Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
extract the maximum willingness to pay from all consumers, for example by
encouraging them to trade up to the largest bundles.
1.42 In contrast, a more diverse downstream market would create a wider scope for
disruptive innovation in pricing structures and retail packaging. This was illustrated,
for example, by the entry of Setanta into the market, which resulted in the availability
of a wider range of entry-level offerings, from a variety of different retailers 5 . These
entry-level offerings include, for example, stand-alone premium packages, which
eliminate the enforced buy-through which has [ � ] been a characteristic of all Sky’s
retail offerings 6 .
Platform innovation
1.43 We noted above that those customers who most value premium content are more
likely to have chosen Sky’s own satellite platform. This means that some consumers
are likely to be on a platform which would not have been their first choice had
premium content been equally available on all platforms.
1.44 This creates a risk that existing platforms may not create new capabilities, and that
new platforms may not emerge at all, because of a dependence on access to
premium content. This dependence might either be direct (e.g. the dependence of
IPTV services on certain VoD rights) or indirect (e.g. because new platforms cannot
build sufficient scale without access to premium content). Either way, there is a risk
that platform innovation will be reduced.
1.45 We recognise of course that consumers on Sky’s platform have been the
beneficiaries of significant innovation by Sky. However, Sky clearly has an incentive
to innovate in ways that play to the strengths of its own satellite platform, rather than
in ways that play to the strengths of other non-Sky platforms. This is illustrated by
Sky’s investment in its Sky+ DVR service (which allows subscribers to a broadcast
service to build up a local library of recent content) and its HD services (which exploit
the high broadcast bandwidths available on satellite broadcast platforms).
1.46 It is important that future innovation is not restricted to those areas which favour
Sky’s existing platform. We are at a point in the development of the pay TV sector
when new platforms using new distribution technologies, such as IPTV and mobile
TV, could offer significant benefits to consumers. The types of innovation which these
new platforms might deliver to consumers are of course difficult to predict
qualitatively, and even more difficult to quantify. Based on the characteristics of these
technologies, our expectation however is that they will offer consumers greater
convenience and enhanced service flexibility, by allowing them to access content on
demand, or when on the move. We see a real risk that the development of these new
platforms could be held back by limited access to Core Premium channels, thereby
denying consumers the associated benefits.
5 Setanta went into administration on 23 June 2009, shortly after the live FAPL rights which had been
held by Setanta were awarded to ESPN. ESPN has announced that it has agreed a wholesale deal
with Sky for distribution on Sky’s DSat platform. It has also announced an intention to make its
channel including FAPL coverage ‘widely available across multiple pay-TV platforms’, although at the
time of writing no other details of availability across platforms other than Sky’s have been announced.
6 [ � ].
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