Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Figure 32 Per subscriber programming costs for Sky Movies
[ � ]
Source: Sky annual reports, real prices at 2008 levels, Sky response to Ofcom information request of
29 May 2008.
Note: Programming cost each year to end June, divided by Sky and cable subscribers
4.307 We also examined margins on the wholesale supply of premium sports and movie
channels. This analysis suggests that, depending on assumptions we make about
allocating common costs, gross margins could be in the region of [ � ]% for Sky
Movies channels. This figure appeared to us potentially high for an asset-light retail
channel business and could indicate that falling subscriber numbers could be
consistent with high switching as a result of pricing above the competitive level.
4.308 Our conclusion was that the decline in subscriber numbers did not point clearly to an
effective competitive constraint from other products.
Respondents’ views
4.309 Sky provided data showing that the number of Sky Movies subscribers has declined
on DSat since [ � ] from a peak of over [ � ] million to just over [ � ] million, as we
show in Figure 31 above. In addition, the number of Sky subscribers on cable has
also declined. Sky stated that the [ � ] proportion of DSat subscribers that take Sky
Movies is evidence that [ � ].
4.310 Sky argued these changes in subscriptions reflected growing constraints on its movie
business. It argued that the Seabright econometric study discussed above
demonstrated a constraint from DTT on demand for premium movie channels 227 . It
also reported a survey of new subscribers to online DVD services which indicated
that [ � ]% of new DVD rental subscribers had [ � ] 228 .
4.311 With respect to price trends, Sky’s comments on our choice of price deflator, the use
of discounts and the start and end dates of our analysis mentioned above in
paragraph 4.205 also apply to prices of Sky Movies.
4.312 In the context of DVDs, Sky argued that we failed to recognise that product
characteristics do not need to be identical for them to be considered to be supplied in
the same relevant market 229 . Sky also argued that our finding that downloading of
programming was at present relatively small failed to consider that such services
may become an increasingly important constraint on movie channels 230 . Sky argued
that we failed to recognise the potential for other types of services such as PPV to be
effective substitutes 231 .
227 The Seabright study, discussed in paragraphs 4.167 to 4.184.
228 Sky consultation response [ � ].
229 Sky Response of 1 June 2009 to Ofcom’s Second Pay TV Consultation “Additional comments on
Ofcom’s analysis of market definition and market power in the pay TV review” Annex 1 paragraph
3.22.
230 Ibid paragraphs 3.32 – 3.38.
231 Ibid paragraphs 4.44 – 4.46.
118