Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Responses to our consultation
4.384 Sky considered that markets are broader, encompassing at least FTA channels,
basic tier TV channels, audiovisual content from the internet and DVDs. In particular,
it stated that there are now many more potential substitutes for Sky Movies than
there were ten years ago 263 . Sky reported that the aggregate constraint from DVD
rental and retail, VoD and an increasing number of films on basic and FTA TV was
“having a major impact on TV retailers’ ability to attract subscribers to packages that
included premium movie channels” 264 . It stated that despite flat inflation-adjusted
prices since 2001 the number of subscribers to the channels was declining.
Furthermore, fewer new subscribers tended to take Sky Movies.
4.385 BT, Setanta, Top Up TV, Virgin Media, BBC, and [ � ] all agreed with Ofcom’s
assessment of markets for premium movies channels.
Demand side substitution
Evidence of consumers’ response to price changes
Our position in the First Pay TV Consultation
4.386 In the First Pay TV Consultation we considered consumers’ responses to price
changes since 2000. The number of subscribers has grown during the period –
although subscriber numbers levelled off since 2004, and fell slightly in 2007. We
considered that there did not appear to have been a significant change in the quality
of the Movie package products over the period. In particular, the number of films
broadcast on Sky Movie channels has remained relatively stable since 2001,
although the addition of other services, such as “free” broadband on Sky or greater
on-demand services on Virgin Media and Sky could be viewed as a quality change.
4.387 We found that consumers stated response to hypothetical price rises indicated that
there was a strong price response to relatively small changes in prices. However, we
stated that the magnitude of these results should be treated with caution as prices
may be above competitive levels and there was a risk of stated preference bias.
Responses to our consultation
4.388 Sky believed that our survey evidence on consumers’ stated response to hypothetical
price rises was strong evidence that consumers were price elastic. It stated that,
unless there was strong and compelling evidence that prices were above competitive
levels, we should accept that the results indicate that consumers are very pricesensitive.
4.389 BT stated that the high level of switching indicated by the results could be as a result
of cellophane fallacy pricing, and that therefore by relying on this data we might draw
excessively broad markets.
263 Sky response Annex 2 paragraph 3.73 – 3.81.
264 Sky response paragraph 6.36.
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