Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
The ability to sustain retail margins appreciably above the competitive level
5.172 In paragraphs 5.136 to 5.138 above we considered whether Sky enjoys the ability to
sustain retail margins on bundles including Core Premium Sports channels that are
appreciably above the competitive level. That analysis applies equally to bundles
including Core Premium Movie channels.
5.173 Accordingly we do not consider that there is sufficient evidence to conclude that Sky
enjoys the ability to sustain retail margins on bundles including Core Premium Movie
channels that are appreciably above the competitive level.
Extent of retail competition absent the exercise of wholesale market power
5.174 In paragraphs 5.142 to 5.155 above, as part of the assessment of retail television
bundles containing Core Premium Sports channels, we considered switching costs
between retailers, the extent of product differentiation between retailers and barriers
to entry. That analysis applies equally to retail television bundles containing Core
Premium Movie channels subject to one additional observation.
5.175 The analysis of Core Premium Movie channels does however differ in one important
respect to the equivalent analysis of Core Premium Sports, which is the amount of
broadcast transmission capacity required to carry the full set of channels. Sky
currently supplies ten distinct Core Premium Movie channels plus a time-shifted
version of one of those channels (Premiere +1). Even absent the exercise of any
wholesale market power in the supply of those channels, there is very likely to be
insufficient capacity for a DTT retailer to carry all ten channels. Indeed Sky only
proposed including a single Core Premium Movie channel (namely Screen 1) as part
of its Picnic DTT service. Thus, absent the exercise of any wholesale market power,
there is still likely to be a significant degree of product differentiation between DTT
retailers of bundles containing Core Premium Movie channels and retailers of
distributing such bundles using DSat and cable. Because retailers using DTT would
only be able to offer an inferior range of Core Premium Movie channels they will exert
a weaker competitive constraint on DSat and cable retailers (who are likely to be able
to offer the full range of these channels).
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