Former rivals Sky Television and Television New Zealand are hand-in-hand for new 11-channel pay television platform Igloo.
They revealed aspects of a strategic deal that shuts out future competition. While TVNZ benefits from a stake in pay TV, it will be Sky - with 51 per cent - that holds the upper hand.
Sky TV shares dropped 5c yesterday on details of the scheme.
Four years ago TVNZ was issuing dire warnings on the future of television and media competition due to Sky's dominance in a Labour Government review of broadcasting regulations.
Yesterday chief executive Rick Ellis said he had no memory of those concerns.
He announced a deal which will see TVNZ sharing revenue with Sky in the first half of next year.
The battle between free TV and Sky is all but over.
Initially focused on 11 pay channels delivered via a set-top box that will cost less than $200, the service will also be capable of broadband delivery of pay-per-view sports and movies.
It will cost consumers about $25 a month.
Channels include BBC World News, UKTV, BBC Knowledge, Vibe, Kidzone24, MTV Hits, National Geographic, Animal Planet, Comedy Central, Food TV and TVNZ Heartland.
The Igloo set-top box will also pick up the same free-to-air channels as Freeview.
Igloo expects to attract 50,000 subscribers within two years - providing about $10 million of one-off revenue from the set-top box and $15 million in subscriptions.
It allows Sky to pick up customers not prepared to pay for a small Sky package.
For TVNZ it provides a portal into pay-TV without challenging the dominance of Sky.
Sky chief executive John Fellet said pay-per-view sports and movies would take off with uncapped ultrafast broadband, but there was no agreement between Igloo and internet service providers.
Telecom had provided uncapped broadband services for TVNZ's flopping TiVo venture. Sky TV's internet TV venture, ISky, has uncapped data deals with ISPs.
One of Igloo's biggest selling points will be flexibility, with customers able to prepay each month and cancel at will.
On the other hand it might lead to more churn. Sky TV said broadband downloads would cater for people who wanted to occasionally see a movie or sports event, but did not to want to commit to a full Sky movie or sports package.
The Igloo set-top box will have a live pause capability that will be able to hold streamed content up to four hours - but it will not have a record facility like MySky. None of the programming will be in high definition.
No additional channels are planned and Igloo uses most of the available digital television bandwidth, so will limit the potential for new players, seen by insiders as the main aim of the deal.
There is widespread unease in the industry about the growing relationship between TVNZ and Sky.
Ellis yesterday insisted there was no commercial deal over content and said there were no competition issues in the joint venture.
He leaves in February for a new role in Australia.
HOW IT WORKS
* Former rivals Sky TV and TVNZ reveal Igloo joint venture pay-TV service.
* Sky has 51 per cent share, TVNZ 49 per cent.
* Service's set-top box will cost less than $200 and 11 channels will be about $25 a month.
* Igloo will allow downloads of movies and sports for an additional charge.
* The two broadcasters say it will provide more consumer choice.
* Between them TVNZ and Sky own the vast proportion of rights to TV content.
* TVNZ and Sky insist that the relationship is limited to Igloo.
* Television producers and the telco industry have raised concerns about the alliance between the state broadcaster and Rupert Murdoch-controlled Sky.