Sky TV and Vodafone Merger: Commerce Commission decision

Curated by Dale Cummings, Head of Trading

Bulletin #2


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A definite ‘need to know’ in the media industry. Yesterday morning the Commerce Commission declined the billion dollar proposed merger of Sky TV and Vodafone NZ. This did come somewhat as a surprise; NZ isn’t a market known for a wide range of choice across all sectors.

Indeed, many insiders in the communications industry believed this would go ahead, despite much objection, given the perception of a soft NZ ComCom. The last minute legal stay prompted by competitors demonstrates that there was a real industry fear it was a ‘done deal’. However, at 8.39am yesterday, the merger was rejected with the reasoning that it would impact too much on consumer competition. Industry and market reaction was swift. Within a few hours, Sky’s share price had slumped to its lowest level in eight years.

We are interested in how the decision impacts the media industry and our clients who use the Sky platform as advertisers.

An approval by the ComCom would have put Sky in a much stronger position as a content publisher. Sky already dominates Sports Coverage in NZ with Rugby being the jewel in their crown; it also offers a large range of other high profile sports. Being able to bundle or limit access to this content with Vodafone mobile or broadband services would impact the huge number of consumers who value this content.

The NZRU signed a longterm deal with Sky last year, for a further 5 years. At the time, some commentators thought the All Blacks should have chosen another model to distribute content like the English Premier League or many American sports. Arguably there isn’t the volume of consumers in NZ to make that viable and the NZRU relies on Sky to film, edit and produce sports programming. The current contract with Sky runs through to 2020. Content won’t change, but what is likely to change is the stance they adopt on wholesaling the content to other broadcasters such as TVNZ and MW plus others who will now find the door slightly ajar to resume wholesale right negotiations.

From a trading point of view, it will be a shakier start to 2017for Sky than they had envisaged. This could mean clients get more added-value, and negotiations will certainly have a different perspective. Sky will have to reinvestigate products such as Neon and decide whether they are an ongoing part of their portfolio. The Voda deal gave them access to a better EPG experience and this will need to be re-thought. Other revenue streams will be prioritized and we hope they will start to push ahead with addressable TV like Sky Media in the UK deploy.

Given Sky have the key sporting content locked up for the next few years, they will certainly remain a key platform for our clients’ advertising investment and this is not the end of the story. We expect Sky TV and Vodafone to fight this decision, but it’s more of an uphill battle given the decision yesterday. It also raises more questions on the likely decision of the other big NZ proposed merger; Fairfax and NZME (decision due next month). That merger has even greater competitive impact and also a significant cultural and social context. An interesting year to be in marketing.

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