Pay TV phase three document - Stakeholders - Ofcom

Section 7
7 Consumer effects
Summary
Pay TV phase three document – non-confidential version
7.1 We noted in our Second Pay TV Consultation that markets where competition is
weak, and consumers are unable to exercise a real choice between suppliers, are
unlikely to deliver the best outcomes for consumers. We set out several criteria
against which we proposed to assess the operation of the market from a consumer
perspective, focussing on choice, innovation and pricing. We use those criteria to
consider the effect on consumers of the position that, as a result of Sky’s approach to
the wholesale supply of Core Premium channels, there is not, and there is not likely
to be, fair and effective competition.
7.2 The most obvious manifestation of reduced consumer choice is the restricted
availability of Sky’s premium content on other platforms. The fact that consumers on
a number of platforms are currently either unable to access the most valuable sport
and movie content, or face restricted access, is a source of concern.
7.3 Those customers who most value premium content are more likely to have chosen
Sky’s own satellite platform. This means that some consumers are likely to be on a
platform which would not have been their first choice had premium content been
equally available on all platforms.
7.4 This creates a risk that existing platforms may not create new capabilities, and that
new platforms may not emerge at all, because of a dependence on access to
premium content. This dependence might either be direct (e.g. the dependence of
IPTV services on certain VoD rights) or indirect (e.g. because new platforms cannot
build sufficient scale without access to premium content). Either way, there is a risk
that platform innovation will be reduced.
7.5 These concerns are exacerbated as we look forward to the future; we are at a point
where the potential choice of platforms is increasing, and is set to increase further.
The chances of these options developing fully to the benefit of consumers are likely
to be limited by the restricted availability of Core Premium channels. We consider on
the basis of these effects that there is an adverse effect on the interests of
consumers.
7.6 The analysis which has been carried out by Oxera suggests that Sky is earning
aggregate returns in excess of its cost of capital, implying retail prices that are above
the competitive level.
Introduction
7.7 In this section we assess the likely effects on consumers of the competition concerns
we identified in the previous section. This takes into consideration the historical
development of pay TV, and the evidence that this provides to us, but also takes a
forward looking view of the potential benefits to consumers associated with future
developments.
7.8 Our previous consultations set out criteria by which we would judge the performance
of the market. We set out our views on consumer effects in light of these, which are
as follows:
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