Pay TV phase three document
- Start: 26 June 2009
- Status: Statement published
- End: 18 September 2009
Ofcom aims to publish a final statement on the pay TV market investigation in Q1 calendar year 2010.
1.1 This is our third publication on pay TV since starting this project in early 2007. We confirm our view that some content various sporting events and first-run Hollywood movies is of sufficient importance to consumers that channels including this content are in their own narrow wholesale markets; i.e. they are not replicable, and other channels are not good substitutes for them. We have added a view on retail markets for consultation, where we believe markets are similarly narrow.
1.2 We confirm our view that content aggregation has enabled Sky to gain a position of market power in these wholesale markets for premium sports and movies channels. We are now also consulting on a similar view in retail markets.
1.3 We confirm our view that Sky is acting on an incentive to restrict the distribution of premium channels, with effects on a variety of platforms including cable, DTT and IPTV. Despite lengthy negotiations and its own claims that it has an incentive to distribute its channels as widely as possible, Sky has still concluded no wholesale agreements for premium channels with non-cable retailers. This situation is not consistent with fair and effective competition. It has a detrimental effect on consumers, in the short term by reducing choice, and in the long term by dampening innovation.
1.4 We have commissioned further work on an additional potential issue arising from market power high wholesale prices. We are now consulting on the view that: Sky appears to be making high aggregate returns; returns are higher in its wholesale business than its retail business; and margins are likely to be higher in the wholesale of movies channels than sports channels. Skys high wholesale margins are likely to be reflected in high prices paid by consumers.
1.5 We continue to believe that it is appropriate to deal with our concerns about restricted distribution by imposing a wholesale must-offer obligation under our sectoral powers. The case for doing so does not depend on the evidence of high wholesale prices, but it is strengthened by that evidence. We are now setting out options for the specifics of this obligation. We consult in particular on a range of regulated retail-minus prices for Skys wholesale products.
1.6 We do not believe there is a case for intervening to require far-reaching changes in the way content rights are bought and sold. We do however believe that there may be a case for more targeted interventions in relation to subscription video on demand movie rights, and in relation to the next FAPL auction.
1.7 Separating the sale of subscription video on demand movies rights from standard subscription rights could promote innovation, especially in relation to IPTV, and might also increase competitive pressure on wholesale margins. We are considering a market reference to the Competition Commission on this subject, but propose first to explore with the Hollywood studios what their current commercial plans are, and whether these would reduce the need for regulatory intervention.
1.8 In sports, the existing FAPL commitments will not apply to the 2012 auction. We therefore intend to review with the FAPL how it intends to ensure that this auction complies with competition law. That might involve exploring with the FAPL whether it is willing to provide new commitments.
Statement published: 29 April 2010
The agreement is very good news for consumers. It means that Sky will supply Sky Sports 1 and 2 to BT, Virgin Media and Top Up TV on digital terrestrial TV and cable on Ofcom’s regulated prices.
We look forward to the next steps in the process, including the formal appeal where we will defend the decisions we have taken, which are in the interests of UK consumers.
After three rounds of consultation, we have made three decisions:
- To require that Sky Sports 1 and 2 are offered to retailers on platforms other than Sky's, at prices set by Ofcom.
- To approve Sky and Arqiva's request for Sky to offer its own pay TV services on digital terrestrial TV ('Picnic'), but conditional on a wholesale must-offer obligation on Sky Sports 1 and 2 being in place, with evidence that it has been effectively implemented. This conclusion is also conditional on any movies channels included in Picnic being offered to other digital terrestrial TV retailers.
- To consult on a proposed decision to refer two closely related movie markets - for the sale of premium movie rights and premium movie services - to the Competition Commission. This is with a view to asking the Competition Commission to remedy those competition concerns which we have identified, particularly in relation to the restricted exploitation of subscription video-on-demand movie rights, but which we cannot adequately address using our sectoral powers.
Movies market definition and market power appendices - Annex 5 to Pay TV Statement
Assessment of Sky’s profitability and cost of capital - Annex 3 to Pay TV Statement
Summary of discussions between Ofcom and Sky, late 2007 and early 2008 - Annex 2 to Pay TV Statement
Sports and general market definition and market power appendices - Annex 4 to Pay TV Statement
Wholesale must-offer remedies: international examples - Annex 11 to pay TV phase three document