BSkyB’s status in the pay-television market has come under threat after Ofcom outlined plans to force it to offer premium channels, including live football, to operators on rival platfoms. The regulator also indicated that it would seek to toughen competition controls over auctions for rights to broadcast Premiership football. Ofcom proposes to force BSkyB to sell on the content of its premium channels to rival broadcasters at regulated prices to ensure competition. The plan could save Virgin Media, the only broadcaster that buys the content, up to 30 per cent.
BSkyB’s status in the pay-television market has come under threat after Ofcom outlined plans to force it to offer premium channels, including live football, to operators on rival platfoms. The regulator also indicated that it would seek to toughen competition controls over auctions for rights to broadcast Premiership football. Ofcom proposes to force BSkyB to sell on the content of its premium channels to rival broadcasters at regulated prices to ensure competition. The plan could save Virgin Media, the only broadcaster that buys the content, up to 30 per cent. Since the wholesale market represents only 4 per cent of BSkyB’s revenue, some analysts believed this would not have a dramatic effect on its business model. At the very worst, the proposals could shave £30m off earnings annually, according to Deutsche Bank. But some analysts believe that BSkyB could see higher revenues if Virgin Media sold more of BSkyB’s premium programming. Under Ofcom’s plans, the premium channels could become available on platforms such as Top-Up TV, BT Vision or other businesses.
The regulator also wants to ensure that the next Premiership auction complies with competition law. But the entrance of ESPN into the market has provided BSkyB with a potentially significant competitor. Richard Scudamore, the Premiership supremo, said ‘We are surprised that Ofcom is seeking to revisit an issue that was addressed to the satisfaction of the European Commision. We will resist any measures that disincentivise media organisations from bidding for our rights.’ The companies whose complaint led to the pay-TV review said this week’s collapse of Setanta was proof of BSkyB’s market power. BT Vision, Virgin Media and Top-Up TV said Setanta could not buy premium football rights at an affordable price because of competition from the satellite giant. But this argument cut no ice with Ofcom who said its role was not ‘to enable weak entrants to earn short-term profits at Sky’s expense.’
It could be argued that Ofcom’s intervention represents a punishment for success. The Lombard column in the Financial Times commented, ‘Sky emerged as a broadcasting powerhouse over the last two decades because it risked billions to acquire the rights to content such as Premier League football. It has since wielded these rights to good effect, using its superior programming to build its retaol subscriber base and keep lesser rivals such as the now-defunct Setanta, at bay.’ However, the column goes on to note that Sky’s argument that it should continue to be rewarded for its risk-taking and innovation only foes so far. Sky’s 70 per cent share of the pay-TV market gives it an incentive to restrict rivals’ access to premium content. The real threat to Sky is not from losing revenues from its tiny wholesale business, but the risk of losing profitable premium subscribers to rivals. To date, Sky has hung on its customers by offering them phone and internet services as well. As a result customer churn has fallen from 13.7 per cent in 2006 to about 10 per cent last year. Even so, the Ofcom intervention could lead to important changes in market structure.