No wonder Kim Williams, the Foxtel boss, sounds like he is having an attack of dyspepsia lately. The federal government is handing money, with no string attached, to the free-to-air TV networks, while the ABC is revolting — rather, doing something against the grain by indulging in a spot of competition by starting a 24-hour news channel. All this as one of his shareholders, Consolidated Media, faces a challenge from C7’s driving force in Seven owner Kerry Stokes.
But Stokes might actually be the one person in Australian broadcast media with a tough call to make if a new pay TV business is successful in snaffling major sporting telecast rights, such as the AFL.
Upstart television business Fetch TV has emerged as an over-the-top bidder for the TV rights to the AFL from 2012, and wants to talk to the free-to-air TV networks about broadcasting them. The upshot being Foxtel would not get any AFL (it presently has four games a week in season).
You can bet Williams will be dismissive, as will News Limited and Telstra, the other major players in Foxtel. Channel Seven was dismissive last night of any deal with the new player.
Fetch is backed by Malaysian billionaire T. Ananda Krishnan, who has extensive satellite television interests in Asia through his Astro network. The company would reportedly put up a component of cash in any AFL deal that, if successful, could prevent the pay TV portion from being sold to Foxtel and Austar — which between them paid the networks $315.5 million over five years to show four games live each week.
Fetch provides subscription TV delivered via a broadcast signal over broadband — but not via a satellite or streamed from the internet. But there is threat to Foxtel, Consolidated Media Holdings, Seven, News Corporation and Telstra in this story.
Take Consolidated Media: it owns 25% of Foxtel and 50% of Premier Media. Premier owns the Fox Sports operation, which normally bids for and runs the sport offerings on Foxtel, including the AFL, NRL and A-League. It is also where News Corp and Consolidated Media make the real money in pay TV.
The AFL and NRL are the big money games for Fox Sports (and News and Consolidated Media) and for Foxtel. They are the big subscription drivers (hence why Foxtel wants the sports anti-siphoning laws eased).
If Fox Sports and Foxtel lost either of the major football codes it would be highly damaging financially and emotionally. The loss of face at Fox Sports and Foxtel would be crippling. A decidedly arrogant belief that they are the best thing in Australian broadcasting would crumble when faced with competition.
Channel Seven (or rather the Seven Network and Seven Media Group) would be horribly conflicted and perhaps a loser as well if its AFL broadcast partner in the Ten Network broke away and did a deal with Fetch TV on the free-to-air rights, as is being suggested. Moreover the Seven/Stokes strategy of stalking Cons Media would be conflicted: to lose the AFL would see the value of its Foxtel and Premier Media holdings fall sharply.
With Stokes involved in the messy merging of Seven Network with his privately-owned Westrac heavy equipment group, losing the AFL — or even the prospect of losing the AFL — is something he would rather not have right now.
The established media players will all bag Fetch (some have already), but if the Malaysian billionaire is indeed a billionaire and wants to use his money to guarantee a deal with the AFL, and convinces them, then the Australian media and business landscape will be changed. Watch for News Ltd papers to go on the attack.
Stokes may have to decide something he doesn’t want to make a decision on right now: whether going after Cons Media is smart when there’s a fellow billionaire offering a deal that could see Seven lose the AFL. It could, however, free Seven to make a full-blooded bid for the NRL rights which will be decided in the next couple of years as well.
NRL is a bigger sport in NSW and the faster-growing Queensland market so is crucial to the television landscape. Audiences on Foxtel are higher for NRL games than AFL, but both account for the overwhelming majority of the top 100 broadcasts on the Pay TV operator every year.
Of course Fetch may not win, but its interest has already boosted the amount the AFL can expect in the new contract from 2012 to more than $1 billion. It will also encourage the NRL to expect more.
The Nine Network will have great difficulty. It is being courted by PMG and News Ltd to be the free-to-air rights holder for rugby union internationals (Seven has the rights and is interested, but there is a question of the big price the rugby mob and News are demanding). Nine is already paying over $100 million for the Olympic Games with Foxtel. It remains financially challenged, even though ad volumes and rates are recovering. The debt burden is huge, as it is at the Seven Media Group.
That’s why if Fetch and its owner can put up a lot of real money and make a convincing case it will strain the finances of both Nine and Seven to breaking point. Neither can afford both the AFL and NRL with their current financial structures and debt burdens.
If Foxtel and its most logical partner, the Nine Network, win then they will have to charge a lot more to cover their costs. And you know who will pay — Australian pay TV subscribers. It’s the old pay TV con of forcing people to pay for what they get on free-to-air, and then inserting ads into the broadcasts.