Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.18 In that context, the key question is whether TV packages that contain premium
channels are in narrow markets, or in a broad market with other TV products such as
FTA TV, or alternative formats such as DVD.
4.19 Therefore our focal products for investigation of retail markets are:
� Retail packages containing Core Premium Sports channels.
� Retail packages containing Core Premium Movie channels.
Approach to defining markets
4.20 The standard tool for defining markets is the Hypothetical Monopolist Test (HMT) 51 .
The HMT considers whether it would be profitable for a hypothetical monopoly
provider of the relevant product to increase the price of that product by a small
amount. However, as we explained in our previous consultation documents, there are
a number of specific challenges associated with applying this framework to
broadcasting markets. The challenges we outlined included:
� The difficulty of assessing switching behaviour when prices may be above
competitive levels, and, related to this, the difficulty of identifying the competitive
price (see paragraphs 4.25 to 4.31 below).
� The highly differentiated nature of the products in question (see paragraph 4.32).
� The fact that broadcasting markets are two-sided (see paragraph 4.33).
Our views in our Second Pay TV Consultation
4.21 While these challenges are not unique to broadcasting, the fact that they exist jointly
makes it particularly important to consider a wide range of evidence in assessing the
relevant markets. We considered – and continue to consider – this evidence in
aggregate, rather than relying on any one specific piece of evidence in isolation.
4.22 Such an approach is consistent with OFT guidelines on market definition 52 , previous
case law 53 and the views of respondents to our previous consultation documents. For
51 The HMT attempts to find the narrowest range of products for which a hypothetical monopolist
would be able to sustain prices above their competitive level. We begin by considering a single
product or narrow range of products and assess whether a monopolist provider would be able
profitably to impose a Small but Significant Non-transitory Increase in Prices (SSNIP) above the
competitive level. The monopolist could be prevented from raising prices either by its customers
switching to alternative products (demand side substitution), or by the entry of alternative suppliers
who would be able rapidly and with minimal sunk investment to switch production to the supply of the
products under consideration (supply side substitution). If the monopolist is constrained from raising
prices, we widen the scope of the products under consideration by including the next closest
substitute and repeating the thought experiment. We iteratively widen the range of products under
consideration until we consider that a monopolist of all the products under consideration would no
longer be able to raise prices for a sustained period.
52 OFT Guidelines on Market Definition, 2004,
http://www.oft.gov.uk/shared_oft/business_leaflets/ca98_guidelines/oft403.pdf.
53 For example, in Aberdeen Journals the OFT considered a wide range of evidence in coming to its
conclusion on market definition, including product characteristics, the inconclusive economic and
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