Some of the biggest and most recent media deals in Australasia have been thrown into doubt by a shock announcement from the NZ Commission Commission that could halt the proposed $NZ3 billion merger of Sky TV, the country’s only Pay TV operator, and Vodafone NZ.
Citing competition fears, the Commission’s views were contained in a letter released yesterday morning and sent to Vodafone and Sky TV.
The shock announcement came a week ahead of the Commission’s supposed final decision on the deal. That deadline has now been pushed out indefinitely to allow the parties time to rework their case and send them to the regulator, and for discussions with objectors to the deal to continue.
The Commerce Commission said in its statement that on the basis of information gathered to date, it was not satisfied that the merger would not substantially lessen competition in the telecommunications and pay-TV markets. The commission has therefore delayed a decision on the merger.
If sustained, the NZ Commerce Commission’s stance on this deal puts in doubt the proposed merger involving the print and radio of interests of APN, now in a listed company called NZME and Fairfax Media’s NZ newspapers and websites.
Under that deal Fairfax was to emerge with a dominant 42% stake in the merged company and $55 million in cash and two board seats. Both NZME, APN and its biggest shareholder, News Corp, and Fairfax will be watching the Sky-Vodafone talks.
The proposed purchase of APN’s regional papers in Queensland and northern NSW could also be impacted by the decision across the Tasman because our competition regulator, the ACCC has already expressed concerns about the lack of competition in some areas for advertisers. While not strictly comparable (the media markets in both countries are different) the competition issues raised by the NZME-Fairfax NZ and the News purchase of the APN papers are similar in some respects in that both involve a lessening of competition in some or all the areas involved in the deals.
But at worst the Commerce Commission’s statement will make Fairfax, NZME, APN and News (which is APN’s largest shareholder) worried because to win approval they might have to make concessions which would substantially lessen the attractiveness of the deals.
That Sky-Vodafone deal was thrown into doubt this morning by the key regulator, the NZ Commerce Commission, which released a letter where its considerable doubts about the deal were revealed for the first time.
The merger, which has a paper value of about $NZ3 billion, would see Britain’s Vodafone acquire a majority 51% in Sky TV, which it would merge with its New Zealand phone and internet business.
“The Commission is seeking further submissions from Sky and Vodafone on the specific areas of concern identified, including the ability of a merged Sky/Vodafone to use ownership of content – particularly live sports – to make buying Sky on a standalone basis less attractive than buying it in a bundle with Vodafone’s broadband and mobile services,” the letter said.
Sky’s biggest content asset is the exclusive rights to live coverage of all the All Blacks games, both in and outside NZ. It also has live rights to other major sports such as NZ cricket games and the NRL. It had the rights to the Rio Olympics, which it policed with some vigour this year, causing an uproar with rival TV and print media outlets. But it is the live All Black rights which are the major assets in this transaction. Without them, this deal would not be happening.
The Commission is concerned that at the moment many Kiwis have a Sky subscription primarily to watch the All Blacks but they buy their telco services from companies other than Vodafone. The Commission fears that once the merger is done, Sky subscriptions will be priced in such a way to force people who want to watch All Black games, to buy bundled offerings of Sky and teleco services from the merged company, thereby discriminating against rival telcos. So it is no wonder that local mobile competitors, Spark and 2degrees have both strongly objected to the merger.
The commission also said it was concerned that while consumers might initially benefit from lower prices, rival broadband and mobile providers could lose or fail to achieve scale and become less “competitively effective".
"Over time this could reduce competition in these markets and potentially enable the merged entity to raise prices or lower the quality of service beyond what it would be able to without the merger occurring," it said.
The watchdog has given Sky and Vodafone until November 11 to respond to its concerns. Other parties will then have a week to comment on the responses it receives.
The commission said it was talking to Sky and Vodafone about extending its deadline for a ruling on the merger and would not “comment further at this time".
