We opened our investigation into pay TV in early 2007, following a submission from BT, Setanta, Top Up TV and Virgin Media. Our first consultation, in December 2007, set out some initial concerns relating to the manner in which premium content is distributed. This further consultation explores those concerns in more detail, and sets out for consultation our proposals for addressing them.
Consumers’ choice of pay TV service is primarily influenced by the content that is available, rather than by platform features. Some content is of particular importance: live Premier League football and first-run blockbuster movies have an especially wide appeal, and are not available via free-to-air TV. We consult in this document on our view that channels containing these types of content are in their own narrow wholesale markets, and that Sky has market power in those markets.
This market power gives rise to two concerns. First, that Sky is likely to limit the distribution of those channels to other retailers, either reflecting its belief in its own greater efficiency than other retailers or a desire to limit the ability of other retailers to compete effectively; our review of the evidence indicates that distribution of these channels is indeed limited. Second, Sky may be able to set wholesale prices above the competitive level; difficulties with analysing wholesale margins make it difficult to draw firm conclusions on this.
Markets where competition is weak do not deliver the best outcomes for consumers. The limited retail competition that we see in pay TV as a result of limited distribution of premium content is likely to manifest itself in terms of reduced choice, reduced retail innovation, reduced platform innovation or higher prices. For example, consumers on a number of platforms are currently unable to access the most valuable sport and movie content, while even those consumers who can access this content have a limited choice of service bundles. While the UK has a strong track record of technical innovation in areas which play to the strengths of Sky’s satellite platform, the same has not historically been true of innovations such as video on demand, which play to the strengths of platforms other than Sky’s.
We propose to address our concerns by requiring Sky to wholesale designated premium channels on regulated terms. In this document we are consulting on the use of our sectoral competition powers under section 316 of the Communications Act to put such an obligation in place.
We may need to return to the question of whether to make a reference to the Competition Commission under the Enterprise Act. This might be appropriate if, for example, we believed there was merit in considering some form of additional intervention into the way in which specific content rights are sold. However, if we proceed with the proposals set out in this document, then it may be premature to consider any further intervention until we can properly assess the effects of our proposed remedy.
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