By: scottvine
Pay TV - the two sides set out their cases
Yesterday, Ofcom published the non-confidential versions of the Pay TV joint submission by BT, Setanta, Top Up TV Europe, and  Virgin Media calling on Ofcom undertake a market investigation of the pay TV market and the response by BskyB stating that there is no basis for such an investigation. In March this year Ofcom announced that, following the preliminary joint submission (by BT, Setanta, Top Up TV Europe , Virgin Media), it would undertake a market investigation of the pay TV market. Ofcom intends to publish a Consultation document as part of this investigation shortly.
According to BT et al the structural set up of the Pay TV market in the UK creates “a vicious circle of mutually reinforcing upstream and downstream bottlenecks, competition in the pay TV market is prevented, restricted or distorted”. So a firm (Sky) with access to the best content - Sports rights and premium film rights - builds a strong customer base on the back of this content, which in turn allows it bid higher for other rights, and leaves everyone else with nothing to entice viewers away.
Unsurprisingly, Sky don’t quite see things that way and say in “essence the complainants’ objection is to the success of Sky as a broadcaster” and “there is no reason to believe that the Complainants’ misconceived, exaggerated and cynically self-serving Complaint necessitates a Competition Commission investigation.”
I’ve skim read both docs and very entertaining there are too, especially the Sky one. Like in their court docs in their ongoing case with Virgin Media, it is quite hard not to find yourself coming round the Sky’s position - not necessarily because BT et al don’t have some valid arguments, but because Sky can deflate the effect of many of them. For example Sky is only too happy to quote back statement’s from the complainant, such as “We have now, in my opinion, the most superior pay-TV basic service in the UK. For avid sports fans, Virgin Media is the only place that [they] can watch all the 138 Premier League games through one single provider.”
Sky also argue that Free to air TV, internet TV sites like Joost, DVD services, and on demand services should all be looked at when deciding its position in the market.
Of course, there is a fair bit of smoke and mirrors on both sides here. Ofcom will investigate, and I would predict at this point that they will more than likely refer the market to the Competition Commission. What side the CC will come down on is a harder thing to predict, although remedies relating to the sale of rights by Sky’s wholesale operation is the most likely to be targeted if any remedies are deemed necessary.
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Dec 7th 2007
Good post, Scott.
I haven’t read the documents yet — amazing that it took such a long period of time for ANY documents to be released to the public on this. These are matters of public importance and debate, but it took the better part of 2007 for anyone at Ofcom to think the documents should be circulated to an audience wider than the handful of lawyers involved.
I tend to agree with you on the substance — it’s easy to side with Sky… who wants to hear BT or Virgin complain that they cannot create or acquire good content in the open market? That’s tantamount to saying they cannot compete either creatively or financially. Time for new leadership if that is the case. Where is the next Barry Diller?
I don’t recall the exact theory, but I recall the Chicago School (Stigler, Peltzman) theory of regulation is that firms acquire regulation for their interests. I hope Ofcom does not fall into this trap — giving BT and Virgin regulatory benefits that a firm would otherwise have to earn in the marketplace.
But I suppose I’ll keep an open mind until I have read the documents…
Dec 7th 2007
Sky’s opponents also fail to realise that the process of screening and promoting content in part creates it’s value. Invariably, viewers don’t know what they want. Therefore, rather than spending time looking for regulatory hand-outs they would be better searching for unique and compelling content where the potential has yet to be identified by Sky or other broadcasters - and then taking a risk on it. It’s a long process being successful and it would be somewhat counter-productive of Ofcom or the CC to help people wanting to take shortcuts in my view.
Dec 11th 2007
It amazes me how people support Sky. Sky had it difficult in the early days but since it was allowed to become a virtual monopoly has had it easy.
Imagine if programs where food. In the citys you could shop at skyco or virginco. But if you shopped at virginco you would find most of the food had a skyco label on it. In the country you could shop at skyco or not eat. If you came up with a new line of food you would have pay to sell it through skyco or lose half your market. If you where an independant and found a new food that people wanted, you would have about a year before skyco got out its checkbook and bought it all up.
Sky should be forced to split like BT is forced to LLU.
Dec 12th 2007
Dave F - I don’t side with Sky on this issue, although I often thinkn that Virgin and others make Sky’s job looking better than they should much easier - moaning about losing Lost one minute, crowing about having the on demand rights to Lost the next for example. As I say in the original post I would expect this market to get refered; and Sky being forced to split its wholesale and retail businesses is certain to be something they will look at closely if they percieve this to be a bottleneck in the market. Either way, we are probably looking at the second half of 2008 before anything happens here.