Wanting less News: Pay TV piracy and News Corp

If there was any doubt that News Ltd have too much power in Australia, it should be dispelled by their aggressive handling of the allegations of global Pay TV piracy this last week. The issue was launched internationally by a BBC Panorama program called “Murdoch’s TV pirates” and it was given a local angle with long time Murdoch tormentor Neil Chenoweth’s series of articles in the Australian Financial Review (Chenoweth was also an adviser to the BBC program). News Ltd has tried to bully the AFR out of their allegations while also questioning SBS for showing the documentary hinting it does not correspond with the station’s code of practice.

The Panorama program focussed on a British issue. It alleged the then News Corp security arm NDS (headquartered in Israel) hired an expert team of Pay TV hackers from the piracy site called The House of Ill Compute (THOIC). Originally known as News Datacom Systems, NDS established the “Operational Security” group in the 1990s to ensure the security of Murdoch’s growing pay TV interests. Cracking codes is not illegal but spreading the cracked code to encourage piracy is. NDS busted THOIC piracy but instead of prosecuting them they hired them. The THOIC brief was to open up the security codes of NDS competitors, Canal+ (from France), and flood them on the market. This action, Panorama said, was directly responsible for the death of On Digital (later called ITV Digital) which used the Canal+ system. On Digital was the biggest pay TV threat in the UK to Murdoch’s BSkyB which had smartcards made by NDS.

Panorama tracked down Lee Gibling, the former head of THOIC who told them NDS hired him to break competitors’ smart card systems. Panorama also secretly filmed two other key witnesses, former NDS employees Ray Adams (previously Metropolitan Police commander) and Len Withall and aired the footage without their permission. The footage found evidence that emerged in 2002 showing links from THOIC to News Corp. Canal+ sued News Ltd who dealt with the problem by spending $1 billion on an Italian Pay TV company called Telepiu, owned by Vivendi Universal which was on the brink of bankruptcy. Vivendi Universal also owned Canal+. The terms of the deal was to drop the lawsuit and the Canal+ Tech team that developed the smart cards was also disbanded.

Here in Australia, the AFR published the end of what they called “a four year investigation” into similar allegations into the local pay TV market. They published an archive of 14,400 Ray Adams emails and said piracy cost Australian pay TV companies $50  million a year at its height in 2002. It helped cripple the finances of Austar, which Murdoch’s part-owned Foxtel (which uses NDS) is now buying. The AFR published emails which were submitted in legal cases brought against NDS by rival pay TV operators in the US (DirectTV, Echostar) Europe (Canal+ and Sogecable) and Malaysia (Measat). Like the way they dealt with Canal+, News Corp bought 34 percent of DirectTV to end that case. In the only one to go to trial, Echostar won three of six counts, but won only minimal damage and had to pay court costs.

In Australian law, unauthorised access to electronic networks and illicit modification of databases are criminal offences. But Bruce Arnold, Law Lecturer at the University of Canberra, is only prepared to say News Corp may have exacerbated the issue. “Academic and industry research over two decades indicates the problems experienced by the defunct or ailing television networks were primarily attributable to poor management, poor marketing and inadequate capitalisation,” Arnold said.

Finding hard evidence is not easy, as Terry McCrann alluded to when hauled out by the Herald-Sun to defend News. McCrann wanted to see an email quoted in the AFR. “You know, something like: Murdoch to 007: My plan for world pay-TV domination rests on your piracy skills. Let's target one million pirated cards by Christmas.”

McCrann was flippant but giving the nastiness at the heart of News Corp exposed in the Levinson Inquiry, it not beyond the bounds of reason to think Murdoch wanted to see exactly that: one million pirated cards on the marketplace by Christmas. Such thoughts never make it to an email. Britain’s TV regulator Ofcom is currently examining if Rupert and James Murdoch are “fit and proper” to be in control of BSkyB based on the phone hacking scandal. One of the hacked MPs Tom Watson says the pay TV allegations should be added to that investigation.

Here the ACCC (Australian Competition and Consumer Commission) is reviewing the $1.9 billion Austar takeover bid. With such a cloud over the Empire, it seems beyond belief the Australian Government should allow yet another contraction of ownership in the most concentrated media landscape in the western world. Yet time after time, Murdoch gets his way in Australia. Robert Manne explains why this is a problem: “The more the media is concentrated, the greater is the problem for the health of democracy”, Manne writes. “Yet the more the media is concentrated, the less likely it is that the issue will be debated freely in the only appropriate forum for the discussion, the media itself.” News Ltd Australia should be broken up, not expanded.

Setanta’s little helper: The rise and fall of a satellite broadcaster

My initial reaction was to laugh on hearing Irish pay television operator Setanta was in trouble. After all “Satan-ta”, as I preferred to call them made me pay for sporting content I used to watch for free. In the late 1990s, football games such as Ireland’s world cup qualifiers and Old Firm derbies were suddenly hoovered up by a company that knew they had a captive audience of football-starved Irish and Scots in Australia and made them pay through the nose to watch them. They made a lot of money out of it as the only way of following the games was either Setanta’s way or the information superhighway. So when I heard they were on the verge of bankruptcy this week, my first reaction was “good riddance”. But I was wrong.

Setanta fill a niche. It’s not their fault that greedy game rights owners decided they could get better deals for their products with the television networks. The founders of Setanta realised long ago that there was a gap in the market that they could fill. Two young Dubliners in London, Michael O'Rourke and Leonard Ryan, got into the game back in 1990 when they filled a gap on British television. Ireland were playing a crucial game in their first World Cup against the Ruud Gullit-led Netherlands in which both sides needed to get a result.

But the thousands of Irish fans in England had no way of watching the game. England were in the same group and playing at the same time. Both the BBC and ITV refused to show Ireland’s game. So O’Rourke and Ryan bought the rights to the game cheaply and charged west London dance hall patrons £10 to watch. The pair broke even after 1,000 Irish fans turned up.

The experience made them realise there was money to be made from the Irish Diaspora. O’Rourke and Ryan spent the next 10 years slowly buying rights for sports fans living away from home, developing niche channels in Britain, America and Australia. Ryan called the early days a “fight to stay alive”. Their clients were Irish bars in San Francisco and Sydney to whom they sold All-Irelands, Six Nations rugby and Irish football internationals.

In 2005 they made their first major breakthrough in Britain by buying the rights to the Scottish Premier League. It then struck south of the border by launching a successful joint bid with ITV to get the rights to FA Cup matches and England internationals for four years from 2008, effectively knocking out all of the BBC’s live football in the process. Setanta also won a three-year contract to show live Premier League games. Suddenly Setanta was second only to Murdoch’s Sky Sports in the UK. By 2007 another Murdoch outlet, The Times, was saying the pair were worth £35m each.

But the Australian media magnate was not taking the cheeky Irish challenge for granted. Sky had the monopoly on the Premier League since its inception and did not take kindly to the EU competition ruling in 2006 that insisted it be broken up into six television packages and no one company could have all six. Setanta won two packages giving it the right to broadcast 46 live games every season. But when the packages were rebid earlier this year, Sky upped the ante and won five out of the six for 2010/2011 onwards. In the middle of a global recession, Setanta suddenly had just 23 expensive games a year and Sky had ensured the Irish company were left with the least attractive games. It also had 1.2 million customers when it needed 1.9 million to break even. It didn’t help Setanta were shortly due to pay the English Premier League £30m. They also missed a £3m payment to the Scottish Premier League last week. The knives were out.

On Wednesday Setanta were forced to post a message on its website telling customers that it is not accepting new customers as it "attempts to secure the future of the business". On the table are a range of options, including spinning off its profitable US and Irish subsidiaries. They need additional capital of about £100m to plug the funding gap. But its City backers including private equity houses Doughty Hanson and Balderton, have refused to make more than £50m available.

Setanta is now looking for other companies to buy into it and has held talks with BT and ESPN. At the moment, ESPN is officially ruling itself out as a potential buyer. However this is likely to just be a bargaining position as the American cash rich sportscaster is keen to expand its UK sports portfolio. ESPN also bid for the English Premier League rights beyond 2010 but lost out to Setanta and Sky. If Setanta does default, the Premier League rights will revert to the holders who will try to find other buyers. ESPN is owned by Disney which is an even larger media company than Murdoch’s. Their actions may be well worth watching in the next few weeks as the big guns fight over the likely corpse of an Irish player that got too big for its boots.

Twitter and public broadcasting issues under one mumbrella

A real breath of fresh air on the Australian blogging scene is Tim Burrowes at Mumbrella. The former editor of B&T magazine is one of the few bloggers who actually breaks stories and he broke two good ones today. Just minutes ago, he revealed that the viral Twitter messages that a plane on fire caused Melbourne airport to close this evening were a gross overreaction. While it was true that a passenger reported seeing fire from the left wing of a Boeing 767 this evening, the plane was cleared after eight minutes and there were no further consequences. But while Burrowes confirmed there was no fire with a quick phone to the airport, the Twitter world was happier just to repeat the "plane on fire" news ad infinitum in an Australian version of the Hudson plane landing incident. But in this case, the airport press office was justified telling Burrowes that “unfortunately the Internet is full of gossip.”

In scotching the rumours, Burrowes exemplified the remarks of Jason Wilson’s provocative post at Gatewatching last week by showing that “journalists use telephones”. Burrowes was also on the phone earlier today after he read one of the more contentious entries of the 2,400 submissions to the review of Australia's two national broadcasters, the Australian Broadcasting Corporation (ABC) and Special Broadcasting Service (SBS). The government will review the submissions ahead of the broadcasters' next funding review in July this year.

Burrowes’ interest was in the submission by Astra, the peak body representing Australia’s subscription TV industry. In their submission, Astra were critical of the plan to give six new digital channels to ABC and SBS. Astra picked on the point made by ABC’s managing director Mark Scott that the new channels (in areas of news, children’s entertainment and foreign language programming among others) addressed a “market failure”. Astra denied there was a market failure and said they were (or will be soon) delivering similar products to what ABC planned to deliver. It was a persuasive argument if you leave out the fact that just two million Australians subscribe to pay TV and that leaves a potential market failure for 19 million others.

Nevertheless the newsworthy element that Burrowes noticed was an Astra comment that the public broadcasters are doing aggressive deals that lock out pay TV from showing up-to-date content. They claim “ABC and SBS have included pursuit of commercial terms which seek to ensure longer than industry standard ‘hold back’ clauses in production and acquisition deals, and in some instances the ABC in particular has been willing to pay more for content to ensure this happens”. The result is that pay TV has to wait longer to get content for re-run and Astra says this is contrary to ABC 1983 charter goals (a charter Astra says is out of date as is the 1992 Broadcasting Act).

Once again Burrowes picked up the telephone and spoke to both SBS and ABC today for comment on Astra’s accusation. SBS firmly denied the claims and gave examples where SBS and Pay TV have cooperated in acquiring broadcast rights. Their spokesperson also told Burrowes that they often allow World Movies Channel and other pay TV channels to run content first. The ABC spokesperson was similarly dismissive: “The ABC is not sure how ASTRA can justify such claims of warehousing when there are many examples of rights sharing of programs between the ABC and the subscription channels” he said. But this controversy is not likely to go away and Burrowes may have reported on what is likely to be the opening salvo of a long running debate between the public broadcasters and the Pay TV industry for hearts, minds and control of the digital spectrum.