Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.329 These results can be seen as indicative that FilmFlex may have had some effect in
reducing demand for Sky’s premium movies channels on cable. However, they
should be interpreted with caution, because:
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� Other variables – such as marketing strategies and other industry and economic
trends – may have had an effect on subscriptions generally, and on the
differences between cable and DSat. In this regard it is notable that subscription
trends on DSat and cable did not mirror one another prior to the introduction of
FilmFlex.
� Any impact of FilmFlex may be exaggerated by a cellophane effect – i.e. some
cable customers may have switched to FilmFlex in response to high prices for
Sky Movies.
4.330 In summary, there is some evidence that premium movies on PPV may be
substitutable for linear channels carrying premium movies, and we might expect
SVoD, as a subscription service, to be a closer substitute to Sky Movies than PPV.
However, movies from the pay TV subscription window are not currently available on
SVoD. Our view is that PPV services can best be seen as an out-of-market constraint
on premium movie channels at present. As discussed in the section on market
power, inclusion of PPV services would not have a great impact on market share
calculations.
4.331 DVD sales: UK revenues from DVD sales in 2007 were around £2.7 billion. 240 DVDs
could be considered a substitute for Sky Movies packages by some consumers.
However the products’ characteristics are very different. Consumers subscribe to a
movie channel in order to gain access to a wider choice of movies to be viewed on a
one-off basis. DVD purchases are made with a specific movie in mind, whereas the
purchase of a movie channel subscription allows a spontaneous choice from a wide
range of different movies. In addition, subscribers to Sky Movies are likely to pay
much less per movie viewed (provided they are watching more than one movie per
month) than if they were to buy the same movies on DVD.
4.332 In response to our first consultation Sky considered the aggregate constraint from
substitutes including DVD retail and rental to be strong, and noted that the reduction
in price of retail DVDs reduces the attractiveness of premium movie channels. Sky
also provided details of consumer research which suggested that retail DVDs are
attractive to consumers as they offer “the benefits of permanent ownership of an
extremely popular delivery mechanism” 241 .
4.333 Internal documents 242 supplied to us by Sky also noted that by the time a film
becomes available in the pay TV window, the retail price of the DVD format can have
fallen from the level when it was initially released around twelve months previously.
This tends to erode the value of Sky Movies. For example, the document quotes a
popular film 243 whose DVD’s recommended retail price was £24.99, but was being
240 Source: UK Film Council Year Book 2008, page 83.
241 Sky’s third response to Ofcom’s questions of 29 May 2008, [ � ].
242 Sky’s third response to Ofcom’s questions of 29 May 2008, [ � ].
243 ‘Charlie and the Chocolate Factory’.