Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
� Total additional fixed costs for new entrants to the retail market for core premium
channels amount to £43 million per year, including fixed transmission costs – this
estimate is based on our estimates of fixed costs as set out in Section 9.
10.25 We summarise the results of our quantitative analysis as broad ranges reflecting the
sensitivities to key assumptions. Many of the assumptions used in our analysis are
subject to substantial uncertainty. We have therefore considered a range of
sensitivities to some of the key parameters. These include variations in the extent of
the market expansion effect, different levels of aggregate fixed costs, alternative
assumptions about demand conditions 560 , and alternative assumptions about relative
retail prices. Taken together, these sensitivities give rise to a wide set of potential
outcomes.
Effects on consumers
10.26 We have assessed effects on consumers from the three points of view that we set
out in our criteria for assessing the market. These were choice, innovation and
pricing. We identified in section 7 the adverse effects on consumers that we consider
result, and will result in future, from Sky’s approach to the wholesale supply of Core
Premium channels. In this section we therefore explain how a wholesale must-offer
obligation in the form proposed could address those effects.
10.27 If Sky’s retail competitors were able to gain access to Sky’s Core Premium channels
at appropriate wholesale prices under a wholesale must-offer remedy, they would be
better placed to compete effectively with Sky at the retail level of the value chain.
Accordingly, we would expect the remedy to deliver benefits to consumers in terms of
greater platform choice and the dynamic benefits of greater platform and retail
innovation.
Effects on choice
10.28 Making Sky’s Core Premium channels available to more retailers would have the
effect of increasing the number of consumers that can take the channels. It would
also be likely to increase the availability of entry-level packages, packages that are
not bundled with basic content, or packages that combine premium content with
other products and services, giving consumers greater choice of the way they
consume premium channels.
10.29 At present, consumers who have a preference for Sky’s Core Premium channels, but
who also have a preference for a platform which does not offer Sky’s Core Premium
channels, must either sacrifice the content or subscribe to a platform which is not
their preferred choice. As such, the availability of Sky’s Core Premium channels on
some platforms but not on others has the potential to distort consumer choice of
platform, relative to the scenario in which this content is available on all platforms.
10.30 Under a wholesale must-offer obligation, there is likely to be greater platform choice,
as consumers would be able to purchase Sky’s Core Premium channels from a
greater number of different pay TV operators across different DTT and IPTV
platforms. This is based on our view that Sky’s competitors would probably take
advantage of the proposed remedy. We consider this likely given the repeated – but
unsuccessful – requests by BT Vision and Top Up TV for the wholesale supply of
560 We have assumed linear demand functions in all cases, but have considered sensitivities to the
‘choke price’ (the key determinant of willingness to pay) for these functions.
323