Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
88
expect any firm to set prices at the point where any further price increase would be
unprofitable. This point may well be above the competitive price level. As such, even
if Sky were unwilling to impose price increases above the current level, this would not
mean that prices were constrained at the competitive level, or that markets were
broad.
4.157 We have considered the average change in price of Sky’s retail packages over time
for Sky’s most popular packages when taken with 6 mix. We have used a “directly
comparable” time period as suggested by Sky (just after a price increase in 2002 to
just before an increase in September 2008 147 ). The results are summarised in Figure
19.
4.158 We consider the CPI and RPI minus mortgage interest and indirect taxes best reflect
changes in price for consumer goods 148 . Our choice of deflator (the GDP deflator) lies
between these two measures.
Figure 19 Real average annual retail price changes over time using various price
deflators (2002 to 2008)
RPI - All
items
RPI - All
items
excluding
mortgage
interest
payments
RPI - All
items
excluding
mortgage
interest
payments
and
indirect
taxes
RPI - All
items
excluding
housing
costs
Source: Sky response to Ofcom information request of 29 May 2008.
CPI GDP def
Sky Sports and
Movies Mix
-0.3% 0.0% 0.1% 0.7% 0.9% 0.5%
Sky Sports Mix 0.3% 0.7% 0.7% 1.3% 1.6% 1.2%
4.159 Figure 19 shows that the price of the Sky Sports Mix has increased in real terms
regardless of the choice of deflator. The price of the Sports and Movies mix has
increased in real terms on most measures.
4.160 The change in the use of discounts does not affect our conclusion that prices have
increased a small amount over the period. Sky [ � ] 149 .
4.161 As we explained in detail in our Second Pay TV Consultation, there have been some
changes in the quality of the products offered which make an assessment of quality
adjusted price changes over time difficult. For example Sky introduced “free”
broadband; in July 2007 Sky scrapped the £120 annual charge for subscribers who
147 Retail prices increased in September 2008 then fell slightly in response to changes in VAT.
148
RPI is affected by changes in council taxes or mortgage interest payments which do not reflect
changes in prices of consumer goods.
149 Sky has stated that the reduction in the availability of ‘viewing package discounts’ had led to a
short term increase in churn. See for example:
http://corporate.sky.com/documents/pdf/press_releases/26_07_07_final_results.pdf.