Lack of rules means Sky is a law unto itself

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Up to half the country's TV junkies may be willing and able to pay directly for sport, movies and a galaxy of specialist channels but that doesn't necessarily take them to their happy place.

Some viewers are throwing their remotes at Sky TV after it switched sports channel ESPN from its basic monthly package to Sky Sport, making them fork out an extra $20 a month to watch Champions League soccer and American mega-sports (and endure some of the most obnoxious commentators around).

Others are taking the opportunity to vent at a quasi-monopoly whose public approval ratings are fast sinking to levels once reserved for the likes of Telecom - a monopoly we loved to hate.

Some call for the Government to regulate pay TV. A few plan to cancel their subscriptions. They complain about the lack of tennis coverage; the documentary channel's replacement; the canning of Fashion TV; the premiums for HD and multiroom; the monopoly, the monopoly, the monopoly ...

Many viewers clearly cling to that '80s vision of a multi-channel nirvana where we would pick - and pay for - only what we chose from a chocolate box of options. Instead, we find our preferences bundled into packages, usually stuffed with things we don't want. It's grown worse over time.

The real surprise is why Sky waited so long to bring ESPN into the sports package, as is routine overseas. Existing Sky Sport subscribers copped a $2 fee rise. But among the 25 per cent of subscribers who take only the basic package, many are happy with the $5-a-month price drop. Television is so subjective, says Sky spokeswoman Kirsty Way, and change always brings reaction.

It's not economic to unbundle, she says, "and programme suppliers won't allow us to offer on an a la carte basis".

Some customer complaints seem justified, however: the cynical attempts to spin price hikes, the lack of notice when free trial periods expire, charging a month ahead ...

But really Sky is just doing what comes naturally to a quasi-monopoly in a regulation-free environment. Its duty is to its shareholders, the biggest of which is Rupert Murdoch's Newscorp (a 42 per cent stakeholder). You can't blame it for exploring all ways to boost revenue as subscription levels plateau.

Responsibility lies squarely with successive governments, says Peter Thompson, senior lecturer in media studies at Victoria University.

"I think the Government has really had its fingers in its ears and its hands over its eyes while Sky has grown and grown and grown.

"They talk about policies for a digital future - their own thinking on regulation is 20 years out of date.

"I'm not accusing Sky of breaking any laws - the problem is, Sky doesn't have any laws to break on this."

Without rivals with deep pockets in a small deregulated market, Sky TV has been free to flourish at free-to-air's expense. Forty-nine per cent of viewers now subscribe; siphoning off leading sports has been key to this growth.

Live netball is the latest to vanish from free to air, with Netball NZ in February signing a four-year deal with Sky for $2.3 million. TVNZ's bid was $700,000. It's good for Netball NZ's coffers but the substantial winning margin worries Thompson. He suspects Sky flexed its financial muscle to raise the benchmark so high that next time around no free-to-air broadcaster will compete.

"Netball is a clear example of market distortion - they're saying you're not in the game any more and that's not in the public interest."

Extend the same approach to prime-time premium content and it becomes more expensive for free-to-air channels to compete.

"If they do, there's less money for local programmes which may lack mass appeal but have cultural or social importance.

"It's a series of small domino effects that are going to result in Sky slowly strangling the free-to-air sector. I suspect some consumers will feel rather like they're being blackmailed here."

Associate Professor Wayne Hope of AUT's communications studies department says Sky's market dominance, especially with live sport, is exceptional internationally.

Many countries use anti-siphoning legislation to prevent pay TV grabbing the most popular sports, which are deemed important to the national psyche.

In Australia, free-to-air channels have first dibs on a long list of sporting events from the Melbourne Cup to motor racing (see panel).

Sky's Kirsty Way says viewers would lose out if anti-siphoning was introduced here, as free-to-air channels would pick and choose what they screened.

It's also claimed that sports would suffer from lost revenue, but Thompson disagrees. Anti-siphoning does not necessarily mean exclusive broadcast rights on a free-to-air channel, he says.

"The fact that it operates in so many other countries suggests that its effects are not fatal to the sports."

Hope agrees the balance between free-to-air and pay TV with live sport needs to be addressed - especially with Sky's ownership of Prime TV, which allows it to tie up both pay TV and free-to-air replay rights. The upshot for viewers is that Prime offers very few replays, citing scheduling difficulties.

The lack of cross media ownership rules is to blame, says Thompson.

"New Zealand is often cited as the wild west. We are the standout exception among developed countries."

The corralling of TVNZ's Heartland and Kidzone channels on Sky has raised further concerns.

"The public paid for [Heartland]," Thompson says. "Now we're having to pay Rupert Murdoch and other Sky shareholders for the privilege."

Overseas, arrangements such as "must carry, must pay" mean pay networks are obliged to carry free-to-air channels and pay a modest licence fee. Here, Sky pays nothing to include the TVNZ and MediaWorks channels.

The Government's decision to axe funding for TVNZ7 next year also plays into Sky's hands.

A few years back, internet TV was seen as the answer to Sky's market dominance. But as Herald broadcasting expert John Drinnan explains, Sky has sewn up digital programming rights as well as TV rights. It will almost certainly dominate online TV the way it does traditional broadcasting, he says, on-selling digital access to rivals.

Last year, potential internet TV operator TelstraClear (which owns the Saturn cable network in Wellington and Christchurch) complained Sky was preventing it from obtaining programming from outside sources.

"They buy the online rights, don't do anything with them and then stop us using them," said head of consumer business Steve Jackson.

Digital television and the advent of multiple platforms (read internet TV) brings with it a raft of regulatory issues, some involving the public interest, says Thompson. But in 2009, the Government canned a review of broadcasting regulations. Cynics sniffed vested interests but Thompson believes that with the focus on ultrafast broadband policy (a precursor to internet TV) the review just got too hard. But there's no doubt that Sky lobbies effectively and decisions of successive governments have been helpful to it.

"It's time the Government accepted that it's time to have a look at this," says Thompson.

"If you accept that broadcasting is not just about money, that it also has important civic democratic and cultural functions, then when you have an operator with so much power you can't just reduce your regulations to a simple matter of free market principles.

"They need to look at what they want from broadcasting. There's no doubt there's a place for a subscription provider but if you just allow it to operate with no consideration for its impact on the market then it's a problem.

"If you accept that broadcasting has a broader civic and democratic function, the Government may have to spend more money to achieve it."