Foxtel gets nod to buy Austar... with conditions

Foxtel, the Australian pay television company part-owned by Rupert Murdoch's News Corp, will be allowed to buy Austar United Communications after agreeing to drop exclusive rights to Nickelodeon and National Geographic Channel.

Foxtel, Australia's biggest operator, will agree not to purchase exclusive rights to movies for video-on-demand services after buying its second-ranked rival, the Australian Competition & Consumer Commission said yesterday.

The ruling reverses the regulator's preliminary view issued on July 22 that a deal would substantially reduce competition.

Foxtel will promise not to buy exclusive rights to Nickelodeon, National Geographic, the Disney Channel, ESPN and about 60 other channels; to video-on-demand programmes broadcast by rival networks; and to most movies, the regulator said.

It will be able to purchase exclusive rights to individual sports.

The content agreements were necessary to limit the market power of Foxtel's 50 per cent shareholder, phone company Telstra, the ACCC said.

Access to Foxtel and Austar's existing subscribers would give Telstra an advantage in selling so-called "triple-play" packages of broadband, telephone line and internet television services.

A court hearing due on Friday should confirm the takeover deal.

About 92 per cent of Austar shareholders backed the A$1.9 billion takeover in a meeting on March 30. The company's board had agreed to be bought by its larger rival in July after the board and biggest shareholder, billionaire John Malone's Liberty Global, backed the A$1.52-a-share cash bid.

The deal then stalled as the regulator started a review of the proposal and extended the deadline for a decision at least three times to allow Foxtel to make further submissions to gain approval.

The ACCC said it had broadened the range of programming subject to exclusivity regulations from its original decision.

The decision was welcomed by Austar, Foxtel and Telstra.

"This is a great outcome for consumers," Foxtel chief executive officer Richard Freudenstein said in a statement.

Foxtel has been pursuing its smaller rival since at least March last year as it seeks to gain subscribers in regional and rural areas where Austar dominates.

The regulator began further consultation on March 7 after Foxtel said it wouldn't sign exclusive content agreements for internet protocol television. It also agreed to provide access to its signal so competitors can offer channels and services.

News Corp owns 25 per cent of Foxtel, the same size stake as Consolidated Media Holdings, while Telstra, Australia's largest phone company, owns the rest.

A series of articles in the Australian Financial Review newspaper and on the BBC's's Panorama programme have said that NDS Group, a security software developer for digital television systems, encouraged the piracy of rival platforms at a time from 1999 to 2002 when it was majority-owned by News Corp.

That piracy damaged Austar during the period, the newspaper reported. The company's shares lost 97 per cent from its initial public offering during the dot-com boom in July 1999 and the end of 2002.

NDS has said the Australian Financial Review should retract its articles, saying they were "based on gross mischaracterisations of the evidence" in a letter to the newspaper's editor on March 29.

Austar chief executive officer John Porter told the March 30 shareholder meeting that any reported piracy "took place over 12 years ago" and wouldn't affect last year's offer by Foxtel.

"There's no relationship between those activities and the value we see in Austar today."

- Bloomberg

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