Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Section 3
3 The UK pay TV market
Summary
3.1 Pay TV has become by some distance the biggest source of revenue in the UK’s TV
industry, and has developed from its early years of cable and satellite offerings to an
environment where there is the potential for a wide variety of services over different
delivery mechanisms including IPTV and pay DTT.
3.2 However, we believe there are particular characteristics which are likely to remain
little changed by the kinds of technical developments we have seen, and which are
likely to affect our assessment of whether it is appropriate to take action to ensure
fair and effective competition. The characteristics we focus on here are:
Introduction
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� Consumer preferences for content, and the particular importance of premium
content as a driver of pay TV subscriptions.
� Content aggregation and the potential creation of market power.
� Fixed content production costs and the importance of price discrimination.
� Vertical integration of firms which are active in the market and the incentives this
creates.
3.3 In our First Pay TV Consultation we set out an overview of the UK pay TV market,
and a number of characteristics of the market which we thought likely to influence the
way in which competition operates, and services are delivered to consumers.
3.4 In our Second Pay TV Consultation we focussed on the particular importance of
premium content, and the possibility that market power in the wholesale supply of
premium content might restrict competition, to the detriment of consumers.
3.5 In this section we summarise our current view of those characteristics of the market
which we have set out previously. In subsequent sections we consider the question
of whether there is market power in the wholesale supply of premium content, and
the likely effects on competition and on consumers.
Overview of the UK pay TV market
3.6 We noted in our First Pay TV Consultation that the emergence and growth of pay TV
markets in the UK and elsewhere has been driven historically by cable and satellite
broadcasters, providing consumers with the option of paying for a wider choice of
content than had traditionally been available from free-to-air, terrestrial broadcasters.
3.7 In the UK the main cable and satellite pay TV operators are:
� Sky, created by the merger of Sky Television and British Satellite Broadcasting in
1990. Sky now has 9.3 million retail subscribers in the UK and Ireland.