Pay TV phase three document - Stakeholders - Ofcom

Figure 67 Cost-plus cost stack
£ per subscriber per month
18
16
14
12
10
8
6
4
2
0
0.98
8.09
1.46
4.19
1.06
10.28
Sky Sports 1 Single Movies Sky Sports 1 &
2
Pay TV phase three document – non-confidential version
9.178 We have also undertaken sensitivities on our cost-plus calculations for some of the
key parameters. In particular, we have considered sensitivities based on:
� Allocations of common costs between wholesale, retail and platform functions of
Sky’s overall business;
� Allocations of common costs between residential and commercial subscribers;
� Forecasts of the total addressable market for premium subscribers; and
� Forecasts of future rights fees.
9.179 With respect to 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; this has a corresponding impact on the cost-plus charges. Increasing the
allocation of common costs to Sky’s wholesale function by 5, 10 and 15 percentage
points increases weighted average cost-plus charges by £0.17 (1%), £0.33 (2%) and
£0.49 (4%) respectively in the first year. The effect is symmetrical. Reducing the
allocation of common costs to Sky’s wholesale function by these percentages has a
similar effect on weighted average cost-plus charges in the opposite direction. These
figures illustrate the sensitivity of cost-plus wholesale charges to cost allocation
decisions.
9.180 Similarly, we have considered the impact on the amount of common cost recovery
from Sky’s wholesale business of allocating common costs between residential and
commercial subscribers on the basis of subscriber numbers rather than revenue.
This has the effect of increasing the amount of common costs to be recovered from
residential subscribers, and hence increases the cost-plus charges. Changing the
allocation method to be on the basis of subscriber numbers increases the weighted
average cost-plus charge from £13.57 to £14.24 (an increase of about 5%) in the first
year.
1.53
4.12
Sky Movies
Mix
2.54
14.44
2.39
12.32
Sky Sports 1 & Sky Sports 1 &
2 and Movies Single Movies
Mix
Other premium wholesale costs Premium rights and programming costs
305