It’s no coincidence Sky TV reported a $240 million loss days after Spark won the Premier League Football rights. A thread connects the two news stories.

Spark is New Zealand’s rising media power. Sky is still number one, but fading.

You can’t blame Sky’s problems on Spark’s football win. The traditional pay-TV company hasn’t owned Premier League rights for five years now. Yet the move underscores the shift from old school television technology to streaming media.

Football key to sport portfolio

The English Premier League joins Spark’s growing TV portfolio.

The telco, yes Spark is still mainly a telco, also has the local rights to Manchester United TV. On the team’s current form that may not be much to write home about. Even so it’s a sound investment. United is the best know and most followed English club outside of the UK.

Spark says it plans to wrap the two football deals into a new standalone sports media business. Spark already has the rights to next year’s Rugby World Cup.

The company has hinted there is still more to come. Sky TV doesn’t have the clout, or the money, it once had. So Spark has an opportunity to prise other popular sports away from the incumbent. If nothing else, New Zealand Netball and Cricket must be possible candidates. And perhaps various motor sports.

Sky FanPass

This is not great news for Sky. But there are chinks of light among the dark. The pay TV broadcaster cut a deal allowing Spark to resell its FanPass service.

Fanpass is now another small, but nicely done plank in Spark’s sports media portfolio. It also means Sky gets to tap a market that it has previously struggled to reach.

Let’s not forget LightBox. Spark’s streaming TV operation may be a pale imitation of Netflix, but it’s a useful value-add for Spark’s broadband business.

Another useful add-on for Spark is that it offers cut-price Netflix to customers signing for long broadband contracts.

Sticky TV

All-in-all Spark already has enough media properties to keep viewers glued to its broadband services. And that’s a critical part of the company’s TV-over-internet strategy: customers who buy a bundle of services are less likely to decamp to a rival broadband service.

Premier League football isn’t New Zealand’s most popular sporting code by a long shot. However, it has particular value for Spark. First, it tends to be watched by relatively well-heeled fans who are willing to pay a couple of hundred dollars or so for a year’s worth of games.

Second, Premier League fans are well used to watching games using streaming. It was the first major sporting property to be picked up by a digital organisation. That was Coliseum Sports Media which had the rights from 2013 to 2016. Spark works in a partnership with Coliseum before BeIn Sport won the rights.

Overseas moves

In a media statement Spark managing director Simon Moutter say his company developed its plan after looking at overseas sports content media moves.

He says: “We’ve carefully considered the different models and will be looking to replicate the good things other businesses have done and learn from the challenges they’ve had — all the while thinking carefully about how sports media fits in a New Zealand context”.

Spark says it will launch its own sport ‘platform’ early in 2019 and will annouce pricing and package deals closer to the launch.

Latch

Spark Sport head Spark hired Jeff Latch to head the Spark Sport operation. He will oversee buying more content rights and will take charge of the ‘platform’. Latch was previously director of content at TVNZ. In that role he was in charge of buying content, including sport. Spark is partnering with TVNZ for the Rugby World Cup project.

Latch says Spark will work with a specialist sports-streaming company. He says the platform used will be different from the one used by Spark’s Lightbox service.

He also said Spark intends its sports media operation to work as a standalone business and not be used merely as a way to woo broadband or mobile customers. To a degree this is what Spark has done with Lightbox.

Netflix close to two million NZ viewers

Had Sky merged with Vodafone it may have fought off the challenge from Spark, although that’s far from certain. Yet nothing could protect Sky from its other threat: Netflix.

Roy Morgan research says Netflix now has nearly two million viewers in New Zealand. The service saw subscription numbers grow 35 percent in the last year to reach 1.9 million viewers. The research company goes on to report:

“Now over three million New Zealanders have access to some form of Pay or Subscription TV, up 13.9 percent on a year ago. The growth in Pay and Subscription TV is being driven by the likes of Netflix along with a suite of rival streaming services including Lightbox, Sky TV’s Neon and Amazon Prime Video.”

Viewer numbers are growing slower for Sky TV’s Neon service. It was up 1.7 percent in the year to reach a total of 1.6 million viewers. Lightbox is the second most popular video on demand servide with 830,000 users. That’s up 43 percent on last year, growing faster than Netflix. Vodafone TV has 295,000.

Netflix tablet

There’s no comparison between Spark’s Netflix promotion the and the halted Vodafone-Sky deal.

One would have changed New Zealand’s telecommunications and media scene. The other is a marketing promotion.

Clever, perhaps. Timely, yes. But still marketing.

Netflix credit

Spark customers signing a two-year broadband contract will get a one-off credit on their Netflix subscription.

The deal only applies to unlimited data plans and is equal in value to a year’s standard Netflix subscription.

Netflix’s standard package costs $15 a month in New Zealand. The deal means Spark customers get a $180 credit against their Netflix bill to use as they choose.

Spark unlimited plans start at $105, so customers spend $2500 to get $180 worth of Netflix.

In money terms that’s less generous than the discounts some other ISPs offer. But Netflix is a magic name in the online media business.

While it is an aggressive move with the right video service, it’s not strategic.

The right video brand

Netflix is the big name in streaming TV and movies. It’s the brand everyone wants.

Spark needs a high profile deal to tie restless consumers to its brand.

Spark will continue to offer its own Lightbox online service as well.

The deal timing is interesting. It comes after the Commerce Commission turned down the proposed Vodafone-Sky merger. If that deal had gone through, it would be a handy face-saver for Spark which was wrongfooted by Vodafone.

Either way it underlines how telcos look to value-added services to sell their, otherwise, dumb pipes.

The telecommunications market rebooted after Telecom shed Chorus to win UFB contracts. At the time, most industry insiders expected the big players to compete on quality of service.

That never happened. No-one argues the big broadband companies offer anything other than indifferent customer service.

Adding value

Instead Vodafone and Spark sought other ways to compete. The game moved to adding value.

In Spark’s case the value-add includes home security and earlier attempts at bundling video entertainment. Spark dipped its toe in the media water with Lightbox and an investment in Coliseum Sports Media.

Vodafone has a partnership with Sky to do the same thing. The two companies may still reach a merger agreement.

At this stage the deal between Spark and Netflix is looser than any of the above. It’s just about marketing. Yet it gives Spark an opportunity to link its name with the biggest online media brand. Think of the move as a show of intent.

“Content provider”

Jason Paris, Spark Home Mobile and Business CEO talks of an ambition to become New Zealand’s preferred content provider. He says: “This partnership is a step on the road toward Spark becoming a go-to destination for media and entertainment.”

Maybe. But offering low-cost Netflix to customers already spending a lot of money doesn’t not make one a “go-to destination”. At best it makes Spark a deal broker.

For a media and entertainment to work in New Zealand Spark has to sharpen its act when it comes to bidding for sports rights. That means Rugby, lthough a tempting bundle of other popular sports including Cricket, Netball and Football might swing it.

Offering Netflix is a step in the right direction and a useful hey-look-over-here while a rival is in the spotlight. It’s not a strategy.

Writing at the NZ Herald Holly Ryan reports Sky is not happy about the Spark-Netflix deal

King CanuteCallPlus backed down. From September it will stop providing Global Mode. The service allows customers to hide their whereabouts. That way they can buy low-cost streaming video services direct from the US, UK or elsewhere.

In return the big media companies halted legal action against CallPlus.

Among other things they claimed Global Mode breached the Copyright Act and the Fair Trading Act.

That won’t be tested in court. We’ll never know if Global Mode was legal or not. That’s a pity because it leaves important questions unanswered.

Plenty has been written elsewhere (and by me) on what is a rearguard action against new digital distribution models.

This was always going to end badly for the big media companies, even if they won the Global Mode action.

That’s in part because Global Mode was a local version of something consumers can buy elsewhere.

While the King Canute media companies have stopped a wave, they haven’t stopped the tide.

There’s something else.

Globle Mode looked legitimate

Regardless of the untested legal arguments, Global Mode looked like a legitimate way of bypassing content geo-blocking. Consumers who used it felt they were doing the right thing. They were buying media.

It has taken the media business decades to convince consumers they should pay for media and not use shady operations like Pirate Bay.

And for a while they were.

Overnight, the big media companies have closed that channel. Consumers addicted to the latest shows, to entertainment not available from officially sanctioned New Zealand distributors have nowhere else to turn.

Some will lose interest. Others will head back to illegal channels.

That is not a victory for media companies.

Netflix tablet

Australia plans to make Netflix and other overseas-based online sellers of ‘intangible services’ pay GST (Good and Services tax).

In Joe Hockey prepares ‘Netflix tax’ BRW reports:

The cost of downloading movies, music, books and other media from overseas providers such as Apple and Netflix is set to jump by 10 per cent after federal Treasurer Joe Hockey and his state counterparts agreed these services should be subject to the GST.

Hockey told BRW the tax would be: “easy to administer and will raise billions in extra revenue”.

GST more important in New Zealand

If Australia pulls it off, there are strong arguments for New Zealand to follow.

Above all, GST is an important source of government tax revenue. In New Zealand the rate is 15 percent and GST accounts for roughly one-quarter of the total government tax take. Australian GST is 10 percent and the tax accounts for about 12 percent of revenue collected.

While forcing overseas suppliers to charge GST will bring in some extra revenue today, it will stop local suppliers from moving their businesses overseas to avoid the tax in future.

GST was first introduced in New Zealand by the Lange Labour government in 1986 as part of wide-ranging economic reforms. It has the advantage of being more efficient than other taxes, at least from the government point of view.

I’m a tax collector, you’re a tax collector

In part that’s because businesses have to act as the tax collector. But the real advantage of GST in the early days was that it was hard to avoid.

That has changed with online shopping where New Zealand consumers can bypass GST by buying direct from overseas. There’s a NZ$300 limit, mainly because the cost of collecting smaller amounts makes it uneconomic.

The mechanics of charging GST on physical goods is one thing. Clipping the ticket on sales of digital goods like MP3 files and streamed TV is technically a lot easier. Netflix has already told the Australian government it can, if asked, collect the tax.

Local TV suppliers

Forcing overseas suppliers to charge GST could[1] be good news for local online streaming TV providers because they have a cost disadvantage compared to GST zero-rated overseas rivals.

It won’t make much difference to the economies of scale that global retailers can achieve, but it could give local stores a little relief.

No doubt local streaming TV suppliers like Spark and Sky will be watching Australia’s action closely.

When it’s handy having a big, relatively powerful neighbour

New Zealand is a small country, far too small a prize for companies like Netflix to worry about.

If we had unilaterally decided to impose taxes on the likes of Netflix and Amazon, they might just decide to stop doing business here. It wouldn’t be worth their while to handle the necessary paperwork, let alone any code changes needed on their systems.

Australia is a bigger prize. If they have to make changes to keep the rivers of gold pouring in from Australia, they can do the same for New Zealand at no extra cost.


[1] It could be good news so long as customers don’t decide to buy VPN or other geo-block bypassing services then subscribe directly to the US Netflix service. There are heavy-handed legal moves under way to block this practice but that can backfire in other ways.

 

Netflix, Quickflix, Lightbox, Neon NZ Streaming TVAfter years of waiting New Zealanders are now spoilt for choice with streaming TV. Netflix, Quickflix, Lightbox and Neon each offer a decent local catalogues at reasonable prices.

There’s a thin line between choice and fragmentation. The most popular shows are scattered among the four services.

Customers are left with difficult choices. The good news is that buying subscriptions to more than one service is unlikely to break the bank in most homes.

Streaming TV market will change

Don’t assume the market will stay this way. History suggests the online TV industry will consolidate to become dominated by a handful of global giants.

To understand how that will work look at what happened to online music distribution.

In the early days many countries had their own online CD and MP3 stores. These disappeared as a handful of global brands took control.

iTunes, Amazon, Spotify

Apple’s iTunes and Amazon cater for music buyers. While all-you-can-eat services like Spotify will stream music for a subscription.

While there are notable differences between say, the iTunes NZ catalogue and the US one, the underlying service is global.

Legacy territorial rights are the main reason iTunes national catalogues have yet to consolidate into one single global list.

We can reasonably assume streaming TV and movie rights will follow a similar path.

Most likely we’ll end up with a handful of services with global economies of scale.

One service is not enough

For now, if you restrict choice to only what is officially offered in New Zealand, most viewers will need to subscribe to more than one service to get all their favourite shows.

That’s why many users still plan to get around geo-blocking and buy Netflix direct from the USA. The American Netflix service offers a far greater range of programmes than the authorised New Zealand version.

The backdoor route to a bigger Netflix catalogue will eventually close.

Global Mode

That could be down to local rights holders. Say the action started by Sky TV, Spark, TVNZ and Mediaworks succeeds in stopping CallPlus’ Global Mode service. Their next step would be to tighten the screws on all VPN and DNS rerouting products used to get around geo-blocking.

Or it could be stopped by action at the other end of the chain. As already mentioned Netflix and other giants may negotiate global content deals with studios.

Another possibility is that Netflix bends to the studios demands and cracks down on non-US customers accessing the service by VPN and proxy services.

That’s a matter for the studios and the distributors to sort out. It depends on which side holds the most power in these relationships.

A question of geography

The studios will only continue to carve up the world into discreet geographic units with each country having its own set of rights if they think that’s doable and likely to be more profitable. It probably isn’t.

The administration cost of maintaining multiple national boundaries is high. When was anything involving lawyers ever cheap? Getting one signature for global online distribution solves a lot of problems.

What does this mean for local streaming providers like Lightbox, Neon and Quickflix? They may have a future if they can capture key niches.

Sky TV shows the way here. It continues to own the bulk of the sports programming that matters most to New Zealanders. Coliseum Sports Media has other rights and partners with Lightbox.

Fly under the global radar

There are other forms of programming that matter to local viewers but are unlikely to appeal to global distributors.

This leaves the local streaming TV players with interesting strategic options. They could partner with existing broadcasters like TVNZ or Mediaworks to build portfolios of local material or they could partner directly with producers and local studios. This means commissioning new shows aimed at New Zealand audiences.

Local players don’t have deep enough pockets to compete with global scale media companies but they can outperform them locally if they do a better job of delivering the programming New Zealanders want.