Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
4.137 In response to our First Pay TV Consultation, Sky presented results of a study it
commissioned on the [ � ] 131 [ � ] 132 . Sky claimed [ � ]”. 133
4.138 In our Second Pay TV Consultation we also presented evidence of consumers’
willingness to pay for premium sports channels 134 .
4.139 Our view was that this additional evidence was less likely to be subject to stated
preference bias, although our concerns about whether we had assessed a price rise
from competitive levels remained. Nonetheless, the evidence from Sky’s Conjoint
Study and from the central estimates of our own willingness to pay survey suggested
that a SSNIP on Sky’s wholesale channels could indeed be profitable.
Respondents’ views
4.140 Sky argued that no evidential weight can be placed on our demand elasticity
estimates derived from our willingness to pay survey 135 . Sky also argued that its own
estimates of consumer responses to price rises were similarly unreliable, as they did
not seek to examine spin-down in response to price increases, and because
consumer research was not a perfect predictor of consumers’ behaviour. 136
4.141 FAPL argued that our conclusions from our elasticity estimates were unreliable
because 137 :
84
� We had not provided confidence intervals around our estimates.
� The data on willingness to pay from which Ofcom’s elasticities were derived
underestimated consumer demand for Sky Sports channels at current prices 138 .
Our current view
4.142 We interpret evidence on consumer price elasticity with caution. This is because we
would expect any profit maximising firm to price where a further price increase is just
unprofitable. Hence, evidence of an elastic response to further price changes may
indicate that a firm is pricing at the profit maximising level regardless of whether the
131 Conjoint analysis asks respondents to choose between a series of products with different sets of
features. The trade-offs made are analysed to assess the relative importance of each of the different
features.
132
See Annex 6, Appendix 4 of Ofcom’s September 2008 consultation for details. Sky conjoint: [ � ]
supplied to Ofcom by Sky in July 2007.
133 Sky response to Ofcom’s First Pay TV Consultation Annex 2 paragraph 2.17.
134 See Annex 10 of Ofcom’s Second Pay TV Consultation for details.
135 Sky Response of 1 June 2009 to Ofcom’s Second Pay TV Consultation “Additional comments on
Ofcom’s analysis of market definition and market power in the pay TV review” paragraph 4.3 and
Annex 5.
136 Ibid. Annex 1 paragraph 2.8.
137 Sky also commented on our estimates of elasticity, see Appendix 2 to Annex 6.
138 FAPL response to our Second Pay TV Consultation page 43.