Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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of Disney’s animated films alongside a range of children’s and family-based
programming. Sky also has contracts with several independent distributors and other
important movie studios (see paragraph 4.276). Consequently, Sky’s premium movie
channels provide the first opportunity for viewers to watch the vast majority of the
most popular films on a linear TV channel. This directly influences the range of
potential substitutes for the channels.
4.257 In the following pages we set our view on the wholesale market for premium movies
channels. As with wholesale sports, our analysis considers both direct and indirect
constraints on a hypothetical monopoly wholesaler. We begin by describing the
indirect constraint, setting out:
� The key characteristics of, and consumer preferences for, premium movies
channels and potential substitutes.
� Our application of the HMT to wholesale premium movies.
� Consumers’ responses to price changes, considering specifically substitution to
other popular ways of viewing movies, including movies on other TV channels
and DVDs.
� The potential growing constraint from online content delivery.
4.258 We then consider direct constraints, including supply and demand side substitution.
Evidence on the indirect constraint on wholesale premium movies
Characteristics of premium movies channels and potential substitutes
Background
4.259 In this section we set out our analysis of product characteristics, preferences of
subscribers and views of stakeholders to consider the scope of markets for premium
movie channels. Sky’s premium movies channels show a combination of movies in
the pay TV window, made for TV movies as well as a small amount of magazine
programming 193 . Sky states that “the majority of films broadcast are either new
releases (mainly from the major Hollywood studios, and also a small number of new
releases from independent distributors) which have not previously been shown on
FTA or subscription television channels and library films which have previously been
broadcast on television channels”. The UK Film Council reported that Sky Movies
channels showed 1,446 different films in 33,978 slots 194 in 2007.
4.260 We estimate that the programming costs relating to Sky’s Movie channels are around
£[ � ] per sub per month (not including shared common costs) 195 . Sky’s wholesale
prices are for £16.59 for the Movies Mix package or £12.48 for either of the single
193 Sky response to Ofcom’s First Pay TV Consultation Annex 2 paragraph 3.108.
194 Response of UK Film Council 18 May 2009 to Ofcom information request of 11 May 2009.
195
Movies programming costs (as reported in annual accounts) per UK retail and wholesale, ROI and
commercial subscribers.