Tell Them What You Think ^beta

1.1 This is our third publication on pay TV since starting this project in early 2007. We confirm our view that some content – various sporting events and first-run Hollywood movies – is of sufficient importance to consumers that channels including this content are in their own narrow wholesale markets; i.e. they are not replicable, and other channels are not good substitutes for them. We have added a view on retail markets for consultation, where we believe markets are similarly narrow.

1.2 We confirm our view that content aggregation has enabled Sky to gain a position of market power in these wholesale markets for premium sports and movies channels. We are now also consulting on a similar view in retail markets.

1.3 We confirm our view that Sky is acting on an incentive to restrict the distribution of premium channels, with effects on a variety of platforms including cable, DTT and IPTV. Despite lengthy negotiations and its own claims that it has an incentive to distribute its channels as widely as possible, Sky has still concluded no wholesale agreements for premium channels with non-cable retailers. This situation is not consistent with fair and effective competition. It has a detrimental effect on consumers, in the short term by reducing choice, and in the long term by dampening innovation.

1.4 We have commissioned further work on an additional potential issue arising from market power – high wholesale prices. We are now consulting on the view that: Sky appears to be making high aggregate returns; returns are higher in its wholesale business than its retail business; and margins are likely to be higher in the wholesale of movies channels than sports channels. Sky's high wholesale margins are likely to be reflected in high prices paid by consumers.

1.5 We continue to believe that it is appropriate to deal with our concerns about restricted distribution by imposing a wholesale must-offer obligation under our sectoral powers. The case for doing so does not depend on the evidence of high wholesale prices, but it is strengthened by that evidence. We are now setting out options for the specifics of this obligation. We consult in particular on a range of regulated retail-minus prices for Sky's wholesale products.

1.6 We do not believe there is a case for intervening to require far-reaching changes in the way content rights are bought and sold. We do however believe that there may be a case for more targeted interventions in relation to subscription video on demand movie rights, and in relation to the next FAPL auction.

1.7 Separating the sale of subscription video on demand movies rights from standard subscription rights could promote innovation, especially in relation to IPTV, and might also increase competitive pressure on wholesale margins. We are considering a market reference to the Competition Commission on this subject, but propose first to explore with the Hollywood studios what their current commercial plans are, and whether these would reduce the need for regulatory intervention.

1.8 In sports, the existing FAPL commitments will not apply to the 2012 auction. We therefore intend to review with the FAPL how it intends to ensure that this auction complies with competition law. That might involve exploring with the FAPL whether it is willing to provide new commitments.

The full document is available below

Here are the documents we were able to locate that relate to this consultation: