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Delivering consumer benefits in Pay TV

TV sport mainOfcom 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.


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.

Click here for copies of the full statements and of the consultation published today

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