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Presto content to diversify as ACCC approves Ten-Foxtel deal

Both industry regulators have approved the Ten-Foxtel deal, giving Ten the option to take a 10 percent stake in streaming service Presto.
Written by Corinne Reichert, Contributor

The Australian Competition and Consumer Commission (ACCC) and the Australian Communications and Media Authority (ACMA) have approved an acquisition deal between Ten Network and Foxtel, giving Ten the option to take a stake in Australian video-streaming service Presto.

Under the deal, free-to-air TV network Ten will acquire 10 percent of Presto, while pay-TV provider Foxtel will acquire 15 percent of Ten itself. Ten will also purchase a 24.9 percent stake in Foxtel's advertising agency Multi-Channel Network (MCN).

While the ACCC had been initially wary of approving the deal, saying in September that it could reduce competition in the traditional TV broadcasting market, on Thursday it announced that it was satisfied the deal would not have this effect.

"While the acquisitions will lead to a greater alignment of Foxtel's and Ten's interests, and will increase the degree of influence Foxtel has over Ten, the ACCC considers that the proposed acquisitions, on their own, are unlikely to result in a substantial lessening of competition," ACCC chairman Rod Sims said on Thursday morning.

The ACMA agreed that the deal would not contravene either media diversity legislation or the "15 percent" company ownership rule.

"The principal issue considered by the ACMA was whether the arrangements would put Mr Lachlan Murdoch in a position to exercise control of commercial television broadcasting licences held by Ten,' said ACMA chairman Chris Chapman.

"If so, an 'unacceptable three-way control situation' would result in the four licence areas where Mr Murdoch is already in a position to control the Nova commercial radio broadcasting licences and the News Corporation associated newspapers.

"However, the ACMA considered that, while Mr Murdoch was in a position to exert influence on Ten, that level of influence fell short of 'control' as prescribed by the BSA [Broadcasting Services Act]."

Both Ten and Foxtel welcomed the decision, saying the funding injection from Foxtel would allow Ten to shrink its debt and continue operating in the free-to-air TV market, as would leveraging the marketing opportunities provided by MCN.

"By entering into the transaction with Foxtel and completing our proposed entitlement offer to all Ten shareholders, Ten will receive the capital it needs to continue its turnaround," said Ten non-executive chairman David Gordon.

"Through the arrangements with MCN, our advertising clients will receive the benefit of new efficiencies, improved data capability, and broader integration opportunities."

Foxtel CEO Richard Freudenstein agreed, saying Ten's continuing operations in the space would ensure continuing competition in the industry.

"These transactions will provide much needed capital for Ten and help it to grow revenues by building scale and enhancing services to clients by working with MCN. A stronger Ten will further enhance competition in an increasingly competitive local and international media industry," Freudenstein said.

In approving the deal, the ACCC said it also had consideration of encouraging competition among streaming services.

"The ACCC considers the other free-to-air television networks, pay television providers, and online service providers will continue to have sufficient alternatives to allow them to obtain content that is attractive to their viewers," Sims said.

"Foxtel and Ten will continue to face competition from the remaining free-to-air networks, and streaming services are also likely to become increasingly important."

Presto was initially launched solely as a movie-streaming service in 2014, but added TV series to its offerings after a deal with Seven Network in March this year.

Opening up Presto to content from Ten could result in increasing competition in the Netflix-dominated streaming sector.

Presto Movies is priced at AU$9.99 per month, after last year being reduced down from AU$19.99 due to increased competition; Presto TV, its joint venture with Seven, costs AU$9.99 per month; and Presto's entertainment bundle combining both TV and movies sets customers back by AU$14.99.

By comparison, Netflix costs AU$11.99 a month, Nine-Fairfax joint venture Stan is AU$10 a month, and Australian streaming service Quickflix costs AU$9.99 a month.

Netflix's costs could increase, however, thanks to the Australian government's recently unveiled draft exposure legislation that will see GST added to all digital products and services purchased online by Australians from mid-2017.

"This change will result in supplies of digital products, such as streaming or downloading of movies, music, apps, games, ebooks, as well as other services such as consultancy and professional services, receiving similar GST treatment whether they are supplied by a local or foreign supplier," the explanatory material [PDF] for the exposure draft says.

"When the GST was introduced in 2000, such transactions were relatively unusual, especially for consumers. However, cross-border supplies now form a large and growing part of Australian consumption.

"The growing importance of these types of transactions has highlighted the fact that the GST system was designed with a focus on Australian-based, rather than cross-border supplies ... This harms the integrity of the GST tax base and can disadvantage local suppliers."

Presto, Foxtel, Quickflix, and Stan have been supportive of the introduction of the Netflix Tax, as they claim it will level the playing field.

"The government's move to enforce GST for the supply of digital content services is the right one. The digital marketplace is an increasingly competitive space, and it's critical to ensure that all players that do business in Australia do so on a level field, with no one player advantaged through tax loopholes," Foxtel's group director of corporate affairs Bruce Meagher said in a statement in May.

"The introduction of this legislation will not only help to maintain consistency across the competitive landscape, but it will also ensure that Australia gets its due taxes from the companies that choose to do business here, which benefits all Australians."

Australia's incumbent telecommunications carrier Telstra, which owns 50 percent of Foxtel, last week launched its video-streaming device Telstra TV, allowing its customers to supplement Foxtel services with access to Presto, Netflix, and Stan, as well as catch-up services SBS on Demand, Plus7, and 9JumpIn.

Customers signing up for Telstra TV before December 25 will also receive three-month subscriptions to Presto and Stan.

Streaming services have been gaining popularity in Australia, with Roy Morgan releasing statistics in May stating that 1 million Australians were using the Netflix service just months after launching in Australia and New Zealand, while The Australian reported in the same month that according to Hitwise figures, in one day, Netflix had received 475,000 visits, while Presto and Stan trailed behind at less than 50,000 visitors each. Stan had contested this figure, however.

Telstra announced in its FY15 results it was seeing growth in revenue in its overall IPTV business -- a category including the revenues from Foxtel, T-Box, BigPond Movies, and Presto -- of 3.4 percent, to AU$931 million. Foxtel alone increased by 9.4 percent to AU$662 million in revenue for the financial year, due to an increased number of subscribers after bundle price reductions.

Telstra's rivals Optus and iiNet both offer unmetered access to Netflix, with Optus announcing last week that it will now be throwing a free six-month Netflix subscription into its entertainment bundles for home broadband customers. Presto is unmetered on the Telstra TV.

The competition between streaming services is a result of the industry attempting to fill the niche of providing a timely, affordable, and legal alternative to piracy.

Respondents to a survey [PDF] released by the Department of Communications in July said the primary factors that would stop them from infringing on copyright content in the future would be a decrease in the cost of legal content, the availability of legal content, and the simultaneous release of content in Australia alongside the rest of the world.

Prime Minister Malcolm Turnbull said the crux of the piracy issue is to ensure that content is accessible -- a service that streaming companies can readily provide.

"Rights holders' most powerful tool to combat online copyright infringement is making content accessible, timely, and affordable to consumers," Turnbull said.

Greens communications spokesperson Scott Ludlam told ZDNet last year that breaking up Foxtel's monopoly on content would also help combat piracy.

"I think the ACCC should actually have a strong role to play. I don't want a Foxtel subscription, quite frankly. I respect other people's willingness to pay money for that. A lot of people are seeing that there is a content distribution bottleneck," he said.

"I think the smartest thing the Australian government could do if it really cared about file sharing would be to open up that monopoly and allow other channels, so Australian users can access that material.

"People will pay for curation. I will; most people will."

The Presto Ten-Foxtel deal follows struggling streaming service Quickflix in August having its acquisition by Foxtel denied.

In August, Quickflix announced [PDF] after a brief trading halt that conditions precedent to an attempted reseller agreement with Presto had not been met, with the agreement thereby terminated.

The Ten-Foxtel deal is still subject to meeting further conditions and regulatory approvals, including from the Foreign Investment Review Board.

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