Ofcom proposes measures to improve competition in pay TV

Ofcom published today a further consultation as part of its pay TV market investigation.

The consultation sets out details of a proposed ‘wholesale must-offer’ obligation. This is designed to address our concerns about the restricted distribution of premium sports and movies channels operated by BSkyB.

In addition, the consultation notes that there may be a case for specific targeted interventions in relation to subscription video on demand movie rights and to the next FA Premier League auction of live broadcast rights.

Ofcom’s proposals aim to ensure consumers benefit in the short term from an increased choice of supplier and of platform, and in the longer term from enhanced innovation and investment, especially on non-Sky platforms.

Our concern: limited distribution of football and movies

Some programming, such as live top-flight sport and first-run Hollywood movies, is of particular importance to consumers.

Limited distribution of channels

Ofcom considers that Sky has market power in the wholesale supply of channels containing this attractive content, and that it is acting on an incentive to limit the distribution of these channels to rival TV platforms.

As a result, Ofcom believes consumers face a restricted choice of channels and platforms in the short term. In the longer term, new platforms based on innovative distribution technologies may be prevented from developing without access to this content.

Higher returns

A new Ofcom-commissioned study suggests that Sky is earning aggregate returns in excess of its cost of capital, and is likely to continue to do so. These returns appear to be higher in Sky’s wholesale business than its retail business, and higher in the wholesale of movie channels than sports channels. Our concern is that they are likely to be reflected in high prices paid by consumers.

The proposed remedy to limited distribution

Ofcom believes that requiring Sky to make its premium channels available to other retailers on a wholesale basis is the most appropriate way of ensuring fair and effective competition. It is therefore also consulting on proposals to put in place a wholesale must-offer obligation, containing a range of regulated prices.

Ofcom believes that this remedy will enable other TV broadcasters to access and offer these premium channels, thereby promoting choice and innovation. We do not believe that this proposed remedy would have a disproportionate impact on Sky, since we consider the proposed prices are above the level required to allow Sky a reasonable return on its content costs.

We believe that Sky’s wholesale revenues would increase under the proposed remedy, due to its channels becoming more widely available.

Remaining concerns in football and movies

Ofcom is also considering whether there is a case for targeted interventions on subscription video-on-demand (SVoD) movie rights and the next FA Premier League auction.

Films on demand

SVoD allows customers to pay a subscription to watch movies on demand, on platforms which support this capability. Sky currently holds the SVoD rights for all the major film studios, but does not exploit them on its satellite platform.

Separating the sale of subscription video on demand movie rights from standard subscription rights could allow innovative new services to be provided, especially on internet TV and cable platforms.

Ofcom is considering a market reference to the Competition Commission on this subject. However, we propose first to explore the commercial intentions of the Hollywood studios, and whether these would reduce the need for regulatory intervention.

Next football rights auction

The existing European Commission FA Premier League commitments expire before the next auction of live broadcast rights due in 2012.

We therefore intend to review with the Premier League how it intends to ensure that this auction complies with competition law. That will involve exploring with the Premier League whether it is willing to provide further commitments. We expect that review to cover the supply of Premier League football to commercial as well as residential customers.

Sky’s proposal for pay TV channels on digital terrestrial TV

The competition concerns and proposed remedies in Ofcom’s pay TV market investigation are of direct relevance to its assessment of the proposal from Sky and Arqiva for a new pay TV service on digital terrestrial TV, called “Picnic”.

Ofcom therefore intends to publish a statement on the Sky/Arqiva proposal on conclusion of its market investigation.

Ofcom is aware that Sky’s plans for Picnic are currently no longer under active consideration.

The consultation and supporting documents can be found here:
http://www.ofcom.org.uk/consult/condocs/third_paytv/

Ends.

NOTES FOR EDITORS

1. The proposals follow a previous detailed consultation (http://www.ofcom.org.uk/consult/condocs/second_paytv/) where Ofcom considered nearly 1,000 pages of evidence from companies, interest groups and members of the public.