Telco spins media web with Xtra MSN deal

By PETER GRIFFIN technology writer

The $300 million plan to merge the website of internet service provider Xtra and Microsoft's MSN portal has sailed clear of regulatory hurdles, but the deal has repercussions for local players left out of the party.

Microsoft and Telecom have given a preview of their XtraMSN.co.nz portal, showing a site that has kept its identity but pulls users into a Microsoft-controlled world at the click of a button.

In spite of the apparent dominance of the partners - Xtra has 378,000 users and MSN more than 700,000 local users - Microsoft and Telecom reject claims that the venture will enable them to monopolise internet services and content in the local market.

But the snaking arms of media ownership in New Zealand paint a different picture.

As well as its 12.12 per cent Sky TV shareholding, Telecom has a 10 per cent stake in publisher Independent Newspapers, which will soon increase its own stake in Sky to 66 per cent.

INL is set to buy Todd Corporation's 11 per cent stake in Sky, making up the shortfall by bidding on the market for up to 23.5 million shares.

Sky and Telecom have indicated the way ahead with their Sky-Fi deal that bundles internet access, digital TV and telephone rental.

Xtra is likely to have a hand in providing Sky's e-mail service - the first step in the broadcaster's interactive TV plans.

Microsoft and Telecom have also moved into the new economy with their "eSolutions" e-commerce alliance, where they are joined by IT company EDS.

The close relationship between these key players raises the possibility of a media collaboration in the future that would dominate anything local competitors could muster.

MSN's South Pacific director, Alexandra Stewart, said the changing shape of the media had created some strange bedfellows among the communications and media giants, but this strong competition would ensure that XtraMSN would not push out other operators.

"Divisions of companies are getting a lot more freedom to partner with people who might be perceived as competitors," she said, possibly alluding to Telecom's partnership with internet service provider AOL through its Australian subsidiary AAPT.

AOL is MSN's big rival in the Australian market. "Yahoo! is quite a strong competitor. AOL is free to enter this market and do whatever it wants to," she said.

The portal partnership could have serious implications for online content providers Nzoom, Stuff and Herald Online as well as rival ISPs such as Clear and Ihug.

Mark Ottaway, general manager of Wilson and Horton Interactive, publisher of the Herald Online, said XtraMSN would be a potent force.

But he said sites generating their own content attracted a different audience and advertisers to the online offerings of ISPs.

"No one's denying that they're likely to get a big chunk of the market. The tie-up is a strong one, but it's not like some new entity has been created. Xtra already has a massive site and MSN's site is one of the most popular in the country.

"But sites like Stuff, Nzoom and Herald Online create content rather than gather it in one place like the utility type sites."

Mr Ottaway pointed to TelstraSaturn and TVNZ working together, and said the Herald was "quite friendly with both of them."

Commerce Commission spokesman Vince Cholewa, said a preliminary assessment of the venture was being carried out, but there was no suggestion that it would stifle competition.

"The issue is, 'Would such a proposal breach the commerce act?'

"There are no laws relating to cross-media ownership in New Zealand."

He said Telecom had voluntarily told the commission of its partnership with Microsoft some time ago and Xtra's various content arrangements, exclusive or not, might not raise anti-competitive issues.

"In themselves, exclusive arrangements are not prohibited in New Zealand and that has been tested by the courts.'

He pointed to section 27 of the Commerce Act, which prohibits "contracts, arrangements or understandings substantially lessening competition" in the New Zealand market.

If MSN's Australian collaboration with Channel 9 (www.ninemsn.com) is anything to go by, Xtra's customer base of 370,000 and visitors to the new portal can expect a richer communications experience.

But it would be one where local content was diluted by Microsoft's wider content partnerships.

While the main crowd-puller on the existing xtra.co.nz site is the variety of news, sports and entertainment, MSN will use its experience in 32 countries to add a range of services normally available on the msn.co.nz website.

A greater range of multimedia features, content drawn from MSN's global network of sister sites as well as gaming and music, will be available on XtraMSN.co.nz when it goes live in three months. The partners are also exploring online shopping.