Virgin chief: market has failed

Neil Berkett, CEO of UK quad-play operator Virgin Media, has argued against a newspaper article that suggested that comms regulator Ofcom was punishing Sky in its review of the pay-TV market and should leave the broadcaster alone.
In the October 30 article about the pay-TV market, City A.M.’s David Crow suggested that, by forcing Sky to wholesale its premium sports and movie channels to competing pay TV retailers, media regulator Ofcom is punishing Sky’s success. He compared Sky’s investment in sports and movies to carmaker Toyota’s investment in hybrid fuel vehicles. Both companies had to go through lean years initially. They took a risk, it paid off and they should be rewarded for it. As a result, Crow argued, the regulator should leave the broadcaster alone.

Berkett, responding in the November 2 edition of City A.M., said the analogy was "superficially compelling" but missed the point. "Ofcom’s proposals are an attempt to inject fair and effective competition into a market that is not working in consumers’ interests," he argued. "Sky’s overwhelming control of premium broadcasting rights means prices are higher than they need to be, consumers choice of provider is restricted and innovation has been constrained by the limitations of Sky’s satellite technology."

Berkett suggested that without intervention, the pay-TV market would be stuck in a vicious circle. "Thanks to its overwhelming control of premium pay-TV channels, Sky has accumulated around eight times as many premium subscribers as all its competitors put together. This fundamentally affects the economics of rights auctions because Sky knows it can monetise any rights it purchases far quicker than any competing pay TV operator. In short, the way the market is currently structured gives Sky an in-built advantage in any rights auction. This has led to the self-perpetuation of Sky’s dominance.

Berkett concluded by asking the reader to imagine if Toyota had secured exclusive deals with key component manufacturers, which prevented any other manufacturer making comparable cars and simultaneously refused to let any other business retail its cars. "Action would be needed to protect consumers in such a market. That is why Ofcom is proposing to intervene here. Not to punish success but to remedy a market that has failed."