Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Figure 56 Number and penetration of subscribers to Sky’s premium channels on
satellite and cable
[ � ]
6.127 As shown in Figure 6 of our Second Pay TV Consultation, the result is that while Sky
and Virgin have [ � ] of basic customers, Sky accounts for [ � ] of premium
customers.
6.128 We see various different drivers of the difference in penetration between cable and
satellite.
Summary
206
� Some consumers might choose cable in order to take telephony or broadband
services; this is likely to have been particularly true in the early period shown in
the chart above, when Sky did not offer triple-play bundles. It may be the case
that for these people content is of lesser importance than for those people who
choose satellite. This is likely to explain some of the difference. However, it does
not explain why penetration would have decreased over time.
� Some of this difference in penetration may be due to more people with a strong
demand for premium channels choosing DSat in the first place – i.e. content
driving the choice of platform – rather than Sky being intrinsically more efficient
than Virgin Media in promoting premium channels to customers who have
already signed up to the platform.
� We can see from retail prices that bundles including Core Premium channels are
higher via Virgin Media than via Sky, suggesting that Sky’s offer is more likely to
be attractive to new customers.
� For existing basic customers, the incremental price of Core Premium channels is
higher, making it less immediately attractive for a customer to add Core Premium
channels. As we have set out, Virgin Media appears not to have a strong
incentive to try to sell Core Premium channels to existing basic subscribers.
6.129 Sky’s practice of charging Virgin Media the highest prices which Sky believes meet
the conditions of a margin squeeze test leaves Virgin Media with limited incentive to
promote Sky’s Core Premium channels to its customers. As a result, people with a
strong demand for these services are more likely (and increasingly likely over time) to
choose DSat. Sky’s reluctance to supply services such as HD tends to exacerbate
this effect. The Core Premium channels are “licensed services” for the purposes of
s316 CA03. We therefore consider that Sky’s approach to the wholesale supply of
Core Premium channels creates a position in which there is not, and there is not
likely to be, fair and effective competition in the wholesale of Core Premium channels
and the retail supply of bundles which include Core Premium channels.
Commercial premises
6.130 While the discussion to this point has focused on supply to residential subscribers,
pay TV services including Sky’s Core Premium channels are also supplied to
commercial premises – mostly pubs and clubs, but also hotels, offices and holiday
parks, among others.
6.131 The Association of Licensed Multiple Retailers (ALMR), a trade body which
represents licensed retailers (who comprise the majority of commercial pay TV