Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� Derive wholesale prices for each Core Premium channel on the basis of an
allocation of premium rights and programming costs, as well as fixed and
common costs associated with channel production;
� Use a multiple year discounted cashflow analysis and terminal value calculation,
consistent with our retail-minus calculations.
9.5 In addition to these principles, we acknowledge that there is a degree of judgement
to be exercised, for example, in what constitutes an ‘efficient’ entrant – setting the
threshold high risks low levels of market entry, and limited competition, whereas
setting the threshold low risks high levels of market entry by inefficient sub-scale
firms, the costs of which could ultimately fall onto consumers. We have therefore
modelled a number of different approaches to explore the sensitivity of the wholesale
prices to some of these issues.
9.6 The figure below shows our proposed range of prices for consultation for each of the
key wholesale products. This range of prices is below the existing cable rate-card
offered to Virgin Media, and is consistent with our view that there are high wholesale
margins at present. The range of prices is also above our cost-plus figures, which is
designed to ensure that Sky continues to earn a reasonable return on its investment
at the wholesale channel level. Indeed, our expectation is that Sky’s wholesale
revenues net of additional costs are likely to increase due to any reduction in
wholesale charges to cable being more than offset by additional wholesale revenues
associated with market expansion.
Figure 62 Chart showing range of prices for consultation for key products
(£ per subscriber per month)
Price per subscriber per month (£)
25
20
15
10
5
0
Sky Sports 1 Single Movies Sky Sports
Mix (1 & 2)
Package
Sky Movies
Mix
Sky Sports
Mix (1 & 2)
and Movies
Mix
Sky Sports 1
and Single
Movies
Cable ratecard
Range of
prices for
consultation
Cost-plus
9.7 The top and bottom of the range of prices for consultation are calculated as follows:
� Top of the range: these prices reflect a retail business similar to Sky’s and are
estimated on the basis of competing with Sky’s retail prices, incurring Sky’s costs
(including Sky’s costs of DSat transmission), and operating at Sky’s scale.
However, in contrast to the existing rate-card prices, which are based on Sky’s