Seven Network Ltd & Anor v News Ltd & Ors (2010) 262 ALR 160 (Mansfield, Dowsett and Lander JJ) (the “C7 litigation”)
Although this paper is entitled Recent Developments in Market Definition, time will only allow me to address the above two cases as the most recent expression of the principles applied in defining a market. In the course of these observations, when making reference to the decision of the Full Court, I use the terms “the Full Court” or “the Court” and in that context I am referring to the joint judgment of Dowsett and Lander JJ as it is in the joint judgment that the principles of market definition are fully expounded for the purposes of the appeal.
The Contextual Background Facts
In these background facts, the use of the term “Seven” so far as it relates to parties to the litigation, is a collective name for the applicants (and later the appellants), and “News” is a collective reference to the respondents at both trial and on appeal.
The free to air television market during the course of the relevant events consisted of Seven, Nine, Ten, the ABC and SBS (and now, of course, multiple digital channels provided by each of those broadcasters). Retail pay television services commenced in Australia in April 1995 with three participants emerging that year. They were the Australis owned Galaxy service, Optus Vision and Foxtel. Australis, Optus and Foxtel broadcast predominantly in major population areas. Austar (with the exception of the Gold Coast) confined its broadcasts to rural areas. In March 1995, Australis provided programs (content) including movies and sports to Foxtel. The sports content was provided by Fox Sports. Galaxy ceased broadcasting in May 1998 upon the liquidation of Australis leaving Austar, Optus and Foxtel in competition with market shares of 30.4%, 16.5% and 53.1% respectively.
Foxtel was created in November 1994 as a joint venture between News Limited and Telstra. News held its interest through its subsidiary Sky Cable and Telstra held its interest through its subsidiary Telstra Media. On 3 December 1998, PBL acquired a 50% interest in Sky Cable. The ownership of Foxtel thereafter was News 25% and PBL 25% (each through Sky Cable) and Telstra 50%.
Fox Sports was formed in September 1994 as a joint venture between Liberty Sports and a subsidiary of Australis. It was initially branded as “Premier Sports Australia”, licensed content to Australis which was sublicensed to Foxtel. On 26 September 1997, News acquired a 50% interest and moved to a 100% interest by mid 1998. In December 1998, PBL acquired a 50% interest in Fox Sports which, from 3 December 1999, operated as a 50/50 partnership.
Importantly, Telstra had no interest in Fox Sports.
In April 1997, Telstra and News entered into an Umbrella Agreement which specified that News and its subsidiaries and affiliates including Fox Sports would offer to supply programs to Foxtel on terms no less favourable than other “comparable programming”.
Pay television service providers described as “pay television platforms” package various content “channels” which they offer to subscribers by offering a basic package of particular channels and then additional channels by way of “tiers” at extra cost. Pay television platforms have an incentive to offer subscribers attractive packages over and above the base package. Movie channels and sports channels are offered by the platforms as tier packages.
These tier packages are often described as “subscription drivers”. In Australia there are only two premier or marquee sports which can be described as “major pay subscription drivers” of sports channel content and they are the AFL and the NRL. A pay television broadcaster that offers live television broadcasts of AFL or NRL matches will attract subscribers who are willing to pay tier fees over and above basic package rates.
Sports Vision, between 1995 and 1998,was a joint venture between Tallglen (a Seven subsidiary), ESPN Inc, PBL and Optus. In 1995 the parties to the Sports Vision joint venture entered into a Programming Distribution Agreement. Under that agreement PBL licensed Optus with the right to broadcast NRL games between 1995 and 1998 by pay subscription.
At the same time, Optus also acquired the right to broadcast AFL games from Tallglen (7). In 1993 companies related to Seven held broadcast rights to AFL games. In June 1995, Seven acquired the AFL pay television and free to air rights for the period 1999 to 2001. In November 1996, Seven and the AFL agreed that the AFL would allocate 36 games per season to pay television.
This consolidated agreement for free to air and pay television between Seven and the AFL was referred to by the primary judge, Sackville J, as the AFL Seven licence by which Seven acquired all AFL pay and free to air television broadcast rights exclusively for the period 1993 to 2001 with fees negotiated annually. For example, total AFL free to air and pay television rights fees paid by Seven for the 2001 season were $33m.
In September 1997, Seven and the AFL entered into a First and Last Deed by which the AFL granted Seven a first and last right of refusal over free to air television rights for the period 2002 to 2011 and Seven agreed to make “irrevocable offers” for free to air and pay television rights throughout that period. The deed contemplated that the AFL would licence the rights for either a five or 10 year term. The deed contained a put option entitling the AFL to require Seven to accept a licence for live free to air broadcast of all AFL matches at an annual fee of $36m (plus CPI) and, subject to particular events, an irrevocable offer by Seven to form a 50/50 joint venture with the AFL for the exploitation of AFL pay television rights with Seven guaranteeing a minimum return to the AFL of $15m per annum.
As to the NRL rights, News in 1995 sought to create its own domestic rugby league competition. The aim was to provide premium rugby league content for Foxtel programming as News had experienced a major uplift in subscriber numbers for Sky in the U.K. once Sky obtained the rights to English football. The new competition ran for one season in 1997 with the PBL owned Nine Network holding the free to air broadcasting licence.
Following the resolution of the Super League dispute in late 1997 and the formation of the NRL structure, the rights to the NRL competition came under the exclusive control of the NRL partnership. News, as part of the Merger Agreement in resolution of the dispute, had been granted the exclusive NRL pay television rights which it had sublicensed to Foxtel, Optus and Austar for the period 1998 to 2001. However, the grant of the pay television rights to News was to expire prior to the commencement of the 2001 season.
Fox Sports, owned 50/50 by PBL and News, produced the NRL channel content for Foxtel. A third party produced the NRL channel content for Optus.
In 1998, Nine secured the NRL free to air rights for 10 years.
When News secured the NRL pay television rights in May 1998 as a legacy of the settlement, it also acquired a last right of refusal over the free to air broadcasting rights subject to Nine ’s rights. However, Optus held a pre existing right to be offered NRL content on terms no less favourable than the terms offered by News to Foxtel in the event that News obtained the rights to NRL content in the period 2001 to 2021. Accordingly, in May 1998, the NRL partnership also granted Optus the right to NRL content on the same terms as that content had been offered to Foxtel by News.
There was, at this time, no AFL content on Fox Sports nor Foxtel which affected the capacity of Foxtel to attract subscribers outside New South Wales and Queensland.
During 1998, Seven entered into the business of supplying channels to retail pay television operators through C7. A dispute within the Sports Vision partnership concerning the supply of AFL content by the Seven subsidiary, Tallglen, resulted in Seven and PBL withdrawing from the Sports Vision joint venture. C7 was developed by Seven in the market as a replacement for Sports Vision.
On 30 June 1998, C7 entered into an agreement with Optus under which C7 undertook to provide Optus with sports programs including AFL matches on a non exclusive basis for a period of 10 years ending on 31 December 2008. It was a term of the agreement that C7 would receive a minimum subscriber guarantee of approximately $30m. Optus could terminate the agreement in the event that C7 lost the AFL pay television rights.
The C7 service provided to Optus consisted of a primary sports channel branded as C7 Gold and a secondary overflow channel branded C7 Blue. C7 received between 1998 and 2001 a sublicence of the non exclusive NRL rights from Optus under Optus’s May 1998 arrangement with the NRL partnership. These content rights were produced into a channel sports product and carried on the C7 Blue channel. That channel became Optus’s channel for NRL broadcasts.
Seven also sought to sell the C7 channels to other pay television providers. C7 provided a non exclusive sports channel to Austar for the period 1 April 1999 to 28 February 2002. Fox Sports had granted Austar the right to broadcast NRL games provided through one of the Fox Sports channels.
However, Foxtel refused to carry C7 channels notwithstanding Foxtel’s lack of AFL channel content.