Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
noted that a new entrant would not need precisely to replicate Sky Movies channels.
As a minimum we therefore assessed whether a rival could enter with a differentiated
product, for example showing films in the pay TV window from just one Hollywood
studio.
4.357 Our analysis suggests that an entrant would need to invest a significant amount to
create a channel containing movies from the pay TV window of just one of the six
Major Hollywood Studios. For example, [ � ] 254 [ � ]. Clearly the investment
required to launch a more compelling offering (comprising films from more than one
studio) would be even greater, particularly as there is likely to be a time gap between
one studio’s rights and another’s becoming available.
4.358 We also set out in our discussion of market power the barriers to entry that firms
faced in gaining access to the relevant upstream inputs. We concluded that the multimillion
pound investment needed to acquire rights to show films from the pay TV
window even from only one studio meant that we should not widen the market to
include potential entry from other premium movie channel suppliers.
Our current view
4.359 We received no further responses on our assessment of supply side substitution. It
therefore remains our view that supply side substitution is unlikely to broaden our
market definition.
Wholesale demand side substitution
Our position in our Second Pay TV Consultation
4.360 Given that wholesale demand is derived from consumer demand, products that
consumers would find relatively weak substitutes (such as film channels that only
contain older library films beyond the first TV window) are also likely to be relatively
weak substitutes at the wholesale level.
4.361 Our analysis of the indirect retail constraint indicates that there are no close
substitutes for channels including films in the first pay TV window from the Major
Hollywood Studios that a retailer would switch to. It does not appear therefore that
there are likely to be any wholesale products to which a retailer could substitute in
the event of a small but significant increase in the wholesale price of Sky’s movie
channels.
4.362 In particular, the constraint from providers of older films seems relatively weak as few
subscribers would be willing to switch to a service with fewer films or only older films.
For example, Picturebox offers a film subscription service for a narrower range of
older films on the Tiscali, DTT and BT Vision platforms, but it only has about [ � ]
subscribers on Top Up TV and Tiscali 255 , less than [ � ]% of Sky Movies’ subscriber
base.
4.363 We therefore concluded that demand side substitution is unlikely to be sufficiently
significant to broaden our market definition.
254 Source [ � ].
255 It is now also retailed on BT Vision. Source: [ � ].
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