Murdoch and the NBN - a reality check
There are a lot of conspiracy theories whirling around the Internet and most of them find their way onto Twitter. They don't usually find their way into mainstream newspapers. However this morning in the Sun Herald, Paul Sheehan, argues that the campaign against the Rudd Government by the News Ltd newspapers is because Rupert Murdoch believes his Foxtel Pay TV business is threatened by the construction of the NBN and would prefer the Coalition's approach to the NBN.
In my view the Coalition's approach to the NBN poses a more substantial and immediate threat to the Foxtel business model than does Labor's and that the premise of Paul Sheehan's article is quite misconceived. Let me explain.
Now I don't know what Rupert Murdoch is thinking about these issues - perhaps Paul Sheehan does - but I have known Murdoch for many years and have always found him to be clinically rational in the assessment of his own commercial interests. This doesn't mean he has been free from error. He has made some bad calls, but his batting average remains very enviable.
So let us look at the reality about the NBN and Foxtel.
Foxtel, like similar pay tv businesses, is a platform on which are offered many channels. Some of that content is produced by businesses in which Murdoch has an interest - Sky News, Fox News, Fox Sports, Fox movies, TV shows and other content. But most of it is not.
The most compelling content on the Foxtel platform however does not belong to Murdoch and that is live sports. The rights owners may have entered into licences with Fox Sports but those licences will in due course expire. The real key to high levels of viewership on Pay TV is live, premium sports such as the AFL, NRL and Cricket. And the rights to those sports belong to the peak sporting bodies themselves.
Foxtel has always attributed its low subscriber levels (relative to comparable markets overseas) as a direct consequence of the anti-siphoning rules requiring most of the premium live sporting events to be shown on free to air television.
The Internet has been disruptive to the mainstream media because it is the ultimate platform - a hyperplatform. The Sydney Morning Herald was the killer platform for classifieds, but the Internet provided a more accessible, cost effective platform and the rest is history. All newspapers in the developed world, including Rupert Murdoch's, are being hammered not by a lack of readers, they have more than ever, but by the Internet offering more cost effective means for advertising.
The same risk is presented to Pay TV. Why buy an expensive package of channels on Foxtel, most of which you don't watch, when you can cherrypick the programmes you want from iTunes and numerous other pay per view services? The largest single user of Internet bandwidth in the United States is Netflix the movie and video streaming and download business. It is yet to come to Australia but it represents a profound threat to the Pay TV model.
The history of the Internet has shown that the business models which offer more choice, and more freedom for consumers will beat models that offer less freedom. Consider the demise of the "portals" and "walled gardens" of the late 90s as a good example. AOL was as much a victim of the Internet as your daily newspaper.
Foxtel of course is responding to this with its Foxtel Go platform designed for the Internet and for mobile devices in particular. But it faces the profound and potentially existential threat of the sporting rights owners going direct to consumers. The AFL already has a mobile app which enables you to watch games live and replayed and masses of additional material to boot.
But as more and more of our televisions are connected to the Internet and more of us are watching video on our mobile devices, the AFL will ask itself whether it would be better bypassing FoxSports (and their big cheque) and instead offering an App useable on all platforms which would enable viewers to watch games live or replayed on any device - their Internet connected television, their smart phones, their tablets, their computers. This would also mean the AFL had a direct relationship with its viewers. It would know who they were, where they lived, what their interests were. In an age of big data that is (as Google and Facebook will tell you) pure gold.
Now Fox Sports may be able to cut a big enough cheque to persuade the AFL to stick with the Foxtel platform but the option of going direct over the top on the Internet will be very enticing and certainly increase the cost of those rights for Fox Sports. The other rights owners have the same options.
Returning to the NBN. The big difference between the Coalition's policy and Labor's current strategy is that we will get the NBN completed much sooner and at a lower cost. So more Australians will get very fast broadband and they will get it sooner and above all it will be more affordable. If Labor's strategy were continued with it could be several decades before their rollout is complete, if it ever is completed.
The Internet threat to Foxtel depends on more and more Australians having access to very fast broadband and owning a television, and other devices, capable of receiving streamed video content. Under our plan all Australians will have access to not less than 25 mbps (with most having a service of 50mbps or better) by 2016. Under Labor's plan millions will be waiting well into the 2020s.
So what speed do you need for Internet television services? Netflix, which Paul Sheehan cites as an example of the threat Foxtel faces, requires only 2-3 mbps for its streaming service. And for an HD video stream 6 mbps is very adequate. Around the world telcos are using FTTN deployments for the purpose of delivering streamed video content - indeed it is the need to do so that is driving the bandwidth upgrades.
The conclusion therefore is that if Rupert Murdoch wanted to hold off the day when all Australians will have sufficiently fast broadband to be able to stream HD video over the Internet, he would be better off backing Labor's NBN because he knows that not only will the day of ubiquitous very fast broadband be delayed for many years, even decades, it will also be available at a much higher cost.
The Coalition's plan for the NBN will bring the day of reckoning much sooner.
Indeed this was acknowledged by Scott Lorson, the chief executive of one of Australia's largest IPTV providers Fetch TV (and one of Foxtel's emerging competitors) who said of our policy recently:
“There is very little difference for us between 20 megabits per second and 100 megabits per second in terms of our ability to deliver the service,” he said. “One element we do like in the Coalition's proposal is that it will roll out faster and cheaper.”
Sheehan may also consider that while the NBN is a threat to Foxtel as a pay tv platform, it offers much more opportunity for Murdoch's content creation businesses. In the age of hyper competition that is the digital age, the premium charged by those with a monopoly platform (such as Foxtel or free-to-air TV) will be much eroded. But there will arguably be a much greater premium for those able to produce compelling content. Netflix and Apple TV challenge Foxtel and other pay TV platforms but those companies will need to have access to quality content, and that is not just a great boon to the owners of sporting rights but also to the creators of filmed entertainment like Murdoch's 21st Century Fox. The Internet threat to the creators and owners of content of course comes from piracy, which is why live events are so valuable.
So is Murdoch campaigning against Rudd because his NBN model threatens Foxtel? You could only believe that if you thought Murdoch was irrational. And his track record suggests he is very rational. And given he owns Pay TV businesses around the world and is experiencing the Internet TV threat in all those markets, I am sure his understanding of the threats to his businesses is a very keen one.
Paul Sheehan may consider that Rupert Murdoch is opposed to the Rudd Government for the same reason he is - it is a Government of proven incompetence which has run Australia into a recklessly and needlessly high level of debt, has failed to manage one policy area after another and is bitterly divided and dysfunctional.