Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.369 We said that falling wholesale prices for Sky Movies Mix channels could be evidence
of an increasing competitive constraint from other substitutes, although it is not clear
that this would be sufficient to reduce prices to competitive levels.
4.370 We also examined the wholesale mark-up over programming costs. Our analysis in
Figure 36 suggested a widening wholesale margin over costs.
Figure 36 Variable programming costs as a proportion of the wholesale price
[ � ]
Source: Sky annual accounts 2002 to 2007, Sky response to information request of 29 th May 2008
Note: Note: the analysis covers only UK and ROI residential subscribers, not commercial subscribers.
We assume that all Sky Sports channel programming costs are fixed and all Sky Movies channel
costs are variable with wholesale subscribers
4.371 We therefore considered that the fall in wholesale prices of packages containing
Movies Mix and Sports and Movies Mix does not necessarily imply an effective
competitive wholesale constraint. In fact, the [ � ] and prices could indicate
increasing market power.
Respondents’ views
4.372 Sky criticised our assessment of changes in wholesale prices 261 . It said that our
conclusions were biased by the choice of start and end points of analysis It also said
that our choice of inflation deflator was ‘unusual’.
Our current view
4.373 Figure 37 shows our analysis of wholesale prices under a range of different deflator
assumptions taking comparable start and end dates as Sky suggested.
Figure 37 Wholesale price changes Q2 2002 – Q2 2008
[ � ]
Source: Sky response to Ofcom information request of 29 May 2008.
4.374 The alternative inflation deflators suggested by Sky do not materially affect our
conclusions. Indeed, the GDP deflator generates results that lie near the middle of
the plausible range. Similarly, we think that changing the start and end dates of our
analysis only has a minimal effect on our results.
4.375 We therefore remain of the view that there has been an increase in the margin of
wholesale prices over per subscriber costs. This appears to us consistent with the
view that wholesale prices are not constrained to competitive levels.
Conclusion on relevant market for wholesale premium movie channels
4.376 We remain of the view that there is a relevant economic market for wholesale
premium movies channels. As with sports, we have reviewed a wide range of
evidence:
261 Sky response to September 2008 consultation Annex 6 4.3.
129