Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.351 On the other hand, we noted that Sky’s decision to invest in offering content over
broadband (and to renegotiate rights contracts where necessary 250 ) could be a
competitive response to the potential for increasing demand for downloading movie
content, which would support the view that downloading content could become a
more important competitive constraint.
4.352 We also considered the impact of illegal file downloading using applications such as
Bit Torrent (file sharing) as a constraint on providers of premium movie channels. We
quoted a study 251 which found that 4% of the population had illegally downloaded
content from the internet in the last month. However, this group was overwhelmingly
biased towards students who are relatively unlikely to subscribe to premium pay TV
channels; 48% of all illegal downloaders were students (either at school or in further
education). From these figures, it appears likely that only a small proportion of actual
or potential premium channel subscribers engage in illegal downloading.
4.353 Given the relatively small numbers of subscribers who are likely to have illegally
downloaded content, we did not think that this constraint was likely to be strong.
Furthermore, as rights holders take action to protect their copyrights 252 , we believed
the constraint was likely to weaken rather than strengthen.
4.354 Downloading content could be a significant constraint in the future as popularity of
downloads increase and capacity to download grows, but analysis of current
consumption suggests that the current indirect constraint is relatively weak. The
scale of the constraint is likely to grow as more homes have broadband internet
connections and the average connection speed increases. It may also grow if it
becomes more straightforward for viewers to watch content on their TV screens
rather than on a computer.
Our current view
4.355 We received no further submissions which cause us to change our view on the likely
constraint from downloading content from the internet, It therefore remains our view
that the current constraint is weak, but that it may grow over time.
Supply side substitution
Our position in our Second Pay TV Consultation
4.356 As with premium sports, we considered the likelihood that a new entrant could enter
the market within a short space of time, without incurring significant sunk costs, if the
wholesale price of Sky Movies increased by a small but significant amount 253 . We
250 See for example Sky response to Ofcom’s December 2007 consultation Annex 2 paragraph 3.135
251 British Video Association Yearbook 2008, page 112. The study found that 8.1 million people or
17% of the population had downloaded content in the last month, of which a quarter (or just over 4%
of the population) had downloaded content illegally.
252 For example the BPI, the British Film Industry, major internet service providers (ISPs) and
government have signed a memorandum of understanding which aims to significantly reduce the
amount of illegal file sharing in the next three years.
http://www.bpi.co.uk/index.asp?Page=news/press/news_content_file_1152.shtml.
253 As noted above, the OFT regards supply side substitution as a special case of entry. Effectively, to
broaden markets another supplier needs to be able to 'switch production' to supply the product
without incurring sunk costs, within a year.
126