Sky CEO defends his anti-regulation position

In part one of Q and A with John Fellet he discusses deal with ISPs

At the Commerce Commission’s conference last week on the future of high speed broadband, in a panel discussion featuring the Sky TV CEO John Fellet and Mediaworks CEO Sussan Turner, the latter championed a joint broadcasting/telecommunciatinos regulator. In this Q and A interview John Fellet tells Sarah Putt why he takes the opposite view.

Were you suprised by Mediaworks CEO Sussan Turner coming out strongly in favour of regulation?

I guess so, the thing that amazed me the most is that she was talking about the wholesale agreement – she’s never once asked me to consider a wholesale agreement with her, so I’m not sure how she even knew what the wholesale agreement looked like, much less why she thought it was unfair.

But I think you always have to be a little bit careful any time a business asks for more regulation of their industry, typically that’s a warning sign.

You’ve got a deal with all the ISPs – 80-90 percent of the ISP market, you’ve got a deal with the state broadcaster [Igloo joint venture] and there’s only one company in this content space that you haven’t got a deal with and that is Mediaworks. There is a concern that you're dominating this market.

So if I did a deal with her, it would not be dominating it – that I don’t understand.

I think there is a concern that there are deals being made that are not being transparent. We heard a little bit from TelstraClear in that panel discussion saying – ‘will you let us buy content direct from other players other than Sky TV’?

Keep in mind how those deals are set up. Twenty years ago, TelstraClear - back in the those days Saturn - was in the content purchasing game. And they had their own pay TV operation and it was not going well, so they came to us and said we don’t need to be in the pay TV business, we’d like you to be our Pay TV provider.

[It was] almost like a joint venture where we’d get a piece of the internet traffic and they got a piece of the voice. Then they came back and said we can’t do it that way, we’ll pay you based on a discount of what the content is. You are a complete provider of that, we’ll stay out of the content game, we don’t do it well. Sky you have to eat all of our bad deals that we’ve already signed. So we absorbed them all.

How much was that?

Several millions of dollars at the time.

And this was in?

About 2002. So we did it, we weren’t crazy about it, but we were happy to do it and a part of it was because it’s a knowledge area that they don’t have. They don’t have any experience in dealing with Hollywood studios, sports rights, that’s something we do every day.

You know it took 11 years for us to make our first profit, it’s a tough grind that you have to slowly eat your way through [to] get that critical mass.

The way our deals work is that almost on day one if you’re a telephony company you’re making money off pay television, because we only charge you subscriber.

It was never an issue, and then OFCOM (regulator) in the UK looked at the wholesale rate and the day that happened TelstraClear’s been quite vocal about regulation in this area. It was never an issue before.

And we’re not under any obligation to sell to Telstra period, there is no requirement that we have to sell. We could launch our own phone company.

Would you do that?

It’s not our expertise, there is a question about telephone companies that try to get into the content business, typically what happens is that you can’t be good at everything.

Doesn’t SKY TV in Britain have an ISP?

They went that direction.

They launched it in order to get around some of those OFCOM regulations, is that a fair comment?

That’s not a fair comment, they just thought it was a good market and decided to invest in it.

So Sky TV in Britain have decided to become an ISP, it’s got to be something you’ve looked at here?

No, we want to be very good at the entertainment side, that’s what we do.

TelstraClear made the deal 10 years ago, a lot has changed in that time.

Where I come from the day you sign the deal, the negotiation ends. It almost seemed like a year after the deal negotiations almost opened up again, which I thought was terribly unfair.

If we’re going to open up, happy to do that, but we’re going to open it up across the board. I’m happy to tear up the contract and start again.

With TelstraClear and all the ISPs?


There is a lot of speculation about what’s in those contracts and if there was some kind of regulation around it...

But it’s the same contract, how could there be any speculation?

This is what Dwayne Winseck thinks is in the deals.

Who is Dwayne Winseck?

He was a speaker at the Commerce Commission’s Future of Broadband conference. Firstly – ‘bandwidth lifted for all of Sky’s services’ (that is zero-rated content for Sky programming)?

Telstra doesn’t do it, Telecom doesn’t do it – so that’s wrong.

He then says that all the editorial control (in the contracts with ISPs) comes from Sky – there’s no flexibility?

No, our contract says ‘take ours - if you want anything we don’t have we’ll have to go get it. If we can’t get it for you, you go get it.’

What if they want to negotiate with Disney directly, but were still happy to get the sports content from Sky – could they do that?

They would be trying to take advantage of all our discounts. Part of the reason why we sell the whole package - if we sold just the sports tier, happy to do that but it’s going to cost a lot more than what it does now. They buy across the board allowing us to shrink the whole package, so they just can’t pick the eyes out of what they think is the best and want to do themselves. They can, but once again we’re going to have to look at the deal.

When you look at the New Zealand market you see they are all reselling the same service, ie – yours.

Go to the US market, go to the Canadian market, the channel lineups are identical. If they had a good channel and I thought it was working, why wouldn’t I carry it the next day? No one does exclusives.

So they don’t do exclusive deals for television or for internet?

I can’t get CNN on an exclusive basis.

But you can get the Rugby Union coverage of their games on an exclusive basis.

Sports channels can get exclusive, but then I make it available for everybody, so I don’t know. It’s a weird definition of exclusive when I say anyone can have it.

They resell it from you, but they can’t get it independently. They can’t go and make their own arrangements with the rugby union.

That’s right, I can’t have the stuff that’s on TVNZ. TVNZ can get exclusive rights, TV3 has exclusive rights for stuff I can’t get. They outbid me for. I have exclusive rights, my deal gives all my ‘exclusive’ rights across the board, across all the telephone companies.

See part two of this Q and A interview with John Fellet here.

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