertakings to the ACCC regarding access, TV production and other factors considered vital for mitigating what was essentially an uncompetitive deal.
Here are the undertakings Optus agreed to from the ACCC website. The most important sections for the purposes of this story are Sections five and Six,
Six is vital as it governs undertakings re drama:
“6.1 Optus undertakes that, subject to Optus or a related party of Optus being a provider of Generally Available STS( subsription TV Service):
(a) Optus will from the CSA Commencement Date and for the duration of the CSA source and show New Australian Drama programs on one or more of the Optus Channels; and
(b)in satisfying this undertaking expend not less than (left blank) per annum(being the mount Optus Expended on new Australian Australian Drama Programs on the three Optus compiled channels in the Financial year ended 30 June 2002).
“6.2 Optus contemplates that the undertaking in clause 6.1 will initially be satisfied through its Ovation channel but Optus may satisfy that undertaking in any other manner it sees fit.”
This last clause is the one apparently being used to justify the deal with the Nine Network. But independent production sources say the undertakings were put in place to stop Optus or Foxtel doing deals with his shareholders like News and PBL.
They say there was a fear at the time, expressed to the ACCC, that once the merger was done Foxtel and Optus would merely put drama deals the way of Nine and Fox Studios (owned by News Corp) rather than spend money in the wider independent production community.
The ACCC heeded these submissions and put in place these undertakings in the shape of Section five, which in part says that Optus will provide two channels “that are compiled by Optus and predominantly comprising programming that is created by Optus (or a Related Company of Optus) or which Optus agreed to acquire from any sources, other than Foxtel or an entity which Optus is actually aware at the time of such agreement is a Foxtel shareholder Group Member”.
“In satisfying this undertaking Optus must make reasonable enquiries to ascertain whether or not any entity it acquires programming from in satisfaction of this undertaking is a related party of any Foxtel Shareholder Group Member.”
This section would clearly rule out any deal between Optus and the Nine Network, the Nine Network being wholly owned by PBL, which contols 25% of Foxtel and is a “Foxtel Shareholder Group Member”.
Nine sources say the rationale for the proposed deal with Optus was to get its hands on money for drama, which it did not want to spend, which was curious given the millions being spent elsewhere at Nine on things like the revamp of the Today Show and the flood of advertising revenue rolling in through the sales department.
Local production and content levels are vital if Nine to to continue to satisfy ABA rules.
To meet these content rules this year, Nine needs The Alice or another local series to replace the series Stingers, which was killed off at the end of 2004. Nine can run under quota this year, but would then have to show more new programs next year and the year after to make up the shortfall.
Format series produced by independents are more costly, but more attractive. If they cost more $315,000 a hour (set by the ABA), TV Networks get three points per hour, compared to one point an hour if made in house.
The quid pro quo for Optus from the proposed deal with Nine was not only to obtain a TV series for its Pay TV channel, but to obtain lower cost or free advertising of its products to the value of the drama spend. That is also not according to the spirit of the undertakings.
But while the ABA has rules covering sponsored shows and product placement, it doesn’t have rules to cover situations where an advertiser contributes money for a drama series and in exchange obtains cheaper than normal advertising.
Finally, this page is from the Australian Film Commission website. It shows a steady and alarming decline in the amount of local production over the four years to June 2004. The Networks are spending the minimum they can get away with, as are the Pay TV companies and the merger between Foxtel and Optus in late 2002 did not stimulate production.
The declines are sharp in all areas and probably reflect the Seven Network’s problems, the push by Ten into huge budget blockbuster programs like Big Brother and Australian Idol, and Nine’s attempts to conserve money by spending the minimum it can on local content.
With Nine’s reluctance to spend on local drama (hence the proposed Optus deal), Seven’s greater local spend, but use of two US ratings blockbusters and Ten’s ‘Bigness’ approach to programming, don’t expect much change in 2005.