Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
� First, we briefly consider whether Sky possesses a dominant position applying
the ‘standard’ approach to assessing retail market power (namely the ability to
charge retail prices appreciably above the competitive level).
� Second, we consider whether Sky has the ability to charge a retail margin that is
appreciably above the competitive level.
� Third, we set out some factors that are relevant to the extent of retail market
competition absent the exercise of wholesale market power.
The ability to sustain retail prices appreciably above the competitive level
5.158 In the First Pay TV Consultation we considered whether Sky had the ability to sustain
retail prices appreciably above the competitive level and concluded that it was likely
that Sky was dominant in the retail supply of “packages containing premium movie
channels” (Annex 13, paragraph 5.63).
Current retail market shares
5.159 We have calculated market shares as a proportion of the retail revenues earned by
Sky and Virgin Media from the supply of retail television bundles containing Core
Premium Movie channels. These are summarised in Figure 46 below. These market
shares were calculated based on the revenue earned from retail television bundles
containing Core Premium Movie channels. We have included the entire revenue
earned from a retail television bundle, including any mandatory non-television
components.
Figure 46 Market shares in the supply of retail television bundles containing
Core Premium Sports channels (calculated on a revenue basis)
Source: Ofcom calculations
Sky Virgin Media
2H 2007 [90-100]% [0-10]%
1H 2008 [90-100]% [0-10]%
1H 2008 [90-100]% [0-10]%
5.160 Sky accounts for a very high proportion of the revenue earned from the supply of
retail television bundles containing Core Premium Movie channels.
Retail market shares including ‘out of market’ constraints’
5.161 As explained in paragraph 4.377, certain other ways of viewing movies may constrain
Sky to a degree. In particular PPV movies, DVD rental subscription packages and
library films may be moderate substitutes for retail bundles containing Sky Movies. In
order to understand the extent of the constraint imposed by these ‘out of market’
products, we have calculated market shares as if this moderately substitutable
content were within the relevant market. These market shares provide an upper
estimate for the strength of the competitive constraint that may be exercised by
products that lie somewhat outside of the relevant market but that may nonetheless
act as (imperfect) substitutes.
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