Presto ownership under question as ACCC considers Foxtel-Ten deal

The Australian Competition and Consumer Commission (ACCC) has released its Statement of Issues on the possible joint ownership of video-streaming service Presto by Ten Network and Foxtel, with Foxtel in return potentially acquiring part of Ten.

Under the proposed deal, free-to-air TV network Ten would acquire 10 percent of Presto, while pay-TV provider Foxtel would acquire 15 percent of Ten itself. However, the consumer watchdog has warned that such a scheme could substantially reduce competition in the traditional TV broadcasting market.

"The ACCC is concerned that the proposed acquisitions have the potential to substantially lessen competition for the supply of free-to-air television services in Australia, particularly in the broadcasting of sports content," ACCC chairman Rod Sims said on Monday morning.

"The ACCC is also concerned that the proposed acquisitions may reduce competition in the sale of advertising, including by further consolidation in this market, and by removing or reducing competition between Ten and Foxtel for advertising sales."

The Australian Communications and Media Authority (ACMA) said it is considering its response to the potential acquisition.

"For its part, the ACMA is currently assessing whether the proposed arrangements between Foxtel and Ten are consistent with the media diversity and control rules prescribed in the Broadcasting Services Act 1992," the ACMA said in a statement.

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.

While the ACCC and the ACMA consider the effects of the Foxtel-Ten deal on the traditional broadcasting market, opening up Presto to content from Ten could have the result of conversely increasing competition in the Netflix-dominated streaming sector, however.

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 were the Australian government to follow through with its intentions to introduce the so-called Netflix Tax, however, wherein it would impose the 10 percent GST on foreign streaming companies. Foxtel unsurprisingly supported the introduction of this tax.

"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," Foxtel's group director of corporate affairs Bruce Meagher said in a statement in May.

Australia's incumbent telecommunications carrier Telstra, which owns 50 percent of Foxtel, last month announced in its FY15 results that its IPTV offering -- a category including the revenues from Foxtel, T-Box, BigPond Movies, and Presto -- increased its revenues by 3.4 percent, to AU$931 million. Foxtel has so far declined to put a number on its Presto subscribers, though.

Netflix has also yet to release any results from its operations in Australia, but Roy Morgan released statistics in May stating that 1 million Australians were using the service, 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.

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.

Minister for Communications 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 potential Presto Ten-Foxtel deal follows struggling streaming service Quickflix last month 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.

A potential international acquisition was subsequently announced; however, it then backflipped on its bid to acquire the unnamed Chinese content company, with the Australian Securities Exchange (ASX) stating that based on due diligence and external advice, Quickflix had decided not to proceed.

Quickflix had reported a 14 percent drop in customer base to 121,127 for the quarter to June 2015, and a 13 percent quarter-on-quarter decrease in paying customers, down to 107,969. The streaming service had a net operating and investing cash outflow of AU$1.1 million, a 29 percent quarter-on-quarter drop. Revenue receipts from customers were AU$4.23 million, a drop of 19 percent on the same period a year ago.

Quickflix attributed its Q2 customer losses to the launch of Netflix in Australia and New Zealand, particularly because of deals with telcos Optus and iiNet to offer unmetered access to Netflix. Presto is similarly unmetered for Telstra BigPond and Foxtel Broadband customers.

At the beginning of this month, Presto began offering 1080p HD content, along with announcing that it now supports AirPlay over Apple devices. The service was already accessible through Samsung smart TVs and Google Chromecast, and is planning to add support for other brands of smart TVs, along with gaming consoles such as the PlayStation 4 and Xbox 360.

"Presto customers have enjoyed streaming our great movies and drama since launch, but feedback has consistently shown a strong desire for HD," said Presto's interim CEO Shaun James on September 1.

"Presto is also delighted to make AirPlay available for our customers using iOS devices and we have also updated our mobile and tablet app, adding a range of fantastic new features which will be most noticeable to those using tablets."

The ACCC is accepting submissions on the Ten-Foxtel acquisition until September 28, with a decision to be made on October 22.