Legal brinkmanship seems to have resulted in yesterday's sudden
replacement of Seven Network's C7 sports channels on Optus pay television with
the News Corp/Packer group Fox Sports cable TV channels.
A spokesman for Kerry Stokes' Seven Network says the group is continuing to
produce C7 and send it to Optus, and he believes that a notice from Optus
terminating the C7 service has no validity.
C7's future became cloudy late in 2001 when a consortium including News Corp,
the Packer group and the News-Packer-Telstra pay TV operator Foxtel offered
$500 million for rights to cover AFL football from 2002 until 2006.
The bid was about three times the price being paid by Seven for the AFL until
the end of 2001. Seven had ``first and last" bidding rights for a new
contract, but Stokes declined to top the rival offer.
He is not alone in thinking that the News-Packer-Foxtel consortium has paid a
full price to snare the AFL. But the loss of the AFL has gutted C7's winter
sports line-up and, according to Optus, triggered a default clause in the
10-year contract that Seven held to supply sports programming through C7.
C7's future became even more unclear in recent weeks because of the proposed
alliance between Foxtel and Optus that would see Optus replace its pay TV
service with a feed from Foxtel.
The proposal, which is being scrutinised by the Australian Competition and
Consumer Commission, would also see Foxtel accessing Optus satellite capacity,
and Foxtel's half-owner, Telstra, also reselling Foxtel.
Stokes' network has a series of court decisions and an ACCC directive backing
its claim for access to Australia's broadband cable network, which is the main
distribution pipe for pay TV.
It has already rejected offers from Foxtel and Optus that would have the pay
TV networks offering C7 to their subscribers as an extra-cost ``tier" product.
Seven believes that its legal wins entitle it to primary access to Foxtel, or
to a separate new pay service that would run on the cable networks built by
Telstra and Optus.
The key talks are with Foxtel, and for Stokes they must be taking on some
urgency as C7 fades from pay TV subscribers' screens.
Talks between Seven and Optus on the future of C7 began last year, with Optus
initially insisting that Seven's loss of the AFL rights meant that Optus'
contract with C7 could be terminated at the end of last year's AFL season.
It was subsequently agreed that C7 would continue to appear on Optus until
March 31 this year, extending the service beyond the late-February start of the
AFL pre-season competition. Documents to that effect were signed by Optus and
passed from Seven's law firm, Clayton Utz, to Optus' lawyers, Baker & McKenzie.
Optus is believed to have expressed concern last Wednesday that the extension
agreement had not been executed by Seven, but it proposed to leave C7 on Optus
pay TV until the March 31 deadline.
However, on Thursday Seven sent a letter to Optus stating that Seven had not
executed the March 31 extension, and adding that Seven did not believe that
Optus had the right to terminate C7.
Optus executives then blocked the C7 feed, in the belief that Seven might
argue that Optus had waived termination rights if C7 continued on the pay TV
network after the AFL's full season began on Thursday night.
The C7 service is still being transmitted by the regional pay TV operator
Austar, but that agreement could be terminated as early as Monday.
Seven would then be producing a sports service, being viewed by nobody, that
industry sources say is costing it at least $15 million a year.
Stokes is continuing to press for a new platform for his sports channels, and
Seven executives maintain that the legal decisions mandating access for Seven
put the group in a strong negotiating position.
But with C7 fading fast in subscribers eyes - and the hole in the winter
line-up still gaping - legal action over the Optus decision is more than a