SKY TV and the market for live sport
Posted November 25, 2008on:
The previous Labour government bestowed a legacy upon NZ that included the first ever review of broadcasting regulations.
Essentially the question being asked in this review is: does the current market situation warrant government intervention?
Firstly, let’s look at the market. In NZ, there are essentially three players in the television market. TVNZ is the free-to-air state broadcaster (Channels One, 2 and other Freeview offerings). CanWest is a private sector free-to-air broadcaster (TV3 and C4). SKY TV is the pay-tv competitor, which crucially also owns the free-to-air Prime channel. Free-to-air networks financially depend on advertising (and in the case of TVNZ, government funding too) while pay-tv networks depend largely on subscriptions from viewers.
SKY commonly purchases ‘big’ sporting events, such as rugby league and union test matches, to show on its pay-tv channels, with delayed replays on free-to-air Prime. Critics suggest that this arrangement is unfair as it allows them to ‘siphon’ sports events from free-to-air to pay-tv and consequently ‘hoard’ them. Sensationalist terms such as “astonishing dominance” and “free-to-air under threat” are used in the article cited above, for example.
The reality is that 45% of the population has SKY, while 91% of the population can get Prime on terrestrial (i.e. not digital) coverage. This implies that 45% of the population can view such matches live, 46% can view them delayed, while 9% can’t watch the match at their place of residence. 9% is a relatively small proportion of the population, particularly when you take into account that they could watch the game at a local bar or friend’s house, for example, should they really wish to see it. Similarly, those with only delayed coverage at their place of residence could watch the game live elsewhere should they so desire.
In my opinion, the way SKY are segmenting the market is pretty clever – they are able to extract surplus from those prepared to pay for live sport, while at the same time provide a lower-quality (delayed) alternative for the vast majority of those not prepared to pay for it. And if someone is not prepared to incur any cost (financial and/or effort) to watch the game (either delayed or live), then they probably don’t value the game that highly. 😉 In this sense, I don’t see any argument for intervention, as consumers are ultimately in control of how they consume such sport.
Furthermore, there is a strong degree of self-regulation occurring in the market. Just last month SKY announced a collaboration with TVNZ and CanWest to share TV coverage of the 2011 Rugby World Cup. SKY are aware that appearing too dominant would not help its public image (and hence its image in the government’s eyes).
I see no reason for the pay-TV market in New Zealand to be regulated. Consumers are currently able to access what they want at the appropriate price, while SKY is obviously mindful of not abusing it’s position as the sole provider of pay-TV here. Indeed, greater regulation of the market would probably scare away potential new entrants, which I think would be a lot more beneficial for the market than any form of government intervention, in terms of introducing new technologies faster and cheaper, as well as other efficiency gains associated with increased competition.