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http://www.theaustralian.com.au/bus...season-kicks-off/story-e6frg8zx-1225829862967
Networks jostle as TV rights season kicks off
* James Chessell
* From: The Australian
* February 13, 2010 12:00AM
FOOTBALL season is upon us and David Gallop says he is "champing at the bit". But the National Rugby League chief executive is not talking about the 2010 season, which kicks off at Skilled Park on the Gold Coast tonight.
He is referring to another, equally tough, competition characterised by as much ego, bluster and antagonism as the action on the field -- the multi-million-dollar television broadcast rights negotiations.
It's a process that pits the NRL against the AFL, the television networks against the codes and the networks against each other. The negotiations will also test the financial strength of the Nine, Ten and Seven networks and their various owners. For its part, Seven is making no secret of its belief that it is in a stronger position than Nine, whose private equity owner CVC Asia Pacific borrowed more than $4 billion to buy the network and other media assets in 2006-07.
"We haven't even flexed our muscles yet," says Seven chief executive David Leckie.
Throw in a Communications Minister who is yet to announce changes to the rules that govern sports broadcasting and a media establishment grappling with new technologies and you have the makings of a fascinating contest.
"Although formal negotiations haven't started, we are preparing ourselves as I'm sure the broadcasters are," Gallop tells The Weekend Australian. "We are all in the dressing rooms getting ready".
If that is the case, then it's not long until kickoff. Earlier this month, Gallop had dinner with Leckie at the Centennial Hotel in Sydney's east while AFL chief executive Andrew Demetriou and chief operating officer Gill McLachlan were dining at Darcy's with Nine boss David Gyngell and his Melbourne chief, Jeff Browne. It was all very cosy. A five-minute drive separates the two restaurants. Browne used to work for the AFL. Nobody would comment on what was discussed other than to say these sorts or meetings between the major football codes and television networks were a regular occurrence.
Indeed, Gyngell, who is a mad Sydney Roosters fan, had lunch with Gallop that day and will be rubbing shoulders with him -- and several other heavy-hitters including Prime Minister Kevin Rudd, Sports Minister Kate Ellis and Premier Media Group (owner of Fox Sports) chief executive David Malone -- at the All Stars game at Skilled tonight.
Nevertheless, the dinners are interesting because Seven, which broadcasts AFL with Ten and Fox Sports, has declared it wants a piece of the NRL this time.
Meanwhile, it is believed Gyngell has been quietly making the case that Nine is well placed to help the AFL with its plans to add teams in western Sydney and the Gold Coast. Not that anyone will talk specifics.
"Broadcast rights are an important part of the business of all sporting bodies both in terms of revenues, our ability to reach supporters who can't watch the games, our ability to reach potential new customers and our ability to fund the grassroots," says McLachlan when asked about the process. Foxtel chief executive Kim Williams adds: "Quality content will always be in demand and I would imagine that there will be healthy competition."
The tone for the next round of negotiations was set by the late Kerry Packer, whose parting gift to the AFL in late 2005 was to sign off on a spectacular $780 million bid for the 2007-11 rights. Packer died days later and Seven and Ten were forced to match the offer.
There are many observers outside the AFL who believe Packer's bid was more hubris than rational analysis and he artificially inflated the price. Then there are others, such as Harold Mitchell, executive chairman of Mitchell Communications, Australia's largest media buyer, who argue it was a fair price. "Every valuable commodity will have a level of competition built into the price," he said.
During previous negotiations, Mitchell has valued the rights for the AFL -- the codes often commission independent valuations to reassure clubs that they have not been ripped off -- and claims to have "picked the price back then".
Football Federation Australia chief "Ben Buckley, who was working for the AFL back then, was very nervous but it turned out to be right," he says.
The empowerment of audiences through mobile devices such as iPhones and faster internet speeds make it crucial for media companies to own original content, and particularly so as traditional media face competition from a greater number of platforms such as internet television.
"It's a cliche, but content is king," Mitchell says. The global trends appear to support this view. A record 106.5 million Americans watched the New Orleans Saints win the Super Bowl this week, much to the delight of free-to-air broadcaster CBS.
Live mainstream football remains a valuable commodity because there are plenty of games, it is relatively cheap to produce and it appeals to mass markets. Last year's AFL grand final between Geelong and St Kilda attracted 2.9 million viewers in the mainland capitals. The NRL equivalent between Melbourne Storm and Parramatta Eels had 2.5 million.
But the fact remains that all future deals will be measured against Packer's bid. Mitchell has ruffled feathers by predicting the next five-year AFL contract will fetch $1bn. It's an ambitious figure Demetriou publicly embraced last year. When the NRL's $100 million a year deal deal was struck with Nine and Fox Sports in July 2005, it was widely considered a good result. Following the AFL deal, it was criticised. Gallop is not making any predictions about what he will get for the 2012-16 contract but remains confident it will be a higher price.
"I think, as at today's date, we are very encouraged with the interest we hear around the traps about our products. That includes the other free-to-airs" Seven and Ten, he says.
"Whether that's on par with the AFL will obviously be one of the things we will be measured against. But they are truly national, so they have five capital cities rating that are always going to be better than ours. Their game goes for longer."
News Limited is in the midst of exiting its 50 per cent shareholding in NRL. News, which publishes The Australian, owns 25 per cent of Foxtel and 50 per cent of Fox Sports. The relationship has prompted allegations that News has used its influence to get a better price for Foxtel.
Gallop, however, does not expect the next round of negotiations with Foxtel and adviser Ian Frykberg to be that different.
"The area where AFL earns significantly more money than us is free-to-air, and News has no interest in free-to-air," he says. "It might be convenient for some people to point to that, but with News in or with News out I expect we'll do a very good TV deal."
Nine has first and last rights for the NRL, which should put it in a position of strength, although Gallop describes the arrangement as "not pure first and last". He will not elaborate on what that means. Nine would not comment on sports negotiations, although a source said: "We remain fiercely committed to rugby league." There are no first and last rights for the AFL.
Nine sources also say Leckie's obvious confidence in the financial strength of his owners, US private equity firm KKR and the Kerry Stokes-backed Seven Network, ignores the fact that CVC allows its media business to spend money. Nine splurged up to $50m on an output deal with Warner Bros last year and has poached popular BBC program Top Gear from SBS. This week CVC signed off on plans to build a $150m magazine printing facility in Sydney's west.
Rugby league's pitch to the networks is based on a new stadium for Melbourne Storm and an established presence in the southeast Queensland growth market through the Gold Coast Titans.
League is so popular in Queensland that it supplied all top 10 sports programs in Brisbane last year. Yet the NRL is still annoyed by the defection of Brisbane Broncos star Karmichael Hunt to the AFL's new Gold Coast franchise.
Western Sydney, the NRL's heartland, is also shaping as a critical battleground. The NRL will play two State of Origin games in Sydney this year. Meanwhile, the AFL has hired former Essendon coach Kevin Sheedy to coach a team that has its doubters. "A Friday night western Sydney game just won't rate," said one television executive.
Gallop, who is advised by sports broadcast consultancy LEK, makes it clear he could divide up the various NRL "properties" if it meant achieving a better price.
That could mean selling State of Origin to another network, such as Seven, or even selling different parts of each round, which is presently divided between Fox Sports and Nine.
"I think one of the things we've done well is build Friday nights, Saturday afternoons, Sunday afternoons and Mondays -- they've all got their own flavour," he says. "Certainly one scenario for us is that we take those properties to the market and see what appetite there is for different properties."
It is a scenario that media executives expect the AFL to consider, although the landscape could be changed when Communications Minister Stephen Conroy announces new anti-siphoning rules. The present regime prevents Foxtel from bidding directly for sports such as cricket and AFL but there is much speculation Conroy will create a second list that allows some games to be shown on pay-TV and, possibly, the free-to-air networks' new digital channels. Almost 60 per cent of households have digital television and Conroy knows exclusive sport could speed up the switchover before the December 2013 deadline.
The codes are believed to favour this option as they think it will get them more money from Foxtel. However, both codes agree free-to-air television is critical to the success of their game, as pay-TV reaches only 34 per cent of Australians. Even if the anti-siphoning list was removed, they would want games broadcast live in their home markets.
"I won't comment on government policy but, yes, free-to-air exposure is always very important to us because we are a mass-market product," says McLachlan.
The lobbying took an interesting turn when Conroy announced he would give free-to-air networks more than $250m over the next two years by cutting the licence fees paid to the government. Some observers see the handout in an election year as a sign Conroy will offer pay-TV concessions on anti-siphoning. The pay-TV industry group Astra paid Conroy's office a visit this week to discuss sport, while Leckie is believed to have told Rudd he believes two lists make it difficult to guarantee games will be broadcast live and free to air in the local market.
"We are in constant dialogue with the free-to-air networks, with the pay-TV networks and with the sporting associations, and we are making progress, but we are not near completion yet," Conroy said yesterday.
Then there's new media. Gallop is buoyed by the success of the All Stars game and its online strategy. It was timed to coincide with the anniversary of Sorry Day and the NRL asked fans to pick teams on its website, which is part of Telstra's Big Pond unit.
More than 17,000 people voted for the indigenous team, while 18,000 people spent up to 20 minutes voting for stage one and 14,000 for stage two of the NRL All Stars side. This was accompanied by other digital initiatives such as blogs by NRL All Stars coach Wayne Bennett and Indigenous half-back Jonathan Thurston.
Importantly, the game allows the NRL to promote itself in a positive light -- all proceeds will be donated to community programs -- after a year of dire off-field incidents that included defecation in a hotel, binge drinking, drugs, group sex, and violence against women.
The best thing that can be said about last year is that the on-field action was successful and crowds were up, and Gallop did not try to excuse the behaviour of the players.
"I'd like to think the takeout from 2009 was that it's unrealistic to expect we won't have off-field issues from time to time, but if they're dealt with appropriately then your stakeholders retain confidence in the way the game is being run on and off the field," he says. The All Stars game "is an opportunity to highlight at the start of the season that our contribution to the community is much more than providing an exciting sporting competition every week".
The NRL plans to use the All Stars match to showcase the potential of new media -- the NRL Facebook page rose to 40,000 friends during the lead-up to the game -- to networks and other interested parties, given that the new media rights are also up for grabs.
In previous rights deals, internet, television, video on demand and mobile rights were regarded as secondary to the main free-to-air and pay-TV rights.
But sports administrators argue the rapid take-up of wireless broadband and the proposed national broadband network -- which the Rudd government hopes will eventually provide internet speeds of up to 100 megabits per second -- will make them far more attractive this time around. Indeed, Gallop predicts that the 24-hour delay for internet broadcasts of NRL games won't last.
However, Justin Milne, the managing director of Telstra's voice, broadband and media division, which produces AFL and NRL content on Big Pond, says live sport on free-to-air television remains the main game, at least for the time being.
"What I'm more likely to do is try to contrive something that adds value to your experience once you've watched it live on Channel Nine, in the case of NRL.
"I'd watch it live on Nine as they've had years and years of experience. I love the commentators and they've got the institutional knowledge," he says. "Why try to compete with that?
"On the other hand, I can assemble almost unlimited VODs. I might give you a way of analysing the game that they can't.
"There might be more competition for sports rights. There might be more co-operation. The fascinating thing about new media is that nobody knows. We just make it up as we go along."
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