Pay TV phase three document - Stakeholders - Ofcom

Barriers to entry and expansion
Pay TV phase three document – non-confidential version
5.166 In principle, a firm could enter the market and begin supplying retail television
bundles containing Core Premium Movie channels by acquiring such channels from
Sky and/or Disney. However the analysis of barriers to entry and expansion in the
retail supply of bundles including Core Premium Sports channels in paragraphs
5.128 to 5.132 above also applies here.
5.167 In particular, currently Sky only supplies its Core Premium Movie channels to itself
and retailers using cable as a distribution technology. As discussed in section 6,
retailers using IPTV and DTT as a distribution technology have been unable to reach
an agreement with Sky to purchase Sky Movies. We thus consider that it is very
unlikely that retailers using a distribution technology other than cable will be able to
acquire Sky’s Core Premium Movie channels. This lack of access to these channels
acts both as a significant entry barrier and as a barrier to expansion for retailers
(such as BT Vision and Top Up TV) that currently do not retail Sky’s Core Premium
Movie channels.
5.168 Moreover, as explained above, we do not consider that it is plausible that a new
entrant would use cable as a distribution technology. Further, whilst in principle a
new entrant might seek to acquire Disney Cinemagic, we consider that such entry
(even if it occurred) would be unlikely to constrain Sky’s retail prices for the supply of
bundles containing Core Premium Movie channels. The weak constraint that this
channel imposes of Sky Movies, and thus on retailers of Sky Movies, is
demonstrated by the relative wholesale market shares of Sky and Disney (see
paragraph 5.84 above).
Countervailing buyer power
5.169 Retail television bundles containing Core Premium Movie channels are supplied to
individual residential households. Individual households do not possess CBP to offset
any seller power that exists.
Conclusion on the ability to sustain retail prices appreciably above the competitive
level
5.170 Sky enjoys a high retail market share in the retail supply of bundles containing Core
Premium Movie channels. Indeed Sky’s market share is above the 50% threshold at
which dominance can be presumed, in the absence of evidence to the contrary. The
exception is one of the measures that includes moderate ‘out of market’ constraints,
where Sky’s market share is [ � ]% [40-50%]. Moreover, we consider that there are
significant barriers to entry and expansion, including non-cable retailers’ lack of
access to Sky’s Core Premium Movie channels 335 . There is no CBP. Accordingly,
applying the ‘standard’ market definition test, the conclusion is that Sky enjoys a
dominant position that gives it the ability to sustain retail prices appreciably above the
competitive level.
5.171 The caveats set out in paragraph 5.135 above, as part of the assessment of retail
television bundles containing Core Premium Sports channels, also apply here.
335 See also the discussion of switching costs in paragraphs 5.142 to 5.146 above.
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