Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
greater incentive to refuse to supply new or smaller pay TV retailers than it did to
withdraw its premium channels from Virgin Media 353 . Sky argued that the outcome of
Ofcom’s own vertical arithmetic analysis of supply on DTT supports its position that it
has an incentive to supply 354 .
6.20 Sky also criticised Ofcom 355 for setting out in Second Pay TV Consultation two
possible explanations for a failure to supply – i.e. Sky intentionally withholding
supply, and Sky not being willing to lower the price to a level that any retailer would
be prepared to pay – and not properly analysing how the reasons for a failure to
supply might affect possible remedies. Sky argued that if the reason why supply is
not occurring is attributable to the inefficiency of other retailers then it would clearly
be disproportionate to remedy this by imposing a burden on Sky.
6.21 Sky criticised the part of Ofcom’s “vertical arithmetic” model which analysed the
effects on Sky’s revenues on supplying or withdrawing supply from Virgin Media 356 .
Among other points, Sky argued that:
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� Even if long-term switching were to occur, withdrawal of supply would be initially
loss-making, and would only be profitable over a long time, which would not be
attractive to Sky given market uncertainty.
� The figures in the model indicated a net increase in premium channel subscribers
if it withdrew supply, which was unlikely in practice.
6.22 Other respondents broadly agreed with our assessment of Sky’s incentives to
wholesale its channels to other retailers.
� The BBC said that there were a number of incentives which might motivate Sky
against supplying its channels to competing retailers and/or competing platforms,
in particular the desire to prevent the emergence or growth of potential retail or
platform competitors. The BBC also said that where Sky supplied Virgin Media
with wholesale channels, it had an incentive to provide the lowest acceptable
quality, and not to provide any additional features. This was because Sky had a
strong incentive to ensure that consumers wishing to access Sky’s premium
channels got a better deal, both in quality and price terms if they did so through
Sky satellite platform rather than through any other pay TV platform. 357
� BT supported our position that due to its vertical integration Sky has limited
incentives to wholesale those channels to third parties on any basis that allows
353 Sky response Section 5, paragraph 2.9.
354 Sky response, Section 5, paragraph 2.8.
355 Section 5, paragraph 2.31, page 69.
356 Section 5, paragraph 2.11, pages 64 to 66.
357 BBC response, page 4.
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