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Oct 1, 2008

ITV gets out the scissors, BSkyB gets cut

ITV plans to chop 1,000 jobs over the next six months, and Rupert Murdoch's BSkyB might be forced to sell its football and premium movies to rival broadcasters at wholesale prices, writes Glenn Dyer.


Embattled British commercial broadcaster, ITV has revealed plans to chop 1,000 jobs over the next six months, while the UK media regulator has suggested that Rupert Murdoch’s BSkyB be forced to sell its football and premium movies to rival broadcasters at wholesale prices to encourage competition.

That BSkyB proposal is like to set off a round of moans and groans from Murdoch, his London papers and other interests in Britain, the US and Australia.

Following an 18-month investigation, the regulator, Ofcom declined requests by BSkyB’s rivals to immediately refer the company’s allegedly unhealthy dominance of the pay TV market to the Competition Commission, which was a big win for the group which is 38% owned by News Corporation.

Led by Virgin Media and Sports group, Sentana, rivals had been urging a referral to the commission in the hope it would lead to BSkyB’s break-up.

Ofcom said it reserved the right to make a referral, but would wait to see the reaction to its proposals for BSkyB to make its premium content available to rivals at regulated rates.

Ofcom has dangled a tantalising carrot in front or Murdoch: help your competitors by selling them content so they can compete and make a profit, or face a full blown competition probe and a possible break up.

Worryingly for BSkyB, Ofcom said in its report that it exercised “market power” in the supply of wholesale premium content, which led to concerns that it was likely to restrict rivals’ access to it. It added that Sky had no incentive to provide access to such content at wholesale prices rivals could afford.

BSkyB and its rivals, especially Virgin, have been fighting for over a year now about the supply of premium content and sport at rates which the rivals say make it impossible to sell at a profit.

In some ways it is another way of getting a monopoly to open up its services to competition, or would be competitors, or rivals from another part of the sector. In some respects it is similar to the decisions in Australia supporting Fortescue Metals attempts to get third party access to BHP and Rio’s Pilbara iron ore railway facilities. That has gone all the way to the High Court with wins for Fortescue.

The UK situation might apply to Foxtel here in future years if it uses its position to dominate a service, or services, say if the anti-siphoning laws are removed and it snaps up the AFL, cricket, the NRL and other sports.

In some respects the anti-siphoning laws are a help to Foxtel because they stop the BSkyB dominance happening here in important and popular sporting broadcasts.

Foxtel (and its associate, Premier Media AKA Fox Sports) want the anti-siphoning law removed, despite tepid support for the idea from News Ltd for over two years now.

A read of the Ofcom report might suggest another course of action: it should also be read by the ACCC for the basis for looking at the lack of competition for Foxtel in Pay TV and whether that rapidly growing sector of broadcasting deserves a new examination after Foxtel was handed the monopoly on the delivery platform six or seven years ago.

These paragraphs from the summary of the Ofcom report could apply here as they do in the UK, but not quite to the same degree because of the anti-siphoning law.

“Consumers’ choice of pay TV service is primarily influenced by the content that is available, rather than by platform features. Some content is of particular importance: live Premier League football and first-run blockbuster movies have an especially wide appeal, and are not available via free-to-air TV. We consult in this document on our view that channels containing these types of content are in their own narrow wholesale markets, and that Sky has market power in those markets.

“This market power gives rise to two concerns. First, that Sky is likely to limit the distribution of those channels to other retailers, either reflecting its belief in its own greater efficiency than other retailers or a desire to limit the ability of other retailers to compete effectively; our review of the evidence indicates that distribution of these channels is indeed limited. Second, Sky may be able to set wholesale prices above the competitive level; difficulties with analysing wholesale margins make it difficult to draw firm conclusions on this.

” Markets where competition is weak do not deliver the best outcomes for consumers. The limited retail competition that we see in pay TV as a result of limited distribution of premium content is likely to manifest itself in terms of reduced choice, reduced retail innovation, reduced platform innovation or higher prices.”

Foxtel in its usual fortress way will squeal and claim unfair, it doesn’t apply to us. They should have a long chat to their counterparts at BSkyB. I reckon they will try and reach a deal with Ofcom rather than risk a full blown competition inquiry.

It hasn’t been a good week for BSkyB or Murdoch, the Competition tribunal in Britain upheld a decision that could force Sky top sell most, if not all of its 17.9% stake in ITV . That stake was bought in November 2006 to block moves by Virgin Media and NTL to merge with ITV.

And despite being a terrestrial broadcaster, the news from ITV seems to be buttressing the need for some competition concerns about BSkyB. ITV and its Government owned commercial rival, Channel 4 are suffering revenue losses and are cutting jobs.

Channel 4 has already announced 150 jobs are to go in a 50 million pound cost cutting drive, now ITV says 1,000 of its jobs are to go, with 430 jobs at ITV News to be hacked out of the 1,075 strong work force.

Journalists and broadcast staff will be among those going, a move which is causing shock waves in London.

“In September 2007 ITV plc announced that it would deliver £40 million of annual savings in its regional news services, taking effect in 2009. We shall now begin consultation with employees over proposals to reduce the headcount. It is anticipated that there will be approximately 430 job losses across the ITV News Group. “

ITV is well into the cuts, with 425 jobs already gone and another 75 on the way.

ITV was last week given approval from UK media regulator Ofcom to cut its regional news service in an effort to save 40 million pounds a year.

“Following restructures of the Finance, Press & Publicity, Brand & Commercial and ITV Global Content divisions – including Northern Resources – ITV can confirm that (also including the impact of disposals) its group headcount has been reduced by almost 425 positions to date with a further 75 roles which are in the final stages of consultation. A separate review of ITV’s Technology department begins today.
“John Cresswell, Chief Operating Officer, ITV plc, said: “We are committed to a self-help, self-funding, solution to securing ITV’s future. In order to sustain our investment in UK content, we have to keep on top of our cost base. “

“In total, and including company disposals, ITV plc expects to reduce headcount by around 1000 posts over 2008 and the first two months of 2009.”

Last month, ITV announced pre-tax profits fell 28% to 91 million pounds.


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