In July 1999, Foxtel decided that direct acquisition of the AFL rights would be preferable to taking up C7 channels. Foxtel decided that there would be no dealing with C7 until the end of the bidding on the AFL rights which Foxtel anticipated would occur by the end of 1999.
At the same time and throughout the period 1998 to 2000, Telstra on the one hand and News and PBL on the other were involved in a dispute concerning the terms of carriage by Foxtel of Fox Sports channels. Telstra viewed the price charged to Foxtel for premium sporting content by Fox Sports (in which Telstra had no interest) as unreasonably inflated and simply a profit transfer to News and PBL and urged Foxtel to explore other options for acquiring similar content. Telstra told News and PBL that it regarded C7 as a supplier of valuable sports channel content.
The price paid by Austar for C7 content was, by example, much more favourable than the price paid by Foxtel for Fox Sports content.
The dispute was however insoluble as Telstra, under the Foxtel joint venture arrangements, could not force Foxtel to reach an agreement with C7 nor could it prevent Foxtel continuing to take Fox Sports at the previously agreed price. In addition, Telstra’s position was complicated by reason of its competition with Optus in the telephony market. The end result was that Foxtel did not acquire any C7 channels, denied itself the chance to broadcast AFL matches and, as a result, denied itself the opportunity of securing AFL sports channel content as a major subscription driver.
The AFL free to air television rights which Seven had taken up and the pay television rights which C7 held were due to expire at the end of 2001 season. The question as to who would acquire the rights during the period 2002 to 2006 was to be addressed at the end of 2000 and the beginning of 2001. Seven had the advantage of incumbency.
In July 1999, Foxtel commenced a strategy to seek the direct acquisition of the AFL rights for the period 2002 to 2006. Foxtel resisted any arrangements with C7 as urged by Telstra, until the ownership of the AFL pay television rights had been determined. News blocked Telstra’s recommendation in October 2000 for an interim carriage arrangement by Foxtel with C7. The AFL strategy was implemented in this way. News put together a News Consortium for the purpose of making a bid for the AFL television rights for the period 2002 to 2006 in which it was envisaged that Nine and Ten would acquire the AFL free to air television rights and Foxtel would acquire the AFL pay television rights. It was contemplated that News would acquire the NRL television rights as a result of which Fox Sports would acquire the NRL pay television rights.
As to implementation concerning the AFL pay television rights, it was contemplated that once News had secured the rights, it would involve Nine and Ten and Foxtel by way of a put option requiring them to enter into sublicenses. Foxtel would pay $30m per annum for which it would receive three exclusive live matches per week and the right to broadcast all other AFL matches on pay television on a delayed basis.
As to the NRL pay television rights, Fox Sports would make a bid in cooperation with Telstra. Foxtel would agree to accept the Fox Sports channels with NRL programming and would be given the right to sublicence those pay television rights to Optus. Fox Sports would pay $30m per annum for the pay television rights.
These arrangements were contained in a Master Agreement which included a Master Agreement provision. A meeting took place by teleconference on 13 December 2000. The primary judge concluded that an arrangement had been reached for an understanding arrived at on 13 December 2000 between News, PBL, Telstra and Foxtel which contemplated that News would bid for the AFL free to air and pay television rights and Fox Sports would bid for the NRL pay television rights. The understanding included an understanding that if News was successful in relation to the acquisition of the AFL broadcast rights, it would exercise a put option to Foxtel to sublicence the AFL pay television rights at the price $30m per annum (adjusted). The parties understood that there were other put options which would be exercised in relation to the AFL free to air television rights and they also understood that Fox Sports would make a bid for the NRL pay television rights supported by Telstra offering to acquire the internet and naming rights.
The implementation agreements consisted of “the Nine Put, the Ten Put, the Foxtel Put, the News AFL Licence, the News Foxtel Licence, the News Nine Licence, the News Ten Licence, the NRL Bidding Agreement and the Fox Sports NRL Pay Rights Agreement”.
At , the Full Court summed up these events in these terms:
As at late 1999 News held the NRL pay television rights. However, that arrangement was to expire prior to the commencement of the 2001 season. Seven held the AFL rights. That arrangement was to expire prior to the commencement of the 2002 season. During 1999 and 2000 various respondents considered and discussed acquisition of the NRL and AFL rights when they next became available. The Master Agreement was allegedly entered into on 13 December 2000. On 14 December 2000, the NRL announced that Fox Sports had been awarded the NRL pay television rights for six years. By 2001 it was known that C7 had lost the AFL rights from the commencement of the 2002 season and that News had acquired them. C7 ceased operations in May 2002.
Seven contended that the Master Agreement and the News Foxtel licence provision had the purpose, effect or likely effect of lessening competition thus giving rise to a contravention of s 45(2)(a)(ii) of the Trade Practices Act 1974 (Cth) (“TPA”) on entering into the agreement and/or licence and that one or more of the respondents had contravened s 45(2)(b)(ii) by giving effect to such provisions. Seven contended that the Master Agreement provided for the acquisition by various respondents (or their associated entities) of the AFL and NRL rights and the distribution of those rights amongst themselves to the exclusion of Seven and C7. The News Foxtel licence granted Foxtel a sublicence of the AFL rights. Seven contended that as a result of these arrangements and their implementation, C7 was unable to compete with Fox Sports in what was said to be the wholesale sports channel market and withdrew from the market in May 2002 thereby lessening competition in that market. The notion that Fox Sports and C7 supplied sports channels in the alleged wholesale sports channel market was fundamental to Seven’s case. The wholesale sports channel market was also central to Seven’s claim that Foxtel contravened s 46 of the TPA by using its market power in the retail pay television market to deter or prevent C7 from engaging in competitive conduct in the wholesale sports channel market.