Foxtel Gets Antitrust Approval to Buy Austar With Caveats

Foxtel, the Australian pay television company part-owned by Rupert Murdoch’s News Corp., will be allowed to buy Austar United Communications Ltd. (AUN) after agreeing to drop exclusive rights to Nickelodeon and National Geographic Channel.

Foxtel, Australia’s biggest operator, will agree not to purchase exclusive rights to movies for video-on-demand services after buying its second-ranked rival, the Australian Competition & Consumer Commission said in a statement today. The ruling reverses the regulator’s preliminary view issued July 22 that a deal would substantially reduce competition.

Foxtel will promise not to purchase exclusive rights to Nickelodeon, National Geographic, the Disney Channel, ESPN and about 60 other channels; to video-on-demand programs broadcast by rival networks; and to most movies, the regulator said in the statement. It will be able to purchase exclusive rights to individual sports.

The content agreements were necessary to limit the market power of Foxtel’s 50 percent shareholder, Australia’s largest phone company Telstra Corp. (TLS), the ACCC said. Access to Foxtel and Austar’s existing subscribers would give Telstra an advantage in selling so-called ‘triple-play’ packages of broadband, telephone line and Internet television services.

Austar Rises

Austar shares rose 2.7 percent to A$1.52 in Sydney, compared with a 0.6 percent fall in the benchmark S&P/ASX 200 index. News Corp. dropped 1.7 percent to A$18.77 a share. A court hearing due April 13 should confirm the takeover deal.

“By reducing content exclusivity, the undertakings will lower barriers to entry and promote new and effective competition,” ACCC Chairman Rod Sims said in a statement.

About 92 percent of Austar shareholders backed the A$1.9 billion ($2 billion) takeover in a meeting March 30. The company’s board had agreed to be bought by its larger rival in July after the board and biggest shareholder, billionaire John Malone’s Liberty Global Inc. (LBTYA), backed the A$1.52-a-share cash bid.

The deal stalled since then as the regulator started a review of the proposal and extended the deadline for a decision at least three times to allow Foxtel to make further submissions to gain approval.

Less Exclusivity

The ACCC said it had broadened the range of programming subject to exclusivity regulations from its original decision, in particular preventing the merged company from purchasing exclusive rights to subscription video on demand for television programs or movies and from purchasing exclusive mobile-phone rights to Internet television content.

The decision was welcomed by both Austar, Foxtel and Telstra in e-mailed statements.

“This is a great outcome for consumers,” Foxtel Chief Executive Officer Richard Freudenstein said in a statement.

Foxtel has been pursuing its smaller rival since at least March 2011 as it seeks to gain subscribers in regional and rural areas where Austar dominates.

The regulator on March 7 began further consultation after Foxtel said it wouldn’t sign exclusive content agreements for Internet protocol television. It also agreed to provide access to its signal so competitors can offer channels and services.

News Corp. (NWSA) owns 25 percent of Foxtel, the same size stake as Consolidated Media Holdings Ltd. (CMJ), while Telstra Corp., Australia’s largest phone company, owns the rest.

Piracy Reports

A series of articles in the Australian Financial Review newspaper and on the British Broadcasting Corp.’s Panorama program have said that NDS Group Ltd., a security software developer for digital television systems, encouraged the piracy of rival platforms at a time from 1999 to 2002 when it was majority owned by News Corp.

That piracy damaged Austar during the period, the newspaper reported. The company’s shares lost 97 percent from its initial public offering during the dot-com boom in July 1999 and the end of 2002.

NDS has said the Australian Financial Review should retract its articles, saying they were “based on gross mischaracterisations of the evidence” in a letter to the newspaper’s editor on March 29.

Austar Chief Executive Officer John Porter told the March 30 shareholder meeting that any reported piracy “took place over 12 years ago” and wouldn’t affect the 2011 offer by Foxtel.

“There’s no relationship between those activities and the value we see in Austar today,” he said.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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