Pay TV phase three document - Stakeholders - Ofcom

Our current view
Pay TV phase three document – non-confidential version
4.390 As with our analysis of consumer response to price rises in our consideration of
wholesale markets above we have estimated the minimum consumer elasticity that
would be required to constrain a monopolist retailer from increasing prices above
current levels.
Figure 38 Estimates of Sky Movies subscribers’ elasticities and retail critical
loss
1 Minimum elasticity to constrain a retail
monopolist (critical loss)
Source: Critical loss: see Appendix 2 of Annex 6; Sky conjoint: [ � ] supplied to Ofcom by Sky in July
2007
4.391 The evidence from Sky’s conjoint survey appears to suggest that insufficient
subscribers would switch to an alternative product to constrain a monopolist retailer.
However the conclusion is less firm than with premium sports as the experiment only
tested the impact of a [ � ]. For the reasons set out in paragraph 4.144 we do not
rely on our estimates of elasticity from our willingness to pay survey.
4.392 At the same time, actual numbers of subscribers to Sky Movies have declined
somewhat despite falling real prices. However, we remain of the view that the
cellophane fallacy effect is present: if prices are above competitive levels we would
expect switching to be higher than if they were at competitive levels. Hence our
evidence on consumers’ observed response to price changes could be consistent
with an effective competitive constraint or switching in response to cellophane fallacy
prices.
Evidence of consumer preferences and product characteristics
Our position in the First Pay TV Consultation
Sky Sports
and Movies
Mix
Sky Movies
Mix
[ � ] [ � ]
2 Sky conjoint estimate [ � ] [ � ]
4.393 For our First Pay TV Consultation, we commissioned a consumer research survey
which asked Sky Movies consumers about the characteristics of the product that they
particularly value 265 . The key conclusions of that research were:
� Access to a wide range of films was the most important characteristic (cited by
83% of subscribers as ‘must have’ or ‘nice to have’).
� This was closely followed by having films available at all times, and access to
new releases (cited by 70% and 72% of subscribers respectively).
265 Ofcom pay TV research, phase 2, see Annex 14 to the First Pay TV Consultation.
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