Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Pricing
1.47 The analysis which has been carried out by Oxera suggests that Sky is earning and
is likely to continue earning aggregate returns in excess of its cost of capital. This is
likely to be reflected in high retail prices being paid by consumers.
Overview of possible remedies
1.48 As set out above, our concerns relate to Sky’s approach to the wholesale supply of
premium channels, restricted exploitation of content rights and high wholesale prices.
1.49 We might eliminate Sky’s ability to restrict the availability of premium channels, by
requiring it to provide wholesale access to particular content on regulated terms. We
noted in our Second Pay TV Consultation that such a wholesale must-offer obligation
would enable other operators to develop pay TV offers which include premium
content, facilitating choice and innovation, and would do so without having a
disruptive effect on Sky’s existing business or existing consumers. It is therefore a
proportionate form of intervention, and we consulted on it as our preferred way
forward. We have carefully considered the arguments put forward in consultation
responses, and this remains our preferred approach; the specifics of such an
obligation are set out for consultation in paragraph 1.51 onwards below.
1.50 We also consider an intervention into the way rights are bought and sold, in order to
eliminate or reduce Sky’s market power. We noted however in our Second Pay TV
Consultation that, in order for such an intervention to reduce significantly or eliminate
the existing market power, it would be necessary to place severe restrictions on the
ability of Sky and other firms to aggregate content. Given the acknowledged benefits
to consumers of content aggregation, we were not convinced that this is the best way
forward. We remain of this general view. Some more targeted intervention may
however be necessary in relation to subscription video on demand movie rights, and
in relation to the next FAPL auction, and we set out how we propose to proceed in
paragraph 1.77 onwards below.
A wholesale must-offer obligation
1.51 We have further considered a number of specific questions relating to the potential
scope and structure of a wholesale must-offer remedy.
1.52 To which wholesalers should it apply? We propose to apply the remedy only to
those wholesalers that have market power, and appear to be acting on an incentive
to restrict supply of the channels within the relevant markets. At present only Sky
meets these criteria.
1.53 Which channels should it cover? A wholesale must-offer remedy should cover all
the channels which make a material contribution to the market power which we have
identified and which is being exploited. This implies that the scope of the obligation
should extend to Sky Sports 1 and 2, and all the Sky Movies channels apart from
Classics.
1.54 Should a must-offer apply to retailers on all platforms? We propose not to
extend the remedy to cover retail on Sky’s platforms. The primary purpose of the
remedy is to address the restricted availability of Sky’s Core Premium channels on
non-Sky platforms, and the reduced innovation that is likely to arise from weakened
inter-platform competition. Both of these concerns can be addressed by requiring Sky
to supply its Core Premium channels only to retailers on non-Sky platforms.
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