Ofcom 1, Murdoch 0. Rupert suffers a rare defeat
The regulator's ruling on Sky's prices for TV sport has rattled the broadcaster
* James Robinson, media editor
* Sunday 4 April 2010
Gary Lineker said that football is a game played for 90 minutes between two sets of 11 men, at the end of which the Germans win. In the world of TV sport, BSkyB are the Germans. Battles between Sky and its adversaries, both real and imagined, tend to end in triumph for Rupert Murdoch's satellite broadcaster – but that orthodoxy was turned on its head last week.
In a ruling last Wednesday, media regulator Ofcom said that it will force Sky to make its valuable sports content, including Premier League games, available to rival broadcasters at a far cheaper price than it currently does. Fans who have had more television sport to choose from since Sky's inception, but have to pay £40 a month or more to watch it, rose from their armchairs in delight.
Ofcom's decision, which will be challenged by Sky in the courts, could herald an era of cheaper TV sport. It must make two of its four paid-for sports channels, Sky Sports 1 and 2, available to other platforms at a "wholesale" price of up to 23.4% less – £10.63 per subscriber per month – than it does now. In theory, those cost savings can be passed on to customers, so Virgin Media might reduce the price it charges its customers for the Sky channels that carry live football, rugby and the England Test matches and much else besides. British Telecom's television arm, BT Vision, has already said it will offer both sports channels to its 500,000 or so customers at a price in the "mid-teens".
The amount of money Sky could lose by being forced to sell its sports channels on for less is relatively small; City analysts estimate it makes just £100m from such deals, out of total annual profits of around £900m. But if the reductions on offer prove enticing enough for consumers to switch from Sky, that could force the satellite company to drop the price of its own sports package. It believes a dangerous principle has been established and will fight hard to protect the content on which its business has been built.
The Sun, still the most powerful title in Murdoch's British newspaper empire, was quick to portray Ofcom as a New Labour invention peopled by "meddling lefties". Its chief executive, Ed Richards, has worked for Tony Blair, Gordon Brown and the BBC. Murdoch's youngest, James, who is now second only to Rupert at News Corp, the sprawling media empire the family controls, delivered a landmark speech last year attacking the size and scale of the BBC, but saved some of his ire for Ofcom.
The Sun abandoned Brown on the evening of his speech to the Labour party conference last autumn, prompting talk of a deal between Murdoch and the Conservative leader, David Cameron. That is vigorously denied by the Tories, but Cameron promised in a speech last year that he would strip Ofcom of its policy-making powers. "Under a Conservative government, Ofcom as we know it would cease to exist," he said.
With a general election just over a month away, a Labour defeat would probably kick Ofcom's pay-TV proposals into touch. It was telling that the Conservatives issued a statement last week emphasising that they believed the regulator should be independent from government, but failed to endorse its findings.
Ofcom's three-year inquiry into the pay-TV market was prompted by a joint complaint from "gang of four" broadcasters, including Virgin Media and BT. They argued that Sky uses it market power to table huge bids for "premium rights", mainly football and films. Sky has spent 20 years building the technology and subscriber base needed to make money from that content. More recent entrants to the market, including British Telecom, which has struggled to make a success of BT Vision, argue they cannot afford to match Sky's bids. As market leader, Sky benefits from a virtuous circle. Little wonder it walks away with the rights to cricket, rugby union (although the BBC screens the Six Nations), rugby league and top-flight football.
Competitors, including Virgin Media and BT, welcomed Ofcom's ruling, arguing that they can finally compete on a level playing field. Sky's chief executive, Jeremy Darroch, reacted like a coach who had arrived at a game to discover the referee had awarded the opposing team a two-goal lead before kick-off – with a mixture of fury and disbelief. "The prices we charge are fair, they're fair for customers and they're fair for the companies we supply our channels to," he said.
Sky argues it gambled by spending unprecedented sums on sports rights, enriching the games it covers, and is now reaping the rewards. It says Ofcom has no right to force it to make expensive content available to competitors at a knockdown price. It has six weeks to draw up new contracts with Virgin and others, but will appeal to the courts for a stay of execution in an attempt to prevent the ruling from coming into force while it prepares a full appeal. A long legal battle lies ahead.
Even if Ofcom's changes are implemented, it may not revolutionise the market. Only two of Sky's four sports channels are affected, but the company can screen big games on any of them. Customers who want to watch Premier League matches, for example, would still need all four, and Sky could continue to portray itself as "the home of sport". Yet the decision is a landmark one, and Ofcom has demonstrated it is nothing if not brave. Regulators, including the European Union, have challenged Sky's market power before, but Murdoch has always outfoxed them.
The fact that the sports bodies which depend on Sky's largesse, and have chosen to sacrifice larger audiences for more cash, also criticised the regulator demonstrates just how cosy the relationship with Sky has become. They fear that Sky will reduce the amount it pays them if it is forced to hand on rights at a knockdown price. The cost to Sky will be minimal, but it is the intent behind the ruling, which demonstrates a willingness to take on the most profitable part of Murdoch's UK empire, that has rattled Sky.
In seeking to break the company's dominance of live TV sport, Ofcom may only have loosened its grip – but that still constitutes a rare defeat for Rupert Murdoch.