Ofcom is set to launch an investigation into the whole of the UK pay-TV market at the behest of several organisations including BT, Setanta, Top Up TV, and Virgin Media. The investigation will examine the entire market, and decide if it should be referred to the National Consumer Council (NCC) for further scrutiny.
The call for an investigation is most likely the result of a number of recent developments in the market, including a number of movements made by Sky, most notably the TV company’s plans to replace its current Freeview channels with a subscription service, and the recent withdrawal of its channels from Virgin Media.
Previously, the NCC has also called for a ‘temporary truce’ between Sky and Virgin, so that the withdrawn Sky channels are once again made available to cable viewers in lieu of the results of the Ofcom survey, and has recently accused the two companies of “behaving like children”. Ofcom were already examining Sky’s controversial purchase of a 17.9% stake in ITV made last year.
The outcomes of this investigation could however have an affect on Ofcom’s decision to allow Sky plan to launch pay-per channels on Freeview, which would see the removal of Sky News, Sky Sports News and Sky Three from the DTT platform, and could also see the satellite TV giant facing a regulatory grilling over accusations of unfair trading, after the much-publicised loss of Sky channels from Virgin’s TV service on the 1st of March – Virgin countered this move with talk of legal action if a compromise wasn’t reached in 30 days.
The most extreme result of the enquiry could see the break-up of Sky, or see the media company being hit with a large fine, similar to the one doled out to Microsoft by the EU in 2004, for its anticompetitive practices in the IT market. In the past, Sky has clashed with the European Commission, which deemed that its monopoly on sports broadcasts to be against consumer interests, resulting in Setanta acquiring rights to broadcast Premier League football matches.
Sky has responded to the announcement of the investigation by stating that its rivals, Virgin Media in particular, have a “commercial interest” in limiting the growth of Sky in the market, calling for Ofcom to investigate Virgin’s monopoly on cable.
A Sky spokesman says it would expect Ofcom to look at the “physical and legal barriers and business practices that shield Virgin Media from true competition and prevent consumers from enjoying lower prices in broadband and telephony and greater innovation and choice in television,” effectively saying that if Sky are going to be hit with fines and the possibility of being broken up, then they want the same to happen to Virgin too.
Despite the apparent emphasis on Sky – who were made immediately conspicuous by not being included in the group that called for an investigation – Ofcom are keen to emphasise that the probe will examine the pay TV market as a whole, and not just the activities of one company.
David Chance, the chief executive of Top Up TV, said: “Our concerns focus on the structural flaws in the market, which restrict the development of competing services and consumer choice,” with Andrew Parker BT Retail adding: “We think that Ofcom is right to investigate the pay-TV industry. It’s clear to us that there are problems in this market and it’s not been working well for customers. We believe consumers should be getting more choice and better prices.”
Sky enjoyed its position as the main provider of non-terrestrial TV, and many will remember how quickly it reacted to the threat of competition posed by the now defunct ITV Digital. Top Up TV would struggle to compete with Sky on the Freeview platform, and BT, who have just launched their own combined Freeview/pay-per view IPTV service are already competing with Sky in the converging broadband/telephony area. With its track record for aggressive strategies – exemplified in the recent anti-Virgin ad campaign – Sky have found the competition unwilling to play by their rules.
Pay-TV includes subscription and video-on-demand television services on all platforms - cable, digital terrestrial television, satellite and TV over the internet.
The Competition: The Gang of Four vs Sky
- BT – compete with Sky over telephone and internet services, as well as digital TV content, some of which is bought wholesale from Sky. Sky have been very rapidly ‘unbundling local loops’ – the installing of phone and internet equipment – in BT’s phone exchanges after Ofcom ruled that the telco should decentralise to free up the telephone market. A similar ruling from Ofcom could be applied to Sky as a result of this investigation.
- Virgin Media – as the second largest UK provider of non-terrestrial digital TV runs in direct competition with Sky. Has been embroiled in a very public debate over carriage fees for Sky channels which it lost at the beginning of March this year. Virgin Media owns and runs many channels which are broadcast on Sky, such as Bravo, and Living TV. Like BT, Virgin also compete with Sky over Broadband internet and phone services.
- Setanta Sports – Setanta Sports was successful in its bid for the rights to broadcast a third of the English Premier League football matches for the seasons between 2007 and 2010. Exclusive Premier League broadcasting rights had long been a feather in Sky’s cap, ensuring that football enthusiasts would sign up to their services. Setanta Sports is available on subscription on all the UK pay-TV platforms.
- Top Up TV – Top Up TV operates alongside the Freeview service, offering viewers a variety of subscription channels alongside the standard free-to-air DTT channels, as well as access to Setanta’s sports services and Picturebox, a movie package. Top Up TV offers a service somewhat comparable to Sky, with less channels and options, for a subscription rate that is significantly lower. Sky being allowed broadcast pay-per view content to Freeview boxes could seriously undermine the value of Top Up TV’s services to customers.
