Pay TV phase three document - Stakeholders - Ofcom

Background
Pay TV phase three document – non-confidential version
� Wholesale supply of Core Premium channels to new entrants:
o We review negotiations between Sky and new entrants for the supply of Sky’s
Core Premium channels. Compared to the case of Setanta, Sky’s negotiations
with other retailers have markedly failed to lead to agreement.
o We therefore consider possible reasons for this, particularly Sky’s commercial
and strategic incentives to withhold supply.
o Next we consider the important distinction between wholesale and retail
supply to other platforms by Sky, and consider whether our concerns would be
met by Sky retailing its Core Premium channels on other platforms.
� Wholesale supply of Core Premium channels to Virgin Media:
o We discuss our revisions of our Vertical Arithmetic model following responses
to the Second Pay TV Consultation.
o We consider Sky’s reasons for supplying Virgin Media and review relevant
internal documents.
o Next, we consider the terms of Sky’s supply to Virgin Media – how these are
set, and their effect on Sky’s incentives.
o We consider Sky’s non-supply to Virgin Media of additional services such as
HD.
o Then we consider the outcomes of Sky’s policy towards Virgin Media, in terms
of the relative lack of success of Core Premium channels on Virgin Media
compared to on DSat.
� The supply of Core Premium channels to commercial premises.
6.25 Sky first entered into commercial deals with cable operators for the supply of its
sports and movies channels in the early 1990s.
6.26 In 1996, the Director General of Fair Trading (the “Director”) conducted a review
under the Fair Trading Act 1973 of the wholesale pay TV market following complaints
raised by some cable operators. The Director concluded that premium programming
rights gave Sky a powerful position in the wholesale pay TV market and that Sky’s
acquisition of premium programming had created a barrier to entry into the market.
The Director also concluded that Sky was dominant in the supply of sports channels
in the UK pay TV market. To meet the Director’s concerns, Sky gave the Director
non-statutory undertakings (the “1996 Undertakings”) in July 1996 regarding the
terms it offered to cable operators for supplying its channels. Sky undertook to supply
certain channels separately, and to publish a rate-card showing its wholesale prices
for cable companies, with a discount structure approved in advance by the Director.
6.27 Following a 2002 investigation under the Competition Act 1998, the Office of Fair
Trading (the “OFT”) decided 365 that there were insufficient grounds to find that Sky
365 CA98/20/2002, 17 December 2002.
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