Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
will not negotiate, either with cable retailers or others. However under CA98 Sky
would clearly be free to agree a lower price. The outcome of this conduct is that the
margin available to cable retailers is very low and that there is no incentive for cable
retailers to expand sales of premium channels beyond those customers that would
leave cable if the channels were not available.
Effect on Virgin’s incentives
6.111 Sky argued that “a third party platform operator does not have the incentives to invest
in marketing Sky’s channels and this could be exacerbated where the third party has
higher margin products such as telephony and broadband” 408 .
6.112 However, Virgin Media argued that the reason it did not have an incentive to invest in
marketing Sky’s channels was that the wholesale price was too high.
6.113 [ � ] 409 .
Figure 54 Rate-card price and incremental retail price of Sky’s Core Premium
channels on Virgin Media
Bundle Price
increment* (£)
*Weighted average across Virgin Media’s packages
Note: Prices and subscriber numbers are for Virgin Media’s M, L and XL digital products. Prices and
subscriber numbers for analogue, legacy and other packages are not included in this calculation.
Subscriber numbers are as of October 2008; prices are as of April 2009.
6.114 Prices charged by Sky and Virgin Media for premium channels are not directly
comparable, because they are bundled with different packages of basic content and
other services. In our Second Pay TV consultation (Figure 6, page 40) we set out
package prices. Sky charged £17 for its basic only TV package, while Virgin Media
charged £11. The two charged a similar price for basic content with sports (Sky £36
and Virgin Media £37), although this meant that a current or potential Virgin Media
customer had to pay more to upgrade to premium sports than a Sky customer. Virgin
Media’s prices were higher for basic and premium movies (£41, Sky £34) and for
basic with premium sports and movies (£48, Sky £43). Current prices (May 2009) are
shown in Figure 55. Virgin Media’s prices are currently lower than Sky’s for basic and
premium packages.
408 Second Pay TV Consultation, paragraph 6.39.
Wholesale
rate-card
charge (£)
Margin over
wholesale
rate-card (£)
Sky Sports Mix 17.24 18.39 -1.15
Sky Movies Mix 16.02 16.59 -0.57
Sky Sports Mix &
Sky Movies Mix
22.70 23.40 -0.70
409 Source: Virgin Media, Market Investigation Workshop, 16 th May 2008, page 15.
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