Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� We recognise that restricting supply will not give Sky an advantage in bidding
against retailers who are not integrated with platforms, and that this includes
some of its strongest current competitors in bidding for rights.
� We recognise that this point has merit. [ � ]. However, this may not necessarily
give Sky an incentive to supply channels to new entrants. Wholesale access
could well be a stepping stone to building a sufficient subscriber base in order to
be in a position to bid for rights. If wholesale access were withheld from the first,
a competitor would find it difficult to become established, and it is unlikely that a
completely new entrant would be in a position to challenge Sky in bidding for
content.
6.64 Our present view is that while a large existing subscriber base may provide some
advantage in bidding for rights, it is one of a number of factors that influence the
ability and incentive for a firm to compete aggressively for rights, and perhaps not the
most important of these factors.
6.65 Sky’s strategic incentives are clear in its strong demonstrated preference for retailing
rather than wholesaling to others.
� If it retails, it can benefit not only from its own satellite subscribers, but also from
subscribers on other platforms whose customers are less likely to subscribe via
satellite. Sky can influence the movement of subscribers between platforms
through its retail packaging and pricing, thereby ensuring that it as far as possible
locks consumers into its core satellite platform. At the same time it minimises the
likelihood that others can strengthen their position in bidding for rights through a
large subscriber base.
� On the other hand, if it wholesales to others, it still gets the wholesale revenue
associated with subscribers on other platforms, but loses the control over crossplatform
retail packaging and pricing, which means that it faces a greater risk of
losing customers from its satellite platform, and it also runs the risk that others
may grow to present more of a challenge in competing for rights upstream.
6.66 Our view is therefore that Sky derives two strategic benefits from keeping its retail
competitors weak:
� The ability to manage competition between retailers on different platforms, in
order to protect the position of Sky’s own satellite platform.
� The ability to prevent rival retailers from establishing a strong retail presence,
which, as well as being a threat in the retail market, could strengthen their
position in bidding for content rights.
6.67 This ties very clearly in with what we see from the evidence – despite the apparently
available wholesale revenue, Sky shows no willingness to enter into a wholesale
agreement, instead consistently holding out for a retail deal, even if this leads to a
breakdown of negotiations.
Efficiency
6.68 Sky further argued that a stand-alone broadcaster with no retail business would
distribute its channels to third party platforms so as to maximise aggregate wholesale
revenues. As such it would have no incentive to reduce its wholesale prices to cater
for a new retailer that was less efficient than established retailers, and would be