Ofcom bids to control Sky pricing
April 1, 2010
As expected UK regulator Ofcom's review of pay-TV has concluded that it should regulate BSkyB's wholesale pricing of its sports channels in a bid, it says, to increase competition and thereby lower prices and increase innovation. Six weeks from now Ofcom expects Sky to cut its ratecard for each of Sky Sports 1 and 2 by 23.4 per cent individually and by 10.4 per cent when they are sold together. It will not regulate the HD price â€“ recognising the innovation cost, but will insist they are priced 'fairly'. Ofcom is still consulting on referring Sky's position in the premium movie sector to the Competition Commission, though it is clear it has only not brought forward similar proposals in this area because it falls outside its remit. Ofcom is implementing its terms through new license conditions for Sky drawn up under its competition broadcasting powers under Section 316 of the Communications Act 2003.
Sky's response has been as predictable as Ofcom's verdict; it flatly rejects the proposals as an 'unprecedented and unwarranted' interference in the free market and will now seek to overturn Ofcom's rulings in the courts: “After three years of engagement with Ofcom, we now look forward to a judicial process which will apply impartial analysis and clear legal standards.”
In the same announcement Ofcom has said that â€“ subject to Sky obeying the ruling on regulated pricing â€“ it can go ahead with plans to put Sky premium channels on DTT. Sky has already dismissed this out of hand as a worthless sop.
Ofcom believes Sky has a dominant position in premium programming and exploits it by restricting competition via overcharging for its channels. Ofcom thinks making Sky cut its prices to competitors will mean others will bid for rights and make different â€“ and cheaper â€“ package propositions to the consumer. It estimates there could be a further 1.5- 2m premium subscriptions by 2015 as a result.
However, this appears to rely on Sky not bidding as much for rights, as with a regulated price it isn't as profitable, and others coming in to pick up the bidding slack. But there appears nothing to stop competitors merely retailing Sky's channels at a higher margin and pocketing the benefit. Sports bodies have reacted furiously, Francis Baron, RFU CEO, said: “The RFU is incredibly disappointed that its concerns, and those of all other affected sports rights holders, have not been taken into account by Ofcom whose consultation process was inadequate and flawed. Ofcom set out to review Pay TV but in doing so have ended up interfering in the sports right market where they have no competence nor experience and their intervention will remove competition from the sports rights market. Ofcom’s proposed approach effectively confiscates our rights and donates them to organisations who have consistently declined to invest in sports rights despite having balance sheets that dwarf Sky’s.”
One of those competitors is BT Vision and BT Retail CEO Gavin Patterson expressed disappointment that Ofcom had not gone far enough: “Ofcom should have gone much further than it did. They have dropped movie channels, which should have been included. They should have included all Sky Sports channels, not just two. The wholesale price for the two sports channels is higher than the regulator had previously suggested. Pubs and clubs should also have been offered some help as they have no option but to pay sky high prices.” Because Sky has only regulated Sky Sport 1 and 2 it has warned Sky that if it moves premium content away from 1 and 2 the restrictions will be extanded.