Pay TV phase three document - Stakeholders - Ofcom

Consumers’ observed responses to price changes
Our position in the Second Pay TV Consultation
Pay TV phase three document – non-confidential version
4.303 As with sports, we examined the changes in the numbers of subscribers to Sky’s
movie channels over time to assess subscribers’ responses to price changes. Falling
subscriber numbers despite constant prices might indicate that markets are broad,
because this might indicate that consumers were switching to alternative products.
However, we need to consider the impact of subscribers’ responses to price changes
with caution, firstly because changes in quality may affect demand and secondly
because prices may be above ‘competitive’ levels.
4.304 In our Second Pay TV Consultation we assessed numbers of subscribers to Sky
Movie channels (see Figure 31 below). Although there is some seasonality in
numbers of subscribers to Sky Movies channels, (there is a peak in subscribers in
December each year) we identified the following trends 225 :
� The number of subscribers to Sky Movies packages (including Sky Sports and
Movies Mix) [ � ] in the period between 2000 and 2004.
� Numbers [ � ] in the period 2004 to 2006, and [ � ] since 2007.
� In 2008 the six month rolling monthly average number of subscribers was [ � ]%
[ � ] than the peak ([ � ]).
� Subscribers have become [ � ].
Figure 31 Subscribers to packages containing Sky Movies channels on DSat
[ � ]
Source: Sky response to information request of 29 th May 2008.
Note: Big basic includes either 5 or 6 mix basic tier packages, small basic includes 1, 2, 3 or 4 mix
basic tier packages.
4.305 We considered changes in real retail prices for movie packages 226 . We cited
evidence from Sky that the price of the Movies Mix package had remained broadly
constant in real terms since 2002 and that the price of the Sports and Movies mix
was only 4% higher in real terms than in 2004. We noted that prices of the latter had
increased by £2 (around 5%) in nominal terms in September 2008. We noted that
Sky’s reduction in the use of discounts in 2006/07 meant that while headline prices
had been broadly constant, average prices after discounts were likely to have
increased.
4.306 We also analysed movie programming costs. Given relatively steady retail prices,
reductions in per subscriber programming costs could point to a widening margin
between retail prices and per subscriber programming costs of Sky’s movie
channels. This would suggest that movies prices might not be constrained to the
competitive level. Our analysis showed a sharp reduction in per subscriber
programming costs from £[ � ] in 2000/8 to less than £[ � ] in 2007/8. This is
shown in Figure 32 below.
225 See Ofcom’s Second Pay TV consultation Appendix 3 of Annex 6 paragraph3.21.
226 See Ofcom’s Second Pay TV Consultation Appendix 3 to Annex 6 paragraph3.18 for details.
117