Pay TV phase three document - Stakeholders - Ofcom

Section 6
6 Competition issues
Summary
6.1 We have three concerns arising from Sky’s market power.
Pay TV phase three document – non-confidential version
6.2 Firstly, we are concerned that Sky, as a vertically integrated firm, with market power
in a key upstream market, distributes its Core Premium channels in a manner that
favours its own platform and its own retail business. It does so either by denying
these channels to other retailers and / or other platforms, or by making it available on
unfavourable terms. The effect can be to reduce consumer choice, and to inhibit the
growth of innovative pay TV services. The increased importance of ‘triple-play’
bundles creates a further risk that this distortion will extend to the other services
which are included in such bundles, notably broadband and telephony services.
Sky’s approach to the supply of Core Premium channels creates a position under
which there is not, and there is not likely to be, fair and effective competition.
6.3 Secondly, we are concerned that Sky is setting high wholesale prices for its channels
in order to maximise wholesale profits. This can have the effect of keeping retail
prices high.
6.4 We are also concerned about the unavailability of services based on particular types
of subscription VoD rights, as a particular case of Sky favouring its own platform and
retail business.
Introduction
6.5 In our Second Pay TV Consultation, we consulted on our conclusion that Sky had
market power in the wholesale of Core Premium Sports channels and Core Premium
Movie channels. Our view was that Sky was dominant and was likely to be dominant
in those relevant markets for at least the next three to four years. Our analysis
suggested that entry barriers were such that market power was likely to persist for
the foreseeable future. We acknowledged that if the rights ownership situation were
to change significantly in the future, our assessment of market power would be
subject to revision.
6.6 As described in Section 5 above (paragraph 5.110), our current view remains that
Sky has market power in the wholesale supply of Core Premium channels, and that
market power is likely to continue for the foreseeable future. We therefore consider
that Sky holds a degree of market power such that it has the ability to act in a manner
which is inconsistent with the conditions for ensuring fair and effective competition.
6.7 We explained in our Second Pay TV Consultation how we thought Sky could exploit
its market power. We then consulted on the evidence associated with our two
primary concerns:
� A risk that Sky, as a vertically integrated firm, with market power in a key
upstream market, would distribute its premium channels in a manner that favours
its own platform and its own retail business. It might do so either by denying
these channels to other retailers and / or other platforms, or by making it
available on unfavourable terms.
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