Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
these rights (Disney Cinemagic) is vertically integrated with the rights holder. We
regard this as clear evidence that, contrary to Sky’s claims that these rights are
“contestable”, in practice there are significant barriers to other parties winning
sufficient rights away from Sky.
5.103 Further evidence that new entrants are not in a position to outbid Sky is provided in
internal documents. [ � ] 316 .
5.104 We have received a number of explanations for Sky’s persistent success in bidding
for the Movie Rights. Given the clear historic position, we do not consider that it is
necessary for us to form a concluded view on which factors explain Sky’s strong
bidding position for the Movie Rights, particularly as consultation respondents have
not argued to us that there is likely to be a material strengthening in the position of
rival bidders in the future. Nonetheless in Annex 8 we set out evidence in support of
the following factors:
� The impact of the staggered expiry of Sky’s contracts with the Major Film
Production Groups;
� The delay that a new entrant would face in building a subscriber base;
� The efficiency advantages (such as avoiding double marginalisation and greater
certainty about wholesale income) that may flow from bidders being vertically
integrated with retailers with a significant subscriber base; and
� Bidder specific factors.
5.105 We do not have a settled view on the relative importance of each of these different
factors, although as explained in paragraph 5.60 above and Annex 8 the [ � ]
suggest that the third of these factors may be relatively less important than the
others. However we consider that in aggregate these factors contribute to Sky being
likely to win the majority of the Movie Rights. These factors also suggest that there
are significant barriers to a Major Film Production Group exploiting its rights directly,
for example by developing its own movie channel.
Conclusion on barriers to entry and expansion
5.106 In conclusion, our current view is that it is likely that Sky will continue to win the
majority of the Movie Rights as and when they become available. As a result, Sky’s
position in the wholesale supply of Core Premium Movie channels is unlikely to be
undermined by potential entrants.
5.107 As noted in the Second Pay TV Consultation, if the ownership of the Movie Rights
were to change significantly in the future we would revisit our assessment of market
power.
Countervailing buyer power
5.108 The only major independent purchaser of the Sky Movies channels is Virgin Media,
although a number of other parties have sought to acquire these channels. As with
Core Premium Sports channels, we have considered whether these buyers (actual
316 [ � ].
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