Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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deliver innovation in ways which do not necessarily play to the strengths of a
satellite platform.
� We see scope for market expansion: a wholesale must-offer has the potential to
expand the total number of people that currently take Core Premium channels,
and enable consumers to purchase channels in a wider variety of retail bundles.
10.20 The benefits of greater competition must however be weighed against the costs
associated with allowing other competitors into the market. New entry typically results
in some duplication of fixed costs across the market. We recognise that there would
also be some incremental administrative and compliance costs for Sky, although we
believe these to be low relative to the expected benefits from the remedy.
10.21 In the following pages, we consider the impact of the remedy on:
� Consumers (residential pay TV subscribers).
� Producers (Sky and its existing and potential competitors).
� Holders of sports and movies rights and bidders for those rights.
10.22 In each case we compare a scenario in which the remedy is in place with the
counterfactual scenario in which there is no such obligation and the current restricted
distribution of Sky’s channels continues. In the counterfactual we assume that the
growth in the overall number of pay TV subscribers on cable, DSat, DTT and IPTV
follows current trends, that there are no fundamental changes in the competitive
landscape at the retail level or the way in which sports and movies rights and bought
and sold.
Quantification of market expansion effects and associated costs
10.23 In the assessment that follows, we set out the results of some quantitative analysis of
those effects we can meaningfully attempt to quantify. To quantify the likely static
impact of the remedy, we have sought to calculate the likely benefits to consumers
and producers (i.e. consumer surplus and producer surplus) over a five year
reference period. We have assumed that consumer surplus can be measured in
terms of the difference between consumers’ willingness to pay and what they actually
pay for a pay TV service. We calculate producer surplus separately for Sky and its
competitors. Our overall approach is to subtract additional costs (relative to the
counterfactual) from additional revenues over the five year reference period.
10.24 Our central case calculations assume that:
� Wholesale prices are those set out in Section 9 for a ‘larger entrant’ retailer
distributing on DTT.
� The total number of premium subscribers on platforms other than DSat and cable
rises to 2 million after 5 years 559 .
559 There is uncertainty around the likely take-up of premium pay TV services on DTT and IPTV
platforms. Our central estimate of 2 million subscribers after five years has been informed by research
into consumers’ interest in pay TV services on DTT undertaken by Sky and Freeview (see paragraph
10.34).