Sky's hold on TV content worries telcos

Sky is New Zealand's biggest buyer of Hollywood content, including internet TV and mobile phone rights that it sells on. Photo / Brett Phibbs

Telcos looking at internet TV when broadband infrastructure improves are belatedly raising alarm about Sky's dominance of television content.

But a broadcasting sector financial analyst - Sarndra Urlich of First New Zealand Capital - says there are no signs of regulation in Sky's "benign competitive environment".

With Government plans to introduce ultra-fast broadband, the door is opening to internet TV - but Sky is emerging as a gatekeeper.

Sky is New Zealand's biggest buyer of Hollywood content, including internet TV and mobile phone rights that it sells on.

Telcos are concerned that Sky is acting as both a retailer and a wholesaler for content.

In April it was revealed that TelstraClear - which wants to develop content on its fast broadband services - has had problems with its relationship with Sky.

While other countries spell out rules to ensure competition, the New Zealand Government has walked away from a review of broadcasting regulations.

These are pivotal times for Sky with free-to-air digital platform Freeview bought to heel and potential new internet services needing content.

Next year's Rugby World Cup is expected to send Sky TV subscriptions through the roof.

MySky - the easy-to-use recording device that increases revenue to Sky - is in 27 per cent of its retail customers' homes.

Last week Sky TV passed 800,000 subscribers and 49.3 per cent of the population.

The economic downturn - and possibly Freeview - has slowed Sky's stride. But lack of regulatory obstacles has ensured it has a clear path ahead.

In a recent note Urlich summed up the view of investors - that the Murdoch-controlled company faces bright prospects.

"The potential threat from new competition is constrained by the lack of a robust infrastructure, the lack of economies, the lack of content rights and the lack of telco expertise in the content space.

"We have consistently been of the view that the threat of regulation, particularly under this Government, is small," she said.

Whichever way you cut it, there is no denying that Sky is the only operator in the domestic pay-TV space.

Under a deal brokered last year by Broadcasting Minister Jonathan Coleman, TVNZ agreed to hand the use of state-owned digital channels TVNZ 6 and TVNZ 7 to Sky for nothing. Sky TV in return handed Sky Prime TV to the free-to-air digital platform Freeview. But Urlich said Freeview's programming offer had a dearth of content and was not comparable with Sky.

TVNZ has a one-third stake in the company with Australasian rights to the advanced personal video recorder TiVo, with Telecom playing a key part.

Since its launch in September 2009, take-up of TiVo has been disappointing.

Urlich did not see the threat of "new" technology along the lines of IPTV (internet TV) or other hybrid models as being an issue for Sky over the medium term at least.

New Zealand was unlikely to be "network ready" for at least another eight to 10 years - the time expected for the national rollout of fibre to homes.

"We do not expect the major telco to endeavour into the IPTV space given the infrastructural commitments, not to mention its lack of expertise in this space and the issue of content rights.

The Urlich note said that if anything, the only threat to Sky was in pay-per-view movies and these made up just 2 to 3 per cent of Sky revenue.

Sky had so far been fortunate operating in a benign competitive environment.

"Given the current landscape," it said, " we do not expect this to change."