Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� In relation to sport, the aggregation of the rights to specific sporting competitions
by sporting bodies such as the FAPL, and the further aggregation by
broadcasters such as Sky of the rights to different competitions.
� In relation to movies, the aggregation by Sky of rights to show the movies from all
six Major Hollywood Studios.
3.40 To the extent that aggregation results in the creation of monopoly rents, these are
likely to flow upstream to where the aggregation takes place. However, the existence
of aggregation at different points in the value chain means that it is not always
entirely clear who is likely to be the main beneficiary in practice of the aggregation
process.
� Sporting bodies such as the FAPL would be expected to retain any monopoly
rents associated with the aggregation of rights for competitions for which they are
responsible. However, some further aggregation of sports rights to different
competitions is carried out by broadcasters such as Sky, and Sky may also have
a degree of purchasing power because of its position in downstream markets,
both of which might be expected to deliver some benefits to it.
� Sky is likely to be the prime beneficiary of any monopoly rents arising from the
aggregation of movie rights, due to its role as the principal aggregator. However,
it is also likely that the Major Hollywood Studios can extract some of the benefit
from aggregation in their individual negotiations with Sky.
3.41 One important consequence of monopoly rents moving upstream is that it can
become difficult to distinguish them from any scarcity rents associated with the
‘talent’ which underpins the production of high quality content. In other words, the
high salaries paid to some footballers and movie stars may be an indication of market
power, but could equally well reflect the scarcity value of football skills and movie
talent. This makes the precise identification of monopoly profits in content markets
particularly difficult.
Fixed costs of content production, and the importance of price discrimination
3.42 Content markets have two important characteristics which in combination distinguish
them from the markets for physical goods and services:
� The consumption of content is non-rivalrous, in the sense that different
consumers can consume the same piece of content at the same time. This
means that the production costs of content can be regarded entirely as fixed
costs, rather than varying with the number of consumers.
� The fixed costs of producing certain categories of content can be high. For
example, the wage costs alone of the FA Premier League were £1.2 billion in
2007/2008 39 , while the average cost for making and marketing a single Hollywood
film is about $100m 40 .
39 According to Deloitte’s Annual Review of Football Finance 2009 -
http://www.deloitte.com/dtt/cda/doc/content/UK_SBG_ARFF2009_Highlights.pdf, page 2.
40 The MPAA’s Theatrical Market Statistics 2007 - http://www.mpaa.org/2007-US-Theatrical-Market-
Statistics-Report.pdf, page 7.