Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� A risk that Sky would set high wholesale prices for its channels in order to
maximise wholesale profits.
6.8 We deal with each of these points in turn below. We consider whether Sky has the
ability and the incentive to act in a manner that is not consistent with fair and effective
competition in the wholesale of Core Premium channels and the retail supply of
bundles which include Core Premium channels.
6.9 We also consider as a third possible concern 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.
Distribution of Core Premium channels
Introduction
Our views in September
6.10 In relation to the first of our concerns – the restricted distribution of Core Premium
channels – we believed that the decisions Sky faced with respect to wholesaling
were: whether to engage in wholesale supply of its Core Premium channels to
companies who were seeking such supply; if so, what terms to offer; whether to
continue to wholesale its Core Premium channels to companies (particularly Virgin
Media) with which it had a wholesale arrangement, and, again, the terms (price and
non-price) of supply to those companies.
6.11 Although Sky’s Core Premium channels are provided on a wholesale basis to Virgin
Media, we noted that the combination of wholesale charges and incremental retail
price made it incrementally unprofitable for Virgin Media to encourage existing basic
subscribers to upgrade to Core Premium channels. Virgin Media therefore had no
incentive to market Sky’s Core Premium Channels actively to those customers.
However, if Virgin Media were to stop selling premium channels it would risk losing a
proportion of its subscriber base for whom those channels are particularly important.
6.12 We also believed that Sky had the incentive to restrict the supply of its Core Premium
channels to other retailers and other platforms, and we further believed there was
evidence which suggested that Sky was acting on that incentive:
� A number of new entrants, seeking to establish new retail businesses and / or
new platforms, had sought to purchase access to Sky’s premium channels on
wholesale terms, but none of these had been successful. Having reviewed the
available correspondence between those new entrants and Sky, we concluded
that no commercially agreed wholesale deals appeared imminent, despite
evidence of negotiations going on for several years.
� We analysed the incentives we believed Sky faced to wholesale its channels to
competing retailers and / or on competing platforms. Our conclusion was that
there were a number of incentives which might motivate Sky against supplying
other retailers at a wholesale price which those other retailers were prepared to
pay.
� We recognised that Sky retailing its channels directly to other platforms was likely
to improve the availability of Sky’s channels. We also recognised that Sky might
have the ability to retail its channels as effectively on other platforms as it did
over its own platform. However, while we believed that Sky would prefer to retail