Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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and potential) are likely to exert sufficient CBP to offset Sky’s seller power over the
next three to four years.
5.109 Our overall position on CBP with respect to movies is the same as that for the
wholesale supply of Core Premium Sports channels. Virgin Media is the most likely
retailer to exercise CBP over Sky. While Virgin Media is a significant outlet for Sky,
the commercial balance of the relationship is strongly in favour of Sky (this is for the
reasons summarised in relation to Core Premium Sports channels above) 317 . We
therefore believe that no party exercises sufficient buyer power to counter Sky’s
seller power in the wholesale supply of Core Premium Movie channels.
Conclusion on the wholesale supply of Core Premium Movie channels
5.110 In the light of Sky’s very high and sustained market shares, the existence of barriers
to entry and limited prospects for countervailing buyer power, we consider that Sky
holds market power in the wholesale supply Core Premium Movie channels. Even
under the higher threshold established under the Chapter II prohibition of CA98 we
consider that Sky holds a dominant position in that market, and that it is likely to be
dominant for the next three to four years.
Introduction to the assessment of retail market power
5.111 Sky considered that the scope and the extent of competition within the relevant
downstream market(s) were important. Similarly, the Four Parties considered that the
Second Pay TV Consultation made a material omission in failing to assess market
definition and market power in relation to the supply of premium channels at the retail
level. These representations are summarised and addressed in section 4.
5.112 We have considered the extent to which any party holds market power in the relevant
retail markets defined in section 4 above, namely:
� Retail television bundles containing Core Premium Sports channels.
� Retail television bundles containing Core Premium Movie channels.
5.113 Retail and wholesale price levels and the extent of retail and wholesale competition
are interrelated. Given that Sky is vertically integrated and (as discussed above)
enjoys a dominant position in the wholesale supply of Core Premium Channels, it is
important to be clear about what the concept of ‘retail market power’ means in this
context. Our assessment covers three separate issues, each of which is explained in
further detail below:
� The ability to sustain retail prices appreciably above the competitive level.
� The ability to sustain retail margins appreciably above the competitive level.
� The position at the retail level if wholesale market power were not exercised.
317 As well as the material on CBP presented in relation to Core Premium Sports channels, we have
also taken some additional documentary evidence into account in reaching our conclusion on CBP in
relation to Core Premium Movie channels. That material is set out in Annex 8.