Sky TV, NEP use lure of 4K ultra-high definition as watchdog delays deal

The Commerce Commission had been expected to issue its final verdict today on Sky TV’s sale of its outside-broadcast unit, OSB, to the multinational NEP.

Instead, the consumer watchdog released a paper, flagging various potential competition issues for discussion. Its final decision is now expected in February.

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If the deal gets the green-light, around 38 Sky TV staff will shift across to NEP’s local operational include provision for NEP to supply

Sky has never put a price on the sale, but in August said it would save the company “to avoid future significant capital investment of around $50 million for broadcast equipment while continuing to give its customers the best sports viewing experience.”

The sale is conditional on Commerce Commission and Overseas Investment Office approval (the OIO has yet to weigh in).

Two anonymous submissions to the ComCom during October carried the same allegation: that the deal would re-establish a monopoly in outside broadcasting services. They say while the ComCom has identified seven players in the market, the other contenders are minnows, or yet to even open an office in NZ.

Sky became the main player in outside broadcast services after it bought Onsite Broadcasting (later renamed Outside Broadcasting or OSB) for $35m in 2010.

The pay-TV broadcaster’s lock on outside broadcast services was regarded as something of a moat around its A-list sports rights. Others might bid, but they wouldn’t have the wherewithal to actually shoot games.

But the landscape shifted in 2018, when outside-broadcast player NEP – which bills itself as the world’s largest outside broadcast player – set up shop in New Zealand.

In December 2019, the sale of OSB to NEP was first mooted. New Sky TV chief executive Martin Stewart said it no longer made financial sense to have outside broadcast as an in-house operation.

In submissions and cross-submissions – a curious environment in that it’s one where firms need to put their worst foot forward, in some instances, as they strive to illustrate a deal will not lessen competition – both Sky and NEP highlighted that Spark has brought in a major UK outside broadcast player, Whisper, to produce domestic cricket games for Spark Sport over the next six years.

Beyond Whisper being camped out in NZ for the next half-decade (complete with robot cameras, see tweet below), Sky and NEP say there is a trend for large-scale events, from sports matches to concerts, to be filmed by a multinational.

The ComCom competition issues paper today only makes two glancing references to Spark Sport, and does not mention Whisper. Sky and NEP can be expected to raise the UK operator in their responses.

Another point of contention is the need to spend a lot of money upgrading OSB’s equipment, or not.

In their original clearance application, Sky and NEP said OSB’s gear was creaky.

“Customers that want 4K [ultra HD] cameras – being the latest and future of broadcasting
quality – because OSB’s six trucks are HD-only,” they wrote.

Clients will want events shot in 4K (already common for sports overseas) within two years, Sky and NEP say.

“In the early to mid-2000s standard definition technology was the norm,” the pair write in their submission, which raises 4K in 35 instances.

“Things shifted to HD technology in the mid-to-late 2000s and now the market expects 4K [4X HD] quality broadcasts shot from Spidercams, ultra slow-mo and other high tech
cameras. Next, the market will seek 8K quality filmed from the latest iteration of
innovative cameras, and so on.”

Sky can’t deliver 4K, NEP can. “OSB’s cameras are all last-generation HD, whereas many of NEP’s Australian-based units are equipped with the latest 4K cameras. NEP will bring that level of technology to New Zealand post-transaction,” the clearance application says.

One of the anonymous submissions says the 4K argument is spurious, given neither Sky nor any other local TV company broadcasts in 4K – noting that Stewart cancelled a 4K set-top box project initiated by his predecessor, John Fellet.

However, in September, Stewart confirmed Sky did have a 4K Android box was in the works and could be released as soon as July next year (the Sky boss said the timing and other elements weren’t right with the previous effort).

4K is definitely the future. Even the cheapest TVs sold today support 4K, with pricier models already offering 8K support. Spark has already said that Spark Sport has 4K capability, although the telco has played it safe initially by offering up to HD quality only. It’s probable that Sky will follow the likes of Netflix, Amazon Prime Video and Disney+ by upgrading Neon and Sky Sport Now to support 4K.

A spokeswoman for Sky said, “We were disappointed to be informed of the delay from the Commerce Commission.We are working through next steps with them and NEP, as well as supporting our teams who are personally impacted by the delay.”

A final decision had been expected this month, in line with the regulator’s original timetable.

The ComCom will now field submissions and cross-submissions in response to the paper it released today. The watchdog is due to make its final decision in February.

In 2017, the ComCom blocked another Sky deal, albeit a much larger one: its proposed merger with Vodafone’s New Zealand operations.

Sky shares were recently trading at 17c. The stock is down 63 per cent for the year.

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