Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� Sky Core Premium DSat customers. Sky has [ � ] million such customers. We
are concerned that some of these Sky customers may have chosen DSat
because of the restricted availability of Core Premium channels, rather than out
of a preference for the DSat platform. Services such as HD and interactivity
which Sky only provides with its Core Premium channels on DSat, may also have
distorted platform choice. The extent to which Sky Core Premium DSat
customers have a preference for other platforms is uncertain. However, we
estimate that, over the next five years, approximately one million DSat
subscribers would subscribe to Core Premium channels on other platforms (for
example on DTT or IPTV) if they were made available on those platforms, though
naturally this would depend on the package and price on offer.
� Basic cable customers. Virgin Media has [ � ] million basic TV customers, and
[ � ] million Sky Core Premium customers. The relatively low level of penetration
of Sky’s Core Premium channels on cable reflects Sky's wholesale price, which
disincentivises Virgin Media from marketing these channels. Only [ � ]% of
cable customers currently purchase premium content, as compared to [ � ]% a
few years ago, and [ � ]% on Sky’s satellite platform. Evidence, including the
recent decline in penetration of Core Premium channels on cable indicates that a
substantial proportion of Virgin Media customers who do not currently subscribe
to Sky’s Core Premium channels may have an interest in doing so, although
evidently not at current prices.
� Other households. Around 14 million households in the UK do not subscribe to
either DSat or cable. Of these, close to 10 million are on DTT platforms, and 3
million have analogue terrestrial TV. There is clear evidence of demand for
access to premium content on DTT-based platforms, from a variety of forecasts.
Sky’s Picnic proposals represent one such forecast, though one that is likely to
be conservative, since Sky will have the incentive to design its Picnic product so
as not to draw subscribers away from its satellite platform. Our view is that unmet
demand on DTT-based platforms may lie in the region of two million subscribers
over five years (including the one million customers who we would expect to
switch from DSat, households who currently subscribe to other platforms, and
households who do not currently subscribe to pay TV).
� The evidence in relation to unmet demand on IPTV is more complex, since the
types of video on demand services which are best suited to IPTV platforms are
still in their infancy. However, the success of the BBC’s iPlayer service, and the
level of interest in Project Canvas 4 , suggests that the demand for pay IPTV
services based on premium content may be significant. With its reliance on
existing infrastructure, a flexible delivery mechanism and the option to offer
converged services, and with the increasing prevalence of broadband, IPTV is
likely to become an increasingly important distribution technology. It is likely for
example that a service which offered access on demand to a library of first-run
Hollywood movies, in return for a subscription payment, and accessible via a TV
as well as a PC, would be popular with a broad range of consumers.
1.41 Consumer choice may also be restricted due to the range of retail bundles that are
made available on each platform, and the associated pricing of these bundles. We
would expect Sky as a retailer with market power to structure its prices so as to
4 The proposed partnership between the BBC, ITV and BT to develop a next-generation set-top box
combining Freeview with web-based delivery of on-demand content.