11.00 Update: Ofcom has warned Sky that it will review the wholesaling of its premium sports channels if the broadcaster were to shift content to channels not covered by proposals to open up its premium channels to rival operators.
“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,” Ofcom warned.
After three years and three separate consultations the regulator’s pay-TV review has concluded that Sky must supply Sky Sports 1 and Sky Sports 2 across all platforms. On condition of a wholesale deal being concluded, Ofcom has given approval to the Sky-Arqiva terrestrial pay plan known as Picnic. If Sky chooses to offer movie channels as part of a terrestrial offer then those channels must also be offered to other terrestrial operators.
BSkyB has said it is looking forward to the judicial process after Ofcom published the long-awaited conclusions of its pay-TV enquiry.
Under Ofcom’s remedy known as “wholesale must-offer”, the regulator has set a wholesale price of £10.63 (€11.90) per subscriber per month when sold on a standalone basis. This will reduce the price by 23.4% below the current wholesale price to cable operators, short of the 30% that had originally been proposed. Virgin Media, which along with BT, Top Up TV and Setanta Sports brought the original complaint in March 2007, has said it loses money when selling Sky premium channels to its subscribers. The bundle of Sky Sports 1 and 2 favoured by the majority of customers has been reduced by 10.5% to £17.14.
However, Ofcom believes that concerns on the sale and distribution of subscription VOD powers fall outside of its remit even though it believes “there is ineffective exploitation of subscription video-on-demand movie rights”, and has launched a fourth consultation on a possible reference to the Competition Commission.
HD versions of Sky Sports 1 and Sky Sports 2 must also be offered to other providers, but Ofcom has stopped short of setting a wholesale rate, other than to state they should be offered at “fair, reasonable and non-discriminatory terms”.
Sky’s two other premium sports channels, Sky Sports 3 and Sky Sports 4 (the former Sky Sports Xtra), are not included in the wholesale ratecard. Both channels also have HD versions.
“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,” the regulator said in a statement.
BSkyB chief executive Jeremy Darroch said he was disappointed with Ofcom;s conclusions. According to Darroch Sky charged a fair price both to its direct-to-home subscribers and existing wholesale customers. “I think it’s very easy to say it would be nice if everything was cheaper but that is an argument you can apply to pretty much everything from cars to take away coffee,” he said. “It’s not, in my view, the job of regulators to set prices in free markets unless there’s clear evidence of breach of law or consumer harm and that is manifestly not the case here. You know, in no other country in the world do people seek to regulate the price of TV in the way that Ofcom are proposing and I think that tells its own story”. Darroch said that businesses had so far shown little interest in investing in pay-TV sports and would not do so in the future if they could get access to Sky content at a “knock down price”.
For its part the Ofcom said that it had made its decision in the best interests of customers. “It is in the interest of consumers for these decisions to come into effect as soon as possible to deliver the benefits of wider choice and innovation. We are happy to defend our decision wherever necessary.” It should be noted that when the European Commission intervened to break up the sports rights distributed by the Premier League, consumers ended up paying more.
Gavin Patterson, CEO, BT Retail, described Ofcom’s decision as disappointing, but a step in the right direction, and said it hoped to offer Sky Sports at lower prices than had previously been available by the start of the 2010/11 season. Such a move would require BT to broadcast linear channels over its IPTV network for the first time. “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.”
Sky is now required to make a “reference offer” as a template to other pay-TV operators within six weeks. The new consultation, on the reference of movies to the Competition Commission, will close on May 15 with a final decision expected before the summer of 2010.