Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
even though these are not viewed as substitutes for television programming in the
eyes of consumers 166 .
Our current view
4.199 While we have broadened our view of the sports that are important in Core Premium
sports channels, we have not changed our view of the relative importance of the
channels themselves. For the reasons set out in paragraphs 4.94 to 4.134 we do not
consider there are close substitutes to these channels. Therefore it remains our view
that direct demand side substitution to alternative channels is unlikely to broaden
markets. We assess the scope for retailers to allocate marketing effort to other
products in section 5 below.
Changes in wholesale prices
Our position in the Second Pay TV Consultation
4.200 Sky contested the view, expressed in our First Pay TV consultation 167 , that it had
market power in the markets for premium sports and movies channels, arguing that
flat or falling wholesale carriage prices for its premium channels were “strongly
suggestive that Sky lacks significant market power in relation to the provision of
premium sports and movies channels” 168 . For example it said:
“Trends in wholesale charges for Sky’s premium pay TV channels
are set out in [ ] …. Two features of this chart are notable: charges
for a package of all Sky’s premium channels have been broadly flat
in real terms for the past four years; there have been declines in
charges for (a) Dual Movies, and (b) a single Sky sports channel
over the past four years, with the declines for Dual Movies being
particularly pronounced.
Given very significant increases in rights costs, particularly in the
case of sports channels, the obvious implication is that margins
between costs and prices have narrowed in relation to Sky’s
channels at the wholesale level over this period.” 169
4.201 In response, we analysed the changes in wholesale prices of the most popular
wholesale premium sports channel mixes – those taken by some [ � ]% of sports
subscribers 170 . We felt that the price for stand-alone Sky Sports 1 was less relevant
given [ � ]. Our analysis showed that although the wholesale price of the Sky Sports
and Movies Mix [ � ] in real terms since 2005, it was still [ � ] than it was in 2002.
The price of Sky Sports Mix has [ � ] since 2002 and in September 2008 was [ � ]
than it was in 2002.
166
See Sky response to Ofcom’s First Pay TV Consultation paragraph Annex 2 paragraphs 3.120 –
3.126.
167 Paragraph 1.25.
168
Annex 2 to Sky’s non-confidential response to our December 2007 consultation paragraphs 3.131-
3.132.
169 Ibid.
170 Our full analysis is contained in Annex 6 to Ofcom’s Second Pay TV Consultation, Appendix 6.
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