Pay TV phase three document - Stakeholders - Ofcom

Figure 65 Retail cost stack
£ per subscriber per month
40
35
30
25
20
15
10
5
0
3.16
9.82
0.60
3.08
9.84
0.64
10.63 8.95
Sky Sports 1 Single Movies Sky Sports 1
& 2
Pay TV phase three document – non-confidential version
4.31 4.60
9.82 9.84
0.78 1.10
15.69 14.67
Sky Movies
Mix
9.171 We noted in paragraph 9.90 that we would assess whether starting from larger
bundles of Core Premium channels would lead to significant discrepancies compared
to our approach of deriving wholesale prices from the closest retail package. Our
analysis suggests that there may be a specific issue in the case of Sky Sports 2. The
retail price for this Core Premium channel appears particularly high relative to costs,
with limited take-up, suggesting that the retail price reflects pricing simplicity (it is set
equal to the price for Sky Sports 1 retail packages) rather than purely a full reflection
of cost or value. It may therefore not represent an effective benchmark for our
purposes. However, our competition concerns are focussed much more on Sky
Sports 1 and Sky Sports 1&2, and we therefore do not propose making any further
adjustments to our methodology based on the closest retail package.
9.172 We have also undertaken sensitivities on our retail-minus calculations in Scenario 4
for some of the input parameters. In particular, we have considered sensitivities
based on:
� allocations of common costs between wholesale, retail and platform functions of
Sky’s overall business;
� the discount rate applied to future cashflows; and
11.01
18.90
� the assumed cost of DTT transmission for premium channels.
14.64
9.173 For the common cost allocation between wholesale, retail and platform functions, we
have considered percentage variations which both increase and decrease the
amount of common costs to be recovered from Sky’s wholesale business rather than
its retail function. This has an impact on the costs to be recovered in the retail cost
stack. Increasing the allocation of common costs to Sky’s wholesale function by 5, 10
and 15 percentage points increases weighted average retail-minus charges by £0.15
(1%), £0.29 (2%) and £0.43 (3%) respectively in the first year. Reducing the
allocation of common costs to Sky’s wholesale function by these percentages has a
roughly similar effect on weighted average retail-minus charges in the opposite
5.07
1.54
Sky Sports 1
& 2 and
Movies Mix
4.10
11.01
0.89
Sky Sports 1
& Single
Movies
Wholesale price Pro-rated fixed costs Other variable costs Basic content costs
303