Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.74 FTA broadcasters also hold a number of other highly valued live rights (either
exclusively or with pay TV operators). The growth in the number of FTA digital
channels has considerably increased the ability of FTA broadcasters to broadcast a
wide range of sport and to cover sporting events in greater depth. Being less capacity
constrained may mean FTA channels are able to compete more directly with
premium sports channels. FTA broadcasters like the BBC or ITV are now able to
devote extended, in-depth coverage of a wide variety of sporting events on their
digital channels 91 . Figure 8 below illustrates how key sports rights are shared
between FTA and pay TV channels.
Figure 8 Important live sports on pay TV and FTA TV by rights value
[ � ]
Notes: The length of each bar indicates the relative rights value for each event. Only sports rights of
greater than £5m are included on the chart.
Source: Various sources including European TV Sports Rights 2008, rights holders. See Appendix 3
of Annex 6.
4.75 The key question for our analysis is to what extent content found on other channels
constrains the pricing of Sky Sports 1. Given a small but significant increase in the
wholesale price of Sky Sports 1 from the competitive level, would a downstream firm
switch to an alternative wholesale input, absorb the price increase or pass the
increase onto its subscribers? In the event of the latter, would those subscribers
switch to other channels 92 ? We consider a range of alternatives to Sky Sports 1,
including other pay TV channels (Setanta Sports 1, Sky Sports 2, Sky Sports 3, Sky
Sports Xtra, Eurosport) and FTA channels. From the perspective of assessing Sky’s
market power, the scope for substitution to FTA channels is a key question, as
including FTA in the market would indicate a materially lower market share for Sky.
4.76 In the following pages we set out evidence on the constraint faced by a wholesaler of
premium sports channels. We describe:
� Indirect constraints, looking at product characteristics and consumer preferences,
consumers’ response to a SSNIP and the potential constraint from FTA TV.
� The potential for supply side substitution.
� Direct demand side substitution.
� Changes to wholesale prices.
4.77 Finally we conclude on markets for wholesaling of premium sports channels.
91 For example in 2007 the BBC Interactive channel offered live coverage of the FIFA Women’s World
Cup, Moto GP, World Match Play golf, the Snooker Grand Prix, World Championship snooker, the
Australian and French Tennis Opens and the Africa Cup of Nations football competition. ITV4
broadcast extensive live coverage of Rugby Union World Cup matches featuring non-UK teams, the
Grand Slam of darts and the Tour de France.
92 Switching costs from a pay TV product to FTA TV are normally very low and are unlikely to create a
barrier to switching. For example, it generally only takes a phone call for subscribers to pay TV
services to discontinue their subscription and switch to a FTA service. Sky made the same point at
paragraph 3.47 of Annex 2 to its response to our First Pay TV Consultation.
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