WIN and Nine’s live streaming standoff: are they heading for divorce?

Nic-Christensen-234x151-234x151-234x151With Nine and WIN duking it out in court over live streaming Nic Christensen looks at the implications of the case and asks if the partners are heading for splitsville.

Sitting in court over the last couple of days watching Nine Entertainment Co and WIN go at each other put me in mind of a divorce case on some cheesy US drama.

And like any marriage gone bad there were some interesting – and heated – moments that have played out so far.

Some TV industry executives have suggested that this court case is just a wily billionaire Bruce Gordon attempting to build “the great geoblock of Wollongong”, a requirement WIN is seeking that Nine not provide online streaming of its services in his licence areas, but in fact this case has broader ramifications than just one media mogul seeking to turn back the tide and switch off the internet.

For days now expensive senior counsels have been in court arguing about whether or not Nine sold WIN the exclusive rights to broadcast within its licence areas and more to the point what the term “broadcast” even means.

Win-nineNine insists it gave its affiliate only the free-to-air TV rights while WIN, quite correctly, notes that the ability of a consumer in its licence area to access Nine’s content on their main household TV completely undermines their business model, over the medium to long term.

At the heart of court fight is a contract dispute about what was in the most recent Program Supply Agreements and more broadly how in 2016 we should define the word broadcast.

Justice David Hammerschlag has yet to rule in the case but yesterday gave an indication of where his thinking is when he challenged WIN’s barrister Tony Bannon SC:“Is it not what the parties mean? Is it not, rather, broadcasting in the sense of the (Broadcasting Services) Act and then a new method arose and it turned out to be a plague on you?”

That the act of live streaming has the potential to be a “plague” on the various regional broadcasters, Prime, WIN and Southern Cross Austereo, has been clear since August last year when Seven first signalled it would launch such an online streaming service and in the process provoked a fierce reaction from the regional networks.

However, in many ways the problem harks back to the fact that as an industry we are operating under the 2002 ruling of former communications minister Richard Alston that “streaming is not broadcasting”.

Such a legal interpretation might have been appropriate back in 2002, when it was created due to fears that websites with online video content might become subject to the TV licensing regime, but it is also from an era when many Australian households were still reliant on dial up internet and smartphones had yet to be invented.

By any modern interpretation it feels woefully inadequate for a world where consumers expect to receive content whenever and wherever they are.

WIN is claiming exclusivity within its licence areas, which represent a large part of regional Australia, and say the contract should give it the sole right to the online streaming but it also made it clear to the court yesterday that it didn’t particularly want to be in this new on demand streaming world.

Source: ACMA. Click to enlarge.

Source: ACMA. Click to enlarge.

“Our commercial concern is not to do it but we don’t want them to do it,” WIN’s barrister Tony Bannon SC told the court.

“There is nothing commercially rational to drive down our free to air ratings. In terms of measurement of that audience (advertisers) will say prove it and right now we can’t.”

WIN is probably correct to look at the experience rival mediums, such as print, and be somewhat reluctant to drive its audience towards digital but unfortunately for WIN, and its owner Gordon, the push of the metro TV into live streaming has forced them to face this digital reality, whether they like it or not.

Nine claims WIN CEO Andrew Lancaster sought the live streaming rights in late 2015.

Nine claims WIN CEO Andrew Lancaster sought the live streaming rights in late 2015.

This shift in mindset by WIN is probably most clearly evidenced in suggestions that WIN CEO Andrew Lancaster actually asked for a revision of the Program Supply Agreement during the last round of negotiations. Nine claims this amendment would have indeed given them the digital rights to live streaming in their areas.

Unsurprisingly Nine refused WIN’s request but it is perhaps one of the most damaging parts of the case for Bruce Gordon’s team, who in two days of evidence never clearly addressed the question of why would they have asked for the right to live stream in their areas if it was already part of the affiliate agreement?

Regardless of how the case plays out if we step back, more broadly, it is increasingly clear that WIN and fellow regional broadcasters Prime and Southern Cross Austereo have reason to be aggrieved over the potential damage live streaming could cause to their businesses.

To be clear, it’s not that there is sudden mass of regional consumers desperately trying to reconfigure their smart TVs to access 9Now on the URL browser – a technical point that saw much back and forth in court, with WIN at one point being challenged by the judge to wheel a TV into court to show it could be done over Nine’s strong objections.

Nine is investing in 9Now as audiences increasingly shift online.

Nine is investing in 9Now as audiences increasingly shift online.

But it is clear that the regional broadcasters fear a further exodus of ad dollars from the regional television market.

Yesterday afternoon, in his closing argument, Nine’s silk Noel Huntley SC eagerly pointed out that WIN had provided no evidence and called no senior executives or advertisers to show that live streaming was hurting them commercially, but even Justice Hammerschlag noted that it was obvious Nine’s decision to try and draw eyeballs away from WIN is likely to hurt the regional broadcaster.

“I have no issue with finding that if you have the ability to beam into his areas then that will have an impact on the number of viewers and the amount he can charge for his advertising,” said Justice Hammerschlag.

“It seems to me to be self evident that if you have less reach then you are going to have less revenue.”

This was a point also underlined by Prime CEO Ian Audsley last week when the three regional TV networks appeared before the Senate inquiry on media reform.

Ian Audsley

Ian Audsley testifying last week told the Senate a revenue ‘drought’ had hit the regional TV networks.

“We are now clearly losing money to Seven,” Audsley told the committee. “We lost it through the tennis – the client and the media buyer told us they were taking the money from us and told us they were putting on Seven’s streaming service.”

In understanding what is going on here it is important not to separate the high stakes legal games from the broader debate over media reform.

The government has proposed reforms that would see the abolition of the reach rule and two out of three rule and open the door to a wave of potential mergers between the metropolitan and regional TV networks.

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While it might not have been the metro TV networks’ original intention with live streaming it is increasingly clear that, assuming the media reform package eventually passes (most likely in the next parliament post the upcoming Federal election), they will use both a carrot and the stick in their negotiations.

The carrot is the promise of buying out existing owners and bringing them into a national network that bring synergies and helps insulate them from the so-called revenue “drought” that hit regional TV last year.

And increasingly the stick appears to be live streaming: a clear and growing threat that if they don’t sell, and sell sooner rather than later, then their sister metro stations will use live streaming to come in over the top and take eyeballs, undermine their advertising base and by extension destroy their market value.

For a company like Prime Media which is already seeing major double digit revenue declines and which has already seen its market value halve, according to Audsley’s testimony from $366m three years ago to a $130m today, this threat must be extremely potent.

And it is also worth noting that even Seven, which has been somewhat recalcitrant on all media reform – except licence fee reductions – conceded last week it had done the sums on buying a regional TV network, most likely Prime Media.

Should WIN lose the Supreme Court case to Nine you can expect the regional TV network’s management to scream blue murder about the need for parliament to urgently pass the media reform.

But it is likely that any media reforms won’t pass before an election (due to Prime Minister Turnbull likely pulling the trigger on a double dissolution on July 2) and therefore that means Nine and WIN will have to renegotiate their affiliate deal which ends in June, before any package passes parliament.

How that negotiation goes will be very interesting as the signs are that it could get very messy.

The two parties came to what looked like an interim six-month deal on December 31, clearly hoping that the government would pass media reform and open the mergers floodgates before it next had to deal with the negotiations.

That deal wasn’t without quite a bit of brinksmanship with Nine threatening to send WIN to black unless it raised its fees.

Regardless of whether or not WIN wins this NSW Supreme Court case you can expect the regional TV network to, again, demand the right to exclusively live stream Nine content in its areas.

Now Nine will likely reject the request but it is an interesting question as to whether, this time around, WIN might have Nine over a barrel particularly when it comes to sports rights and the NRL.

Nine’s agreement with the NRL and also Cricket Australia requires it have a national network and while in December Nine was able to secure a backup deal with public broadcaster SBS to screen the coverage in regional Australia if its negotiations with fell through, that probably wouldn’t wash for Australia’s second biggest footy code.

NRL could this be a key leverage point for WIN?

NRL could this be a key leverage point for WIN?

Certainly it would be a politically brave move by the government funded entity SBS and its managing director Michael Ebeid to enter the fray as the relationship between Nine and WIN deteriorates.

Also Nine’s revenues are under tremendous pressure. Yesterday Nine warned its TV ad revenues have declined 11% this year, a move which saw the share price immediately collapse more than 20% and wiping some $300m off its market value.

The consequence of this is that Nine will likely want/need WIN’s affiliate fees as the TV Network works to rebuild its 2016 schedule with shows like The Block and The Voice.

Could Nine send WIN to black? Yes – they could switch off the pipeline of content. But even if it did some in the industry have noted that in the short term the TV Network wouldn’t go black as Bruce Gordon’s WIN also owns Crawford Productions. 

Could WIN's backup plan be using Crawford Productions content as a short term measure?

Could WIN’s backup plan be using Crawford Productions content as a short term measure?

For those unfamiliar with the production company it is the one that owns the rights to iconic Australian programming from the 70s and 80s including Matlock Police, The Sullivans and the Flying Doctors.

Would WIN be crazy enough to saturate its airwaves with reruns of Matlock? Possibly and certainly as a short term measure it could keep them on-air.

And the more important point here is that if the talks between Nine and WIN collapse over live streaming it will send Bruce Gordon and his regional TV network straight into the hands of Network Ten.

As The Australian reported, a couple of weeks ago, Southern Cross Austereo’s exclusivity period with Ten has expired and increasingly it is to be expected that WIN and Ten are talking, especially given its deteriorating relationship with Nine.

It is of course worse noting that WIN has content deals with both networks in various markets and that Bruce Gordon is a major shareholder in both metro TV networks.

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Could this all end in divorce? It’s certainly a possibility in the minds of many TV executives and of course with WIN and Ten in a likely partnership, Seven likely to eye Prime that leaves Nine and Southern Cross Austereo as the other likely tie up.

It is certainly interesting to note media reports just this week that Nine CEO Hugh Marks has been briefing investors about “potential synergies that could be extracted from a $2.2 billion merger with Southern Cross Media Group.”

As with all divorces and marriages no matter how it plays out, between the various parties, the fireworks involved will be very interesting for all concerned.

But there is also a wider public policy point here that’s important to note.

Media reform looks like it won’t happen before the election and even the mooted licence fee reductions appears to be either off the cards or at best is likely to be introduced in a staggered form over a number of years.

But surely it’s time policy makers and the media industry came together to look at revising the archaic Alston decision that “streaming is not broadcasting” which clearly doesn’t reflect the modern media environment.

If nothing else it might ensure that our courts’ time isn’t tied up with billionaire media moguls having domestics with their commercial TV partners.

Nic Christensen is the media and technology editor of Mumbrella.


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