Ofcom has announced a consultation after complaints from Setanta and Top-Up TV about BSkyB’s plans for premium TV channels on the digital terrestrial platform.
To the casual observer, it would appear that Sky has gone to war with Ofcom. The latest spat between the satellite television provider and Ofcom is being played out over the Freeview box but it just one more of a series of controversies surrounding Sky.
Sky has lashed out at Ofcom for its decision to open a public consultation into the television company’s plans to replace the basic channels it broadcasts over Freeview with its premium sports and movie content.
The consultation has delayed Sky’s move until early next year at the latest, quashing its plans to launch subscription services in time for the new Premier League season starting in August. The regulator has justified its decision to open a consultation into Sky’s plans by pointing to issues around technology, consumer interests and, most importantly, competition.
At the centre of the concern is Sky’s potential ability to stifle competition due to its supposedly dominant position in the pay-TV market and the apparent lack of retail competition in distributing “premium” content such as UK Premier League matches and blockbuster Hollywood films.
Some of Sky’s competitors in the pay-TV market have complained that Sky is unwilling to allow third parties to resell its premium content unless it can also control the retail price.
Its rivals argue that Sky wants to ensure that customers who want to subscribe to premium content have to take the full package of channels from the company, which effectively blocks price competition. Sky’s rivals argue that if retail price competition was introduced and specific channels were offered in isolation via other platforms, consumers could save £150 a year.
Companies such as Setanta, which was co-founded by Leonard Ryan and Michael O’Rourke, and Top-Up TV, which already sell subscription services via Freeview, alongside Virgin Media and BT fear that allowing Sky to launch subscription services over the platform will effectively “kill” off the competition, given that it can leverage its leading position in the overall pay-TV market.
It is understood that Top-Up TV, which sells subscriptions to access channels such as The Discovery Channel and Cartoon Network via the Freeview platform, has tried to open talks with Sky to resell Sky Sports and Sky Movies since December 2005, but has failed to strike a deal. David Chance, the chairman of Top-Up TV and a former Sky executive, said the Ofcom consultation would investigate whether the current market structure is harming consumers. “This is about the absence of retail price competition in premium content,” he said.
Sky’s competitors would like to see the US system for wholesaling premium content adopted in the UK where channels such as ESPN offer their channels on a regulated wholesale basis to ensure retail price competition. There are also concerns over the type of encryption technology that Sky plans to use to offer pay-TV services is different to that used by Setanta and Top-Up TV. It is argued that consumers could be put off buying a new Freeview box due to confusion over the competing systems.
Richard Brooke, the director of corporate development strategy at Setanta, said: “We want Freeview to be a platform without disenfranchisement.” Other competitors have argued that Sky is “muddying the waters” to slow down Freeview’s progress.
Sky has rejected such concerns and attacked the “gang of four” - Virgin, BT, Setanta and Top-Up TV - for blocking competition in order to “be protected from the competition from Sky”. Mike Darcey, the chief operating officer at Sky, described the competitor concerns as conducting “an unseemly scramble to have Sky’s proposals either blocked, or at least delayed… [It is] sad that these four feel the need to elevate their corporate interests above those of consumers who would like to see a new service,” he said.
In an echo of Sky chief executive James Murdoch’s complaint last year that regulation in the UK was “authoritarian” and “more at home in Rangoon than in modern Europe”, Mr Darcey said that Ofcom’s approach was “reminiscent of 1970s industrial planning”. He argued that the regulator had been “duped into playing along with the Gang of Four” and that the fast changing structure of the industry makes this sort of regulatory approach inappropriate. Sky appears to be under siege from regulators. Ofcom has already launched an investigation into competition in the pay-TV market in the UK following complaints from Virgin Media and Setanta. It has also launched separate investigations into the impact that Sky’s purchase of a near-18 per cent stake in ITV will have on the terrestrial broadcaster and its public service remit. The Competition Commission is also investigating the Sky/ITV deal.
The investment bank Merrill Lynch said that it was “reasonably relaxed” about Sky’s plans for pay-TV over Freeview, given that Sky previously offered channels over a digital terrestrial television platform when it was run by Ondigital/ITVDigital.
However, it said that Ofcom’s decision to consider Sky’s move means it is likely to consider the impact of the move in the wider pay-TV market where Sky has a market share of 80 per cent and whether launching the channels over Freeview will enhance that market power. Sources suggest that whilst Sky’s plans for Freeview will be assessed in terms of competition and consumer impact, the larger question of the market structure for premium content would more likely be reviewed as part of the wider investigation into the pay-TV market.
Freeview, which recently overtook Sky in terms of subscriber numbers, has been considered the biggest threat to the satellite television company over recent years. The free-to-air digital service offers consumers a wide array of channels and interactive functions, and more recently, the ability to record and playback television shows that have already been broadcast, functionality that was previously only available to people that took expensive subscriptions to satellite or cable television.
Sky, which has dismissed concerns over the threats to its business model as coming from “a Greek chorus of doom-mongers”, has reacted by announcing plans to launch its popular Sky Sports, Sky Movies and Sky One channels on to the free-to-air platform.
The satellite television company has reacted angrily to the lengthy consultation arguing that the regulator had previously opened up Freeview to pay-TV services and did not investigate whether the launch of Setanta or Top-Up TV’s services would impact competition.
It believes that the definition of the pay-TV market that is being bandied around is inaccurate as it does not factor in video-on-demand services or new broadband-based TV services accessible via computers such as Joost.
Sky’s argument is that Setanta and Top-Up TV already offer pay-TV services through Freeview. It claims Ofcom opened up the free-to-air market for subscription services in April 2006 and that Sky’s plans are aligned with the regulator’s previous comments.
A source said that the public consultation contradicted previous regulatory guidance and that the speed of the consultation was “glacial”. A Sky spokesman said that its plans would “increase competition and bring better choice of programming to the Freeview platform”.
However, Ofcom denied the consultation contradicted previous guidance, arguing that its statement in 2006 was “generic and general” and that it said at that time that it would treat each application on a case by case basis.
“Sky is an organisation with a very strong market position in Pay TV. It is essential that we properly consider any competition issues arising from the proposal,” the spokesman said.
Players in the Freeview controversy
Virgin Media
Already in dispute with rivals Sky over carriage fees, the cable company is concerned by Sky’s alleged dominance in the pay-TV market.
SKY
Planned to launch its most popular channels on Freeview for consumers to subscribe to, but has now been hit by an Ofcom inquiry that will mean delay. Argues that the move would augment consumer choice and points out that rivals already offer pay-TV over the platform.
Setanta
Will offer subscription-based channels broadcasting live Premier League football games next season. Concerned that incompatible technologies used for different pay-TV channels will impact Freeview’s progress.
Top up TV
Has offered a range of subscription-based channels over Freeview since 2004, including The Discovery Channel and Nickelodeon. Has been unsuccessfully attempting to add Sky’s premium channels to its service since late 2005 and fears it will lose out to the greater marketing muscle of Sky.
Ofcom
This week launched a public consultation into Sky’s plans after the satellite-TV company formally submitted a request to offer subscription services over Freeview. Has already launched a review into the wider pay-TV market.
Original source: Independent.co.uk
