Ofcom consults on pay-TV regulation

zlatan-footballUK regulator Ofcom has published a consultation as part of its review of the pay-TV ‘wholesale must-offer’ remedy. Ofcom’s initial assessment indicates that Premier League and Champions League football are key content likely to be capable of influencing consumers’ choice of pay-TV retailer.

The review will determine whether regulation requiring Sky to offer its Sky Sports 1 and 2 channels to other pay-TV providers to ensure fair and effective competition in the UK’s pay TV sector remains appropriate.

In 2010, Ofcom imposed an obligation requiring Sky to offer to wholesale Sky Sports 1 and 2 at prices set by Ofcom. This was designed to deliver choice and innovation to consumers through greater competition. The obligation has been in effect since 2010 for Virgin Media (cable) and BT (digital terrestrial TV) while litigation has been on-going. In November 2014, it was extended to IPTV for BT.

Ofcom said in 2010 that it would review the obligation after three years in light of developments in the market. In April 2014, Ofcom announced it was commencing this review.

The market today

There have been significant developments in the market since Ofcom concluded its review in 2010. These include wider availability of sports content on competing retail services, more ‘over-the-top’ content providers and new devices on which consumers can access pay TV. Bundling of pay TV with other communications services is more common.

BT has also acquired key sports rights and entered the market as a ‘vertically integrated’ provider of sports channels and as a pay TV retailer.

The consultation

Ofcom’s assessment indicates that Premier League and Champions League football are key content likely to be capable of influencing consumers’ choice of pay-TV retailer. Therefore, Ofcom is consulting on its view that limited distribution of this content may harm competition between pay TV retailers.

Sky currently holds over 75 per cent of live rights to Premier League football and has more than 80 per cent of market revenues from the supply of key sports channels.

The content Sky has is likely to influence the purchasing decisions of a sizeable proportion of high-value customers. Retailers that do not have access to this content would find it more difficult to compete for these customers.

Given Sky’s continued strong market position, Ofcom is seeking views on its assessment that if there was limited distribution by Sky of its key sports content, competition between pay TV retailers may be harmed. Ofcom is also seeking views on whether, given its market position, Sky may have incentives to limit distribution of its key sports content.

BT holds around 25% of live Premier League rights, generating between 10% and 20 per cent of revenues, but has acquired all live rights to Champions League football from next season.

BT may also have incentives to limit distribution of its key sports content. But given the amount of content rights it currently holds and its market position, it is less clear that limiting distribution of its sports channels would harm competition. Ofcom is seeking views on this assessment.

Next steps

Ofcom recognises that the pay-TV sector is evolving rapidly and any assessment is affected by continuing developments in the market.

In assessing whether regulation remains appropriate or whether it should be removed, Ofcom will take account of such developments, including the outcome of the next Premier League auction.

Ofcom will consider responses to the consultation and any further steps will be outlined in a second phase of the review in 2015.

Ofcom completed its review of the UK  pay-TV market in March 2010. It found that Sky restricted distribution of Sky Sports 1 and 2 and set wholesale prices at levels where new entrants could not compete effectively. Ofcom concluded that these practices were harmful to fair and effective competition. The wholesale must-offer obligation on Sky uses Ofcom’s powers under section 316 of the Act. A condition was inserted in the relevant Sky Sports 1 & 2 channel licences, which required Sky to offer to wholesale those channels to other pay TV retailers with certain prices and terms set by Ofcom. The wholesale must-offer obligation was the subject of appeals to the Competition Appeals Tribunal (CAT). The CAT found that Sky had not restricted distribution of the channels. However, the Court of Appeal (CoA) went on to find that the CAT had failed to properly consider Ofcom’s concerns in relation to price of the channels. The case has now been sent back to the CAT. While those appeals are still on-going, the CAT and the CoA have made clear that Ofcom has the power under section 316 of the Communications Act to impose a remedy such as the wholesale must-offer.

Separately, In November 2014, Ofcom opened an investigation under section 25 of the Competition Act into the joint selling arrangements by the Premier League for live UK audio-visual media rights for Premier League football matches. Under section 25(2) and (3) of the Act, Ofcom may conduct an investigation where there are reasonable grounds for suspecting that there is an agreement which has as its object or effect the prevention, restriction or distortion of competition within the United Kingdom and/or the European Union. Ofcom will consider whether there is a breach of the UK and/or EU competition law prohibition on agreements and decisions which restrict or distort competition.

‘Over-the-top’ providers include services such as Amazon Prime Instant Video and Netflix, which offer audio-visual content delivered on the ‘open’ Internet rather than requiring a managed IPTV architecture.

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