Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
Observed response to price changes
Our position in the Second Pay TV Consultation
4.147 In both our first and second consultation documents, we examined subscribers’
responses to actual price rises. If we observed that firms were unwilling to impose
price rises on their customers, or that large numbers of consumers would switch in
response to price rises, we might infer that firms’ pricing was constrained and
markets were broad (again subject to the caveats around the cellophane fallacy). Of
course, as we noted in our first consultation, it can be difficult to isolate the impact of
price changes in dynamic markets where the nature of products is changing over
time.
4.148 In the First Pay TV Consultation we stated that prices of Sky Sports channels on
DSat had increased in real terms by on average [ � ] 141 per year since 2000
(although prices have remained relatively stable in real terms since 2004) and at the
same time the number of subscribers to those packages had increased. We noted
that it was difficult to interpret the impact of price changes on subscriber numbers
because the quality of the packages had changed over time. However, we concluded
that on balance the evidence suggested that Sky’s pricing had not been constrained
to the competitive level.
4.149 In response to our First Pay TV Consultation, Virgin Media said that it found our
analysis of price changes and subscriber numbers “compelling”. It noted that “real
increases in prices and growing subscription numbers do not suggest that Sky is
subject to any effective constraint” 142 .
4.150 By contrast, Sky claimed that our analysis of changes in subscriber numbers, prices
and quality was insufficient to draw conclusions on market definitions. It suggested a
wide range of factors affect subscriber numbers. These include quality, discounts,
subscriber acquisition costs, quality of relevant substitutes, set top box subsidies,
charges for related products (e.g. Sky+ or broadband) and marketing spend.
4.151 Sky also asserted that our assessment of changes in the quality of Sky Sports
packages did not consider the fact that there was more live FAPL content, additional
channels, additional programming, on-screen and other programming improvements,
improvements to basic-tier programming, and other aspects of Sky’s product offering
such as ‘free’ broadband.
4.152 As a result we carried out additional analysis for our Second Pay TV Consultation 143 .
This analysis showed that:
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� Retail prices for packages containing Sky Sports had, since 2004, remained
roughly constant in real terms. There was a temporary increase in the use of
discounts around 2006 which was phased out in 2007.
� There had – as Sky suggested – been some increase in the quality of the
packages on offer. In particular, there was more programming on the Sky Sports
141 Depending on the precise package.
142 Virgin response to Ofcom consultation paragraph 5.13.
143 See Appendix 3 of Annex 6 of Ofcom’s Second Pay TV Consultation.