Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.299 As with our analysis of sports, we recognised the difficulties in interpreting data on
responses to price rises given the concerns about stated preference bias and the fact
that prices may be above competitive levels. The evidence from Sky’s conjoint study
suggested that a wholesale SSNIP on both Sky Movies and the Sky Sports and
Movies mix might be profitable. Evidence from our own survey also suggested a
SSNIP on the mix might be profitable, but the sample size on Sky Movies standalone
was too small to provide any meaningful results 224 . However, we noted that our
results for Sky Movies subscribers were less conclusive than for Sky Sports as Sky’s
conjoint analysis only tested a price increase of [ � ]. Consumers might respond
disproportionately less to such a small increase than they would to the 5-10%
increase suggested in the standard SSNIP framework. Put differently, it is not clear
that such a price rise would be considered sufficiently “significant” to give a reliable
indication of likely switching levels.
Respondents’ views
4.300 We did not receive any specific responses to our wholesale movies SSNIP analysis,
but note that some of the FAPL’s responses on our analysis for sports apply equally
here. Specifically, the FAPL highlighted the fact that we had not identified the
confidence intervals around our elasticity estimates.
Our current view
4.301 Figure 30 below presents our assessment of the minimum elasticity necessary to
constrain a monopolist and the point estimate of elasticity. As with our analysis of
elasticities of Sky Sport subscribers set out in Figure 17 and paragraph 4.142 we
interpret evidence of consumer elasticity with caution. For the reasons set out in
paragraph 4.144 we do not rely on our estimates of elasticity from our willingness to
pay survey.
Figure 30 Estimates of Sky Movies subscribers’ elasticities and wholesale
critical loss
Source: Critical loss: see Appendix 10 of annex 6 to Ofcom’s Second Pay TV Consultation; Sky
conjoint: [ � ] supplied to Ofcom by Sky in July 2007
4.302 Sky’s conjoint survey suggests that insufficient subscribers would switch to an
alternative product to constrain a monopolist wholesaler. We note that the likely
presence of the cellophane fallacy is likely to exaggerate the number of subscribers
who would switch - i.e. if prices were at competitive levels even fewer subscribers
would switch.
224 The survey was designed to elicit views of all consumers, not Sky subscribers specifically.
116
1 Minimum elasticity to constrain a wholesale
monopolist (critical loss)
Sky Sports and
Movies Mix
Sky Movies
Mix
[ � ] [ � ]
2 Sky conjoint estimate [ � ] [ � ]