Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Respondents’ views
4.364 As with our assessment of direct wholesale demand side substitution for premium
sports channels Sky argued that we failed to have regard to the argument that a
retailer reallocating sales effort away from particular channels, rather than dropping
those channels, could act as a constraint on the wholesale price 256 . In particular it
cited the example of Virgin Media reallocating marketing effort to its PPV VoD
service.
Our current view
4.365 In section 4.322 to 4.330 we consider the indirect constraint imposed by PPV movies
and conclude that it is likely to be seen as an out of market constraint. In the section
below we therefore assess market power by including it within the relevant market.
For the reasons set out in paragraphs 4.316 to 4.318 we consider older library films
would not be considered a substitute for consumers. We do not therefore think that
direct substitution to these services would constrain a monopolist wholesaler. This
means that demand side substitution is unlikely to broaden the market. In section 5
below we consider whether retailers are able to exercise buyer power for example by
reallocating marketing effort to products outside the relevant market.
Changes in wholesale prices
Our position in our Second Pay TV Consultation
4.366 In our Second Pay TV Consultation we examined Sky’s claim that flat or falling
wholesale prices for its premium channels are strongly suggestive that it does not
have market power to set prices above competitive levels, and by implication that
markets should be defined broadly 257 . Sky argued that the per subscriber wholesale
carriage fees for its packages had been flat in real terms since 2004 and that the
price of Movies Mix has declined.
4.367 Furthermore it argued that “given the very significant increases in rights costs, …, the
obvious implication is that margins between costs and prices have narrowed in
relation to Sky’s channels at the wholesale level over the period”. 258
4.368 We analysed changes in wholesale prices of the most popular wholesale Movie
channel mixes over time 259,260 . The wholesale price of the Sky Sports and Movies Mix
has [ � ] since 2005 but in September 2008 was [ � ] than it was in 2002. The
price of Sky Movies Mix has [ � ] than it was in 2002.
256 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 3.34 - 3.37.
257 Annex 2 to Sky’s non-confidential response to our December 2007 consultation, paragraphs 3.131-
2.
258 Ibid.
259
Sky Movies Mix and Sky Sports and Movies Mix are taken by [ � ]% of wholesale subscribers to
Sky Movies channels.
260 Our full analysis is contained in Annex 6, Appendix 6.
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