Decisions by the media regulator Ofcom on live television rights represent a setback for Sky, but not the major blow they could have been. It has been proposed that the satellite television operator should sell its live football to rivals at regulated wholesale prices. But following an 18-month investigation, OfCom declined requests by BSkyB’s rivals to immediately refer the company’s allegedly unhealthy dominance of the pay TV market to the Competition Commissioner.
Decisions by the media regulator Ofcom on live television rights represent a setback for Sky, but not the major blow they could have been. It has been proposed that the satellite television operator should sell its live football to rivals at regulated wholesale prices. But following an 18-month investigation, OfCom declined requests by BSkyB’s rivals to immediately refer the company’s allegedly unhealthy dominance of the pay TV market to the Competition Commissioner. Virgin Media, the cable TV operator, along with BT, Setanta and Top Up TV, were presing for a referral to the Commission in the hope that it would lead to BSkyB’s break-up. The new arrangements should enable Virgin and others to resell BSkyB’s football output to consumers at a profit. The regulator said BSkyB exercised ‘market power’ in the supply of wholesale premium content, which led to concerns it was likely to restrict rivals’ access to it. Ofcom believes its proposal could be implemented next year. BSkyB declined to comment on the possibility of a legal challenge. It was the second piece of bad news for BSkyB in a few days, On Monday the Competition Appeal Tribunal ruled that BSkyB should sell down its 17.9 per cent stake in ITV to below 7,5 per cent. It bought the stake in 2006 to successfully block the proposed takeover of ITV by Virgin Media.
BSkyB should retain its position as the largest pay TV operator, with 9m customers, if the Ofcom proposals are implemented. However, they should give a boost to Virgin which currently has 3.5m customers. Virgin and others should be able to sign up a few hundred thousand additional pay-TV customers if the Ofcom proposals are implemented. However, analysts think that these should be mainly new subscribers rather than BSKyB defectors. BSkyB’s wholesale fees are estimated to represent 4 per cent of its revenues. A severe 10 per cent cut in wholesale prices would reduce BSkyB’s earnings per share by 3 per cent in 2010.
It is interesting to recall how far television fees for football broadcasting have gone up. In 1983-5 and 1985-6 the deals with BBC and ITV were worth £12m with rights fees of £0.5m per match. By 1988-91 the deal with ITV was worth £100m with a rights fee of £1.38m per match. With the arrival of the Premiership the first Sky deal in 1992-6 was worth £425m with a rights fee of £1.41m per match. By 2007-9 the overall deal, now involving Setanta as well, had quadrupled to £1,706m with a rights fee of £4.76m per match for Sky and £2.84m for Setanta.