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The Age

Seven and Optus dispute may end in legal channels

Date: 30/03/2002
Words: 723
          Publication: The Age
Section: Business
Page: 2
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 possibility.

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