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Ofcom's Pay TV Ruling
RileyScott
Posts: 152 Forum Member
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Ofcom today published the conclusion of its investigation into the pay TV market.
Following extensive consultation with stakeholders and analysis of the sector Ofcom has made the following decisions:
1.Sky Sports available on all platforms: Sky must offer to supply Sky Sports 1 and 2 to other retailers – for example, cable, terrestrial and IPTV – at a wholesale price set by Ofcom.
2.Sky pay services on terrestrial: Ofcom gives conditional approval to Sky and Arqiva’s request to offer pay TV services on digital terrestrial TV (known as “Picnic”).
3.But dependent on a wholesale deal: Approval of Picnic is subject to Sky implementing a wholesale deal under the supply obligation for Sky Sports 1 and 2. In addition, if Sky decides to offer movie channels on digital terrestrial TV then those channels must also be offered to other digital terrestrial TV operators.
4.Reference on movies: Ofcom is consulting on its proposed decision to make a reference to the Competition Commission asking the Commission to address concerns regarding the sale and distribution of subscription video-on-demand premium movie rights (but which cannot be addressed fully using Ofcom’s powers).
5.Innovation on HD: Sky must offer to wholesale high-definition versions of Sky Sports 1 and 2. HD is a relatively new innovation. To help to promote future innovation Ofcom has not set wholesale prices for the HD channels but requires them to be offered on fair, reasonable and non-discriminatory terms.
Benefits to consumers
These decisions will deliver significant benefits to consumers:
CHOICE: Premium sport, such as Premier League football matches, will be available to around 10 million Freeview-only homes receiving TV through an aerial, and via other TV platforms. Ofcom estimates that, as a result of these decisions, there could be around 1.5 to 2 million additional consumers of premium TV channels by 2015.
INNOVATION: Consumers will in the future enjoy a greater range of innovative services following fresh investment by competing pay TV providers. This could include, for example, new interactive and on-demand services and a much wider range of TV package options. These innovations will also help to drive the deployment and take up of super fast broadband networks.
PRICE: Consumers are also likely to benefit from the availability of smaller, lower-priced TV packages including Sky Sports 1 and 2, and a greater range of bundles combining pay TV, broadband and phone services.
Boosting competition, investment and innovation
Ofcom has concluded that Sky has market power in the wholesale provision of premium channels.
Ofcom has also concluded that Sky exploits this market power by restricting the distribution of its premium channels to rival pay TV providers. This prevents fair and effective competition, reduces consumer choice and holds back innovation and investment by Sky’s rivals.
Today’s decisions are therefore designed to ensure fair and effective competition which should lead to greater investment, innovation and choice for consumers.
The decisions in more detail
Wholesaling Sky Sports 1 and 2: Sky is required to offer to wholesale standard definition versions of Sky Sports 1 and 2. This remedy – known as “wholesale must-offer” – will ensure fair and effective competition. Ofcom has set a wholesale price of £10.63 for each of Sky Sports 1 and 2, when sold on a standalone basis, which is 23.4% below the current wholesale price to cable operators. Most consumers currently buy packages which include Sky Sports 1 and 2 and the wholesale price for this service bundle has been reduced by 10.5% to £17.14.
Allowing Sky to launch pay TV services on digital terrestrial TV: Ofcom has conditionally approved the request from Sky and Arqiva for Sky’s premium channels to be retailed on digital terrestrial TV (“Picnic”). Approval is subject to Sky implementing a wholesale agreement under the supply obligation for Sky Sports 1 and 2. In addition, if Sky decides to offer any movie channels on digital terrestrial TV then those channels must also be offered to other digital terrestrial TV operators, such as Top Up TV and BT Vision.
Proposed reference on supply of movie rights and channels: Ofcom has also found that Sky is restricting the distribution of premium movies and there is ineffective exploitation of subscription video-on-demand movie rights. Ofcom cannot address these concerns fully using its powers and is therefore consulting on its proposed decision to refer the markets to the Competition Commission.
Wholesale must-offer for high-definition, with pricing flexibility: Ofcom has accepted Sky’s argument that HD services are a recent innovation and that pricing flexibility is appropriate to promote future innovation. Ofcom will therefore require Sky to offer Sky Sports 1 and 2 in HD on fair, reasonable and non-discriminatory terms but has not set wholesale prices for those channels. In the event of failure to agree commercial terms complaints may be brought to Ofcom for swift resolution.
Maintaining investment in content: Ofcom has adopted a “retail-minus” approach to setting the regulated wholesale prices. This takes the price at which Sky retails the channels to consumers and subtracts a fixed margin to allow for efficient retailing costs. This approach is designed to minimise any negative impact on sports rights.
Ensuring the effectiveness of the remedy: Ofcom’s remedy covers Sky Sports 1 and 2 as these are the channels that make a material contribution to Sky’s market power. Ofcom recognises that a potential response to the remedy from Sky could be to attempt to undermine it by shifting content onto channels not covered by the remedy. If Sky was to do this to any material extent, Ofcom would review the remedy and would consider extending it to include the relevant channels. This would not require a protracted process, since the substantive issues would be the same as those on which Ofcom has concluded in today’s statement.
Next steps
Sky will be required to make a “reference offer” – a template contract to other pay TV providers – within six weeks of today’s announcement.
The consultation on Ofcom’s provisional decision to make a reference to the Competition Commission closes on 15 May and Ofcom expects to announce a final decision before summer 2010.
Background
Ofcom began its investigation in March 2007 into the pay TV market after receiving a submission from BT, Setanta, Top Up TV and Virgin Media. Separately, in 2007 Sky and Arqiva made a proposal to replace Sky’s free-to-air channels on digital terrestrial TV with pay TV services.
Because the two issues were closely related, in June 2009 Ofcom suspended consideration of Sky and Arqiva’s application pending the outcome of the pay TV investigation.
Ofcom undertook extensive analysis and conducted three public consultations. Today’s statement is the conclusion of this process.
http://www.ofcom.org.uk/consumer/2010/03/delivering-consumer-benefits-in-pay-tv/
Following extensive consultation with stakeholders and analysis of the sector Ofcom has made the following decisions:
1.Sky Sports available on all platforms: Sky must offer to supply Sky Sports 1 and 2 to other retailers – for example, cable, terrestrial and IPTV – at a wholesale price set by Ofcom.
2.Sky pay services on terrestrial: Ofcom gives conditional approval to Sky and Arqiva’s request to offer pay TV services on digital terrestrial TV (known as “Picnic”).
3.But dependent on a wholesale deal: Approval of Picnic is subject to Sky implementing a wholesale deal under the supply obligation for Sky Sports 1 and 2. In addition, if Sky decides to offer movie channels on digital terrestrial TV then those channels must also be offered to other digital terrestrial TV operators.
4.Reference on movies: Ofcom is consulting on its proposed decision to make a reference to the Competition Commission asking the Commission to address concerns regarding the sale and distribution of subscription video-on-demand premium movie rights (but which cannot be addressed fully using Ofcom’s powers).
5.Innovation on HD: Sky must offer to wholesale high-definition versions of Sky Sports 1 and 2. HD is a relatively new innovation. To help to promote future innovation Ofcom has not set wholesale prices for the HD channels but requires them to be offered on fair, reasonable and non-discriminatory terms.
Benefits to consumers
These decisions will deliver significant benefits to consumers:
CHOICE: Premium sport, such as Premier League football matches, will be available to around 10 million Freeview-only homes receiving TV through an aerial, and via other TV platforms. Ofcom estimates that, as a result of these decisions, there could be around 1.5 to 2 million additional consumers of premium TV channels by 2015.
INNOVATION: Consumers will in the future enjoy a greater range of innovative services following fresh investment by competing pay TV providers. This could include, for example, new interactive and on-demand services and a much wider range of TV package options. These innovations will also help to drive the deployment and take up of super fast broadband networks.
PRICE: Consumers are also likely to benefit from the availability of smaller, lower-priced TV packages including Sky Sports 1 and 2, and a greater range of bundles combining pay TV, broadband and phone services.
Boosting competition, investment and innovation
Ofcom has concluded that Sky has market power in the wholesale provision of premium channels.
Ofcom has also concluded that Sky exploits this market power by restricting the distribution of its premium channels to rival pay TV providers. This prevents fair and effective competition, reduces consumer choice and holds back innovation and investment by Sky’s rivals.
Today’s decisions are therefore designed to ensure fair and effective competition which should lead to greater investment, innovation and choice for consumers.
The decisions in more detail
Wholesaling Sky Sports 1 and 2: Sky is required to offer to wholesale standard definition versions of Sky Sports 1 and 2. This remedy – known as “wholesale must-offer” – will ensure fair and effective competition. Ofcom has set a wholesale price of £10.63 for each of Sky Sports 1 and 2, when sold on a standalone basis, which is 23.4% below the current wholesale price to cable operators. Most consumers currently buy packages which include Sky Sports 1 and 2 and the wholesale price for this service bundle has been reduced by 10.5% to £17.14.
Allowing Sky to launch pay TV services on digital terrestrial TV: Ofcom has conditionally approved the request from Sky and Arqiva for Sky’s premium channels to be retailed on digital terrestrial TV (“Picnic”). Approval is subject to Sky implementing a wholesale agreement under the supply obligation for Sky Sports 1 and 2. In addition, if Sky decides to offer any movie channels on digital terrestrial TV then those channels must also be offered to other digital terrestrial TV operators, such as Top Up TV and BT Vision.
Proposed reference on supply of movie rights and channels: Ofcom has also found that Sky is restricting the distribution of premium movies and there is ineffective exploitation of subscription video-on-demand movie rights. Ofcom cannot address these concerns fully using its powers and is therefore consulting on its proposed decision to refer the markets to the Competition Commission.
Wholesale must-offer for high-definition, with pricing flexibility: Ofcom has accepted Sky’s argument that HD services are a recent innovation and that pricing flexibility is appropriate to promote future innovation. Ofcom will therefore require Sky to offer Sky Sports 1 and 2 in HD on fair, reasonable and non-discriminatory terms but has not set wholesale prices for those channels. In the event of failure to agree commercial terms complaints may be brought to Ofcom for swift resolution.
Maintaining investment in content: Ofcom has adopted a “retail-minus” approach to setting the regulated wholesale prices. This takes the price at which Sky retails the channels to consumers and subtracts a fixed margin to allow for efficient retailing costs. This approach is designed to minimise any negative impact on sports rights.
Ensuring the effectiveness of the remedy: Ofcom’s remedy covers Sky Sports 1 and 2 as these are the channels that make a material contribution to Sky’s market power. Ofcom recognises that a potential response to the remedy from Sky could be to attempt to undermine it by shifting content onto channels not covered by the remedy. If Sky was to do this to any material extent, Ofcom would review the remedy and would consider extending it to include the relevant channels. This would not require a protracted process, since the substantive issues would be the same as those on which Ofcom has concluded in today’s statement.
Next steps
Sky will be required to make a “reference offer” – a template contract to other pay TV providers – within six weeks of today’s announcement.
The consultation on Ofcom’s provisional decision to make a reference to the Competition Commission closes on 15 May and Ofcom expects to announce a final decision before summer 2010.
Background
Ofcom began its investigation in March 2007 into the pay TV market after receiving a submission from BT, Setanta, Top Up TV and Virgin Media. Separately, in 2007 Sky and Arqiva made a proposal to replace Sky’s free-to-air channels on digital terrestrial TV with pay TV services.
Because the two issues were closely related, in June 2009 Ofcom suspended consideration of Sky and Arqiva’s application pending the outcome of the pay TV investigation.
Ofcom undertook extensive analysis and conducted three public consultations. Today’s statement is the conclusion of this process.
http://www.ofcom.org.uk/consumer/2010/03/delivering-consumer-benefits-in-pay-tv/
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Comments
Well worth putting off the purchase of sky sports! seriously though if you like sport its not worth putting of the purchase of those channels.
As vm would reduce the price for all customers anyway.
Its good news as every little saving adds up and helps even small ones .:)
So for me any reduction in prices no matter how small is good.
For me its all about stopping sky tv getting away with charging what they want. This is about making it a more level playing feild so other providers can compeate with sky, and this reduction will help.
No mention of red button.
Movies are not included.
Only 2 out of 4 sports channels. And only those in 2 in HD too.
Allows Sky to set the price for HD.
Green light for Picnic.
Doesn't seem to cut the wholesale price too much. VM already claim to make a loss on sports, so if they cut the price by anything approaching 20% they will still lose money.
I would be happy if they gave us the red button function for Sky Sports......HD would be nice, but paying for it is a different matter.:D
You say its only a 10% reduction, well that will do me, as it makes a change for the prices to go down.
And as i say this OFCOM ruling is all about bringing sky into line, and telling them they can NOT get away with putting prices up when ever they want and charging rip off subscription prices to other providers.
Sky To Go Competition Appeal Tribunal
BSkyB responds to Ofcom statement
BSkyB notes today’s statement by Ofcom regarding the outcome of its Pay TV market investigation. The company confirms its intention to challenge Ofcom’s conclusions before the Competition Appeal Tribunal.
Commenting on Ofcom’s statement, a Sky spokesperson said:
“There should be no doubt that Ofcom’s actions represent an unprecedented and unwarranted intervention.
“This is a marketplace where customers are well served with high levels of choice and innovation. Consumers will not benefit if regulators blunt incentives to invest and take risks.
“After three years of engagement with Ofcom, we now look forward to a judicial process which will apply impartial analysis and clear legal standards.”
http://corporate.sky.com/media/press...e_response.htm
Sky will not be doing Picnic so it become a moot point for OFCOM.
Sorry?
uhhhhhh no i don't think so, espn hd. No extra cost, film4hd. e4hd,fxhd,channel4HD plus many others. VM will consume the cost if it means people jump ship to them. It would strenghten their HD offering no end whilst weakening Sky. How many people have said on this forum time and time again that they choose sky purely because Sky offer sports HD and red button?
Why would red button be included. The EU might order Microsoft to give consumers a choice of browsers on Windows but it wouldn't order them to develop a version of Internet Explorer for Linux or the Mac.
Movies - unless Sky were to gain exclusive rights to certain movies and prevent them from being shown on any other channel and not made available through retail channels then Ofcom does not need to get involved here. If Sky have the rights to a cricket series then you need to have Sky Sports, but for movies you have other options.
Sky have invested a lot of money in HD where others haven't. At this point it's too early to start capping the prices they charge when they are still recouping their initial investment.
I would guess that Virgin Media would not substantially pass on any savings to its subscribers but rather pocket the difference to turn a loss into a profit.
I think you're being rather shortsighted, if Sky thought that they would lose subscribers through this they would almost certainly insist on Virgin Media charging a premium for these channels and/or restricting which package the HD channels are available on, much like Sky insists that Sky basics are not available to the basic M subscribers.
Red button is included isn't it?
Why? So far, they have not added any extra costs for HD channels. M subscribers can get the relevant HD channels (BBCHD, ITVHD, 4HD).
XL subscribers can get all HD channels. Why would they change this policy for sport. It would be a great marketing tool if nothing else - get HD on Virgin for no extra fee.
It was far more explicit in OFCOMs draft proposals if it is!
Red button is just simply Sky's method of limiting the content available to other providers. If they were provided on separate sports channels, those channels would have to be put on the rate card for other distributors like Virgin. The red button is a smokescreen that says, oh we can't provide this technology to other distributors, it's too complicated blah blah. It's just a method for Sky to keep their Sky Sports offering better than others.
If Virgin can implement BBC News Multiscreen, there's no reason why this can't be done. Sky don't need to develop anything - they just need to send VM the video transmissions of the relevant matches and let VM sort the rest out (which they would be happy to do!).
I don't think Sky have ever said that...
There was never any reason why it couldn't be done from day one, but it's down to Virgin Media to come to an agreement with Sky and then spare the resources to develop their own version of Sky's red button services. I somehow suspect Virgin Media have other priorities.
Sky is only being forced to offer Sky Sports 1 and 2 in HD and at more favourable terms. The pricing of Sky Sports 3 and 4 and their HD retailing has not been included. (Although I guess the pricing of these is still set by the OFT rate card, and this Ofcom ruling means the current OFT mandated rate card is bring removed.)
VM make a loss on retailing Sky Premiums already. This only brings the wholesale price for them down by 10%. Its hard to tell if that 10% will allow them to break even, and will be interesting if they decide to pass that saving on to the customer and continue to incur that loss. HD will cost them extra on top of this at a price set by Sky rather than Ofcom. It would make great advertising to include HD, but would compound their loss. Perhaps it makes sense as a "loss leader".
I really do doubt that it hasn't been done through a lack of willingness on VM's part. Look at the way Sky behaved over Sky Basics, making ridiculous demands for their channels due to market power.
It is essentially Sky don't want to give away any more than they have to. They are only giving Sports and Movies away as it is due to the rate card otherwise they probably wouldn't do that either. It is the same way that Sky has made no effort to wholesale their HD channels; VM have said repeatedly they want to do a deal with Sky but Sky are just point blank refusing to negotiate.
In any case Ofcom could only force Sky to provide the individual "red button" video and audio streams to Virgin Media, not the red button service as a whole.
VM's loss on these channels was marginal due to OfCom's retail- approach to the wholesale price. I think it was something like £1 or £2 per subscribing customer per month they were losing from it. They were happy to do so as they made profit in other areas (e.g. broadband and telephony). Better some profit than none eh?
Virgin have focused on churn quite a lot since the rebrand e.g. offering VoD for no additional cost (to XL subscribers but even catch up offered to M subscribers for no additional cost). etc It helps to keep customers with VM.
Every TV customer with VM is also another customer not with Sky so less money Sky have to bump up those Premier League rights packages costs etc. I think VM will be willing to take the hit to retain more customers and gain new ones.
After all, the customers who are willing to buy premium HD channels are also going to be relatively high spending (on average) in other areas. Given the largest costs for VM are things like the engineer install and customer support centres etc, they are willing to take a small loss on TV to get an overall profit from a triple-play bundle (or even quad-play).
The evidence from not charging for these new HD channels and taking a small loss on Sky Premiums has to be in support of this.
If Ofcom are going to do something as least do it with some balls. Its an embarrassing cop out.
On the plus side I would hope that VM customers with XL TV will be able to get Sky Sports on HD at a cheaper price than the 20 odd sovs it is now for the SD channels.