Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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direction. These figures illustrate the sensitivity of retail-minus wholesale charges to
cost allocation decisions.
9.174 As noted in paragraph 9.117, we have considered the sensitivity of retail-minus
charges to the discount rate applied to future cashflows. If we were to assume a
higher discount rate of 15%, to reflect a different risk profile to that of Sky, the
weighted average retail-minus charge would decrease from £17.13 to £15.81 (an 8%
fall).
9.175 We have also considered the sensitivity of wholesale prices to our assumption on the
cost of a DTT videostream. We considered the sensitivity of wholesale prices to a £2
million annual increase or decrease to this cost. Under the higher cost, the weighted
average wholesale price would be £16.92, as compared to a base case of £17.13,
whereas under the lower cost, the average price would be £17.33. These are
relatively modest changes of about +/- 1%.
9.176 The figure below summarises the effect of these sensitivities on our retail-minus
calculations, for the particular case of the weighted average charge.
Figure 66 Sensitivity analysis for retail-minus calculations
Effect on weighted average retail-minus
charge (£)
0.60
0.40
0.20
0.00
-0.20
-0.40
-0.60
-0.80
-1.00
-1.20
-1.40
-1.60
Note – each of the bars represent the different sensitivities in the order described in the paragraphs
above.
Cost-plus calculations
Common costs sensitivities Discount rate sensitivity
DTT transmission cost
sensitivity
9.177 Likewise, the figure below shows the cost-stack for our cost-plus wholesale prices for
some of the key wholesale products. This figure demonstrates that the costs of the
wholesale product are dominated by the programming costs – i.e. the costs of
acquiring the premium sports and movies content.