Ofcom seeks intervention on movie and sports rights

By Julian Clover | June 26, 2009

BSkyB has reacted angrily to Ofcom proposals for “targeted interventions” in subscription video on demand (S-VOD) rights and the next auction for Premier League rights.

“We want our premium channels to be widely available on other platforms. But we deserve a fair return on the investments which create so much value for other distributors and their customers. Forcing Sky to sell its channels for less than their true value is a subsidy for companies that have shown no appetite for investment in programmes,” said BSkyB CEO Jeremy Darroch. “BT and Virgin Media do not deserve to be handed a reward at Sky’s expense for their repeated failure to invest. It defies belief that Ofcom expects Sky to lower its wholesale prices to compensate for the higher costs of less efficient platforms.”

Darroch described Ofcom’s proposals as creating “an unprecedented level of interference in commercial markets”, saying that good regulation does not require micro-management. “This country needs more companies which innovate for consumers and invest for the long term. Consumers will not benefit if regulators are allowed to intervene to limit the legitimate rewards and opportunities available to successful companies. Punishing success has a chilling effect on incentives for investment and undermines the attractiveness of the UK as a place to do business.”

The proposals came as part of a further consultation, the regulator’s third on the UK pay-TV market, which outlines details of the proposed ‘wholesale must-offer’ obligation previously set out last September. The initial enquiry was sparked by a joint complaint made in July 2007 by BT, Setanta, Virgin Media and Top Up TV.

Ofcom says it considers Sky to have market power in the wholesale supply of channels, particularly movies and football, and that it is acting on an incentive to limit the distribution of these channels to rival TV platforms.
In forcing Sky to make the channels available on a wholesale basis Ofcom says it has found the fairest remedy to broadcasters and consumers. “Ofcom believes that this remedy will enable other TV broadcasters to access and offer these premium channels, thereby promoting choice and innovation,” the regulator said in a statement.

“We do not believe that this proposed remedy would have a disproportionate impact on Sky, since we consider the proposed prices are above the level required to allow Sky a reasonable return on its content costs.”

Opening up a new issue Ofcom believes consumers are facing a restricted choice of channels and platforms in the short term and in the longer term may be deprived on innovative distribution technologies.
A key issue is that although Sky has the rights to offer subscription video on demand it has to date chosen not to exploit them. The regulator wants to split subscription video on demand rights from those covered under a standard subscription and is considering a reference to the Competition Commission.

Before this Ofcom intends to establish the intentions of the Hollywood studios, to see if a regulatory intervention would be necessary.
Ofcom is considering a market reference to the Competition Commission on this subject. However, we propose first to explore the commercial intentions of the Hollywood studios, and whether these would reduce the need for regulatory intervention.

Discussions with the Premier League are also planned before the next auction for live broadcast rights scheduled for 2012. The Premier League has already made a number of commitments on the auction process, but these will expire before the renewal, and Ofcom is keen to get a new commitment.