Media players square up in battle for best positions in convergence

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The repeal of cross-media ownership laws and battles between media owners for content shows the drive to convergence is speeding up.

For the past few years, media pundits have followed the inexorable growth of digital (new) media and anticipated the parallel decline of the traditional (old) broadcast sector. But it simply hasn’t happened. Instead, it’s now clear media consumption will involve the old alongside the new in a converged landscape.

In the sector where I work, I see that radio’s reach is at record levels (with a whopping 91% of all adults tuning in every week). While the “old” radio set remains the device of choice at home for the kitchen or the bedroom, “new” radio sits naturally on all platforms from iPhone to MP3, through Freeview and online stream – where audio consumption is a natural complement to screen-based activity.

The last couple of weeks have seen this move towards convergence accelerate as businesses jockey for position in TV. A month ago, it all looked quite straightforward. The headhunter searches were over – albeit not without their hitches – and Adam Crozier and David Abraham were in place at ITV and Channel 4 respectively. But neither has had time to get their feet under the table before a flurry of activity came their way.

Immediately after the election, the new coalition government began to install its own ideas for the future delivery of local media, especially TV. Out are the tenders from Independently Funded News Consortia (IFNCs) that were the centrepiece of Labour’s proposals for securing the future of local media, and in are Jeremy Hunt’s proposals, based on a report from Roger Parry, for a new tier of local TV.

No one seems quite sure where the advertiser money is going to come from to fund this new tier of local media, but the convergence of local press and radio will be facilitated by the repeal of outdated cross-media ownership laws.

The Government is looking for a new generation of local media operators that will combine web TV, broadcast and newspapers in one local offer. Lazard head of UK investment banking Nick Schott will handle an “independent commercial assessment” of local television in the summer. In his review, Schott will “look at the potential for commercially viable local television stations within the local media landscape right across the nations and regions of the UK”.

At the same time, the national players are re-inventing their own future.

First off the blocks is Five, which has already been put up for sale by RTL. Big Brother creator John De Mol is understood to have worked with Greek broadcaster Antenna on a joint bid that was submitted to RTL before last week’s deadline for submissions. It shows the increasing importance of content: if the joint bid with Antenna is successful, De Mol would obviously provide content for Five.

BT
No sooner had BT Vision introduced [the Sky Sports deal], than Sky hit back – raising the cost of its package. This seemingly counter-intuitive defence was justified by Sky because it will screen more live games next season. But, cleverly, the move will have a knock-on effect of increasing the wholesale price BT pays Sky for the channels – thus forcing it into making a significant loss on the service.

But, as is often the case, Rupert Murdoch’s NewsCorp and BSkyB set the pace. Two weeks ago, Rupert Murdoch’s group, which already owns 39.1% of BSkyB shares, offered 700p a share for the remaining stake in the company and complete control. Sky’s independent directors responded that they would consider no bid less than 800p, but it looks like we are moving to the end game. Murdoch has been quick to realise that Sky’s compelling consumer proposition – See, Speak, Surf – which combines TV, telephony and broadband, is at the heart of a convergent future.

And then, last week, the electric competition between BT and BskyB on new TV subscription offers fizzed back to life, when BT announced plans to sell Sky’s sports channels at a steep discount, sparking a bitter row between the two companies.

BT launched a consumer offer that would open up a new wave of subscribers to Sky Sports 1 and 2 for £16.99 a month, undercutting Sky itself, which charges almost £10 more for the two channels.

No sooner had BT Retail managing director Gavin Patterson introduced the move, than Sky hit back – raising the cost of its basic TV package that includes all sports channels to £38 per month. This seemingly counter-intuitive defence was justified by Sky because the broadcaster will screen more live games next season. Having picked up another package of rights from ESPN, Sky will now carry 115 games, compared with 92 last season.

Cleverly, the move will have a crucial knock-on effect, because under the terms of the deal, increasing the retail price will also increase the wholesale price BT pays Sky for the two channels – thus forcing it into making a significant loss on the service. BT is planning a legal challenge to Sky’s new prices and has already lodged a complaint with the regulator. Mark my words, this will run and run.

It’s all about a convergent future. BT has been desperate to break into the TV market for some time, to complement its broadband and fixed-line businesses. Yet now, after three years and hundreds of millions of pounds of investment, its BT Vision service, a hybrid of Freeview and broadband TV, still has fewer than half a million customers compared with Sky’s near 10 million.

In the long term, this is all about which company eventually wins out, offsetting the cost of sports rights and unique content in TV with profits from telephony, broadband and on-demand TV services.

Andrew Harrison is chief executive of the RadioCentre. andrew@radiocentre.org

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