Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
� VoD traffic will double every two years through 2013. Consumer IPTV and CATV
traffic will grow at a 53 percent CAGR between 2008 and 2013, compared to a
CAGR of 40 percent for consumer Internet traffic 458 .
7.20 In summary, the markets of interest to us are part of a sector where there is
considerable scope for innovation and profound changes in the consumer
experience. But the scale and depth of innovation, and the technologies that will play
the greatest role in the future of the sector, are at present uncertain. We must have
regard to this broader picture in assessing the effects on consumers of the
competition problems we have identified.
Our position in September
7.21 In our Second Pay TV Consultation, we set out our view that competition in pay TV
was likely to be weakened by restricted distribution of Core Premium channels. We
argued 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. This might manifest itself in several ways.
7.22 Firstly, we identified a risk that consumer choice and retail innovation will be reduced.
The most obvious manifestation of reduced consumer choice is the restricted
availability of Sky’s premium content on other platforms. Even where content was
available on a platform, we argued that consumer choice might be restricted if that
content were only made available via a limited range of content bundles. We noted
that although Sky did offer a wide range of content bundles, the pricing of these
encouraged consumers to trade up to a small number of ‘big mixes’. We believed
that consumers would benefit from a wider variety of entry-level packages being
more widely available for premium content.
7.23 Secondly, we identified a risk that platform innovation would be reduced. We argued
that innovation in areas less well suited to the strengths of Sky’s DSat platform might
well have proceeded faster if wholesale premium content had been more widely
available on other platforms.
7.24 We stressed that the development of the pay TV sector was at a point when new
platforms using new distribution technologies, such as IPTV and mobile TV, could
offer significant benefits to consumers. Our general expectation was that such
platforms would offer consumers greater convenience and enhanced service
flexibility, by allowing them to access content on demand, or when on the move. We
recognized a real risk that the development of these new platforms could be held
back by limited access to premium content, thereby denying consumers the
associated benefits.
7.25 Finally, we said that there was a risk that prices to consumers would be high, either
because of Sky’s ability to set high wholesale prices, or because of Sky’s ability to
leverage upstream market power into downstream retail markets and set high retail
prices.
458 These are global forecasts; bearing in mind the current situation with regard to Sky’s approach to
the wholesale supply of Core Premium channels, the UK could fall behind this.
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