Saturday, 24 April 2010

Pay-TV changes: A new distortion?

This was published in the TODAY newspaper on 15 March 2010. The only thing I'd add is that the bandwidth question will go away when the Next Generation Nationwide Broadband Network comes onstream.

Pay-TV changes: A new distortion?

PUBLIC sentiment has finally moved the mountain that is the Media Development Authority (MDA). With the prospect of not getting to watch the World Cup live still looming large, the MDA has finally reversed its longstanding position on exclusive carriage deals for pay-TV content.

Last Friday, the Government announced that pay-TV operators would now have to allow competitors to carry all new exclusive content.

This finally addresses consumers' increasingly bitter complaints about the bidding wars for football content between StarHub and SingTel.

This applies only to exclusive content acquired or renewed since last Friday. So SingTel will retain its exclusive rights to the English Premier League for the next three seasons, and consumers who want to watch both EPL and, say, HBO will still need two set-top boxes for now.

It has taken seven years for this change to come. MDA started examining exclusive carriage agreements in 2003; announced its findings that they did not forestall competition in 2006; and conducted a triennial review in 2007 that did not address such agreements, despite the rumoured astronomical sum paid by StarHub in 2006 for the 2007-2010 EPL rights.

It was only when SingTel wrested the 2010-2013 EPL rights from StarHub for another reportedly astronomical sum, and football fans began protesting the implications, that the Government's position began to shift. The finding by MDA's study that the proliferation of exclusive carriage arrangements here was actually an international anomaly probably sealed the deal. One can only wonder why such a study was not done earlier.

Competition in the pay-TV market has yielded some positive outcomes. For instance, SingTel has introduced new content, and its season pass product is an innovation that genuinely increases consumer choice. So the fundamental premise that competition can benefit consumers is correct.

Where MDA had earlier fallen short, was in failing to correctly identify the bidding wars for football content as a market failure that needed a regulatory response. Acting Minister for Information, Communications and the Arts Lui Tuck Yew's description of the situation as a "market failure that is evident" was therefore welcome.

There have been warning signs, such as the spiralling cost of EPL content and the ongoing fiasco over the World Cup. Indeed, the proverbial canary in the mine positively screamed last June, when English broadcaster Setanta filed for bankruptcy. It had overpaid for EPL rights, but could not attract enough customers to recoup its high costs.

That could have been Singapore's road to ruin, if MDA had allowed the destructive battles between StarHub and SingTel to continue. Indeed, SingTel and StarHub appeared to have recognised the potential for mutually assured destruction, when they submitted a joint bid for the World Cup rights.

Devil in the detail

The questions now are whether the proposed solution will work, and whether it introduces new distortions or problems.

All new exclusive content obtained by an operator must be offered to other operators, and the other operators must carry such exclusive content offered.

This has interesting and unclear repercussions.

First and foremost, exclusive carriage agreements will probably become less common. It would now make more sense for an operator to insist on non-exclusive arrangements, and differentiate itself through innovative content packaging. Genuine increased differentiation will enhance consumer choice, which would be a positive outcome. MDA has said it will work with the industry on the details, and that is where the devil lies.

Given that SingTel and StarHub use their respective networks to deliver other services (such as broadband) besides pay-TV, how will they ensure that their networks have sufficient bandwidth to cater for all these services, the increase in high-definition content, and also other operators' exclusive content?

How will exclusive pay-per-view content be shared and billed?

It is also as yet unclear how content owners will respond. For instance, what if content owners insist on exclusive arrangements, and the operators decline to pay the higher costs associated with exclusivity and forego the content? How will MDA respond to this?

The move to have all exclusive content carried by all operators was perhaps unexpected by most observers. Perhaps, a less intrusive approach could have been to require only certain MDA-designated "critical content", such as EPL rights, be made available to all players, which would be similar to the concept of "essential facilities" in the telco world. But that opens the Pandora's box: What is "critical content" besides EPL?

The pay-TV market has still not stabilised. This change will result in even greater flux. M1's enthusiastic reception suggests that it is emboldened to enter the pay-TV market, and thinks its ability to present a viable triple-play offering has been strengthened.

But first and foremost, let's hope that Fifa takes its cue from the Government and recognises that SingTel's bid for the EPL rights was not sustainable, and hence the asking price for the World Cup rights ought to be reduced.

If that happens, then Singaporeans will praise this policy change and its very immediate results.

The writer is a corporate counsel and former Nominated Member of Parliament.

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