Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� Sky Movies Mix;
� Sky Sports 1 and Single Movies;
� Sky Sports 1 and Sky Movies Mix;
� Sky Sports 2 and Single Movies;
� Sky Sports 2 and Sky Movies Mix;
� Sky Sports 1&2 and Sky Movies Mix; and
� Sky Sports 1&2 and Single Movies.
9.23 This set of wholesale products broadly corresponds to the products which are
currently made available to Virgin Media under the existing rate-card. The exceptions
are Sky Sports 3 and Sky Sports Xtra which do not fall within our definition of Core
Premium channels.
9.24 We also noted in section 8 that high definition (HD) is becoming increasingly
important to consumers, and access to HD versions of the Core Premium channels is
appropriate to address our competition concerns. We propose to set a price for
access to these HD channels and address the appropriate approach to setting
wholesale prices for these channels separately.
Overall approach to deriving prices
Calculation methodology for deriving price levels
9.25 Given our concern around Sky’s approach to the wholesale supply of Core Premium
channels, we continue to believe that it is appropriate to derive prices on a retailminus
basis, using cost-plus as a cross-check.
9.26 As we noted in the previous section we acknowledge that cost-plus pricing has a
number of advantages:
� It allows us to set prices in a competitively neutral manner, without having to
consider how different models of downstream competition might be affected. In
particular it does not require us to make any assumptions about the platform or
distribution technology that a potential retailer might want to use.
� It can in principle address concerns relating to high wholesale margins as well as
availability of channels.
� It avoids some of the practical difficulties associated with setting prices on a
retail-minus basis. In particular it would not require us to tackle any of the issues
raised by retail bundling in the context of a retail-minus analysis.
9.27 However, there is a major issue with cost-plus pricing in the context of pay TV, which
is that it risks artificially depressing rights values. Firms are unlikely to bid vigorously
products. This is also the price that is derived for a single movie channel and hence we refer to this
wholesale product as ‘Single Movies’. Sky Movies 1 and Sky Movies 2 can also be purchased
together as Sky Movies Mix which then includes Sky Movies Premiere as a bonus channel. [ � ].