Sky warns Ofcom putting investment at risk

By Julian Clover

June 30, 2009 17.46 UK

Sky COO Mike Darcey has said the satcaster wants to see its premium content widely distributed, but it disagreed fundamentally with Ofcom’s approach, analysis and conclusions. His comments on Ofcom’s proposals for Sky to wholesale its film and sports channels, came at the Institute of Economic Affairs’ Future of Broadcasting conference in London Tuesday.

Darcey said there were just two conditions put forward by Sky for the carriage of its premium content. “First, the platform needs to be technically secure and comply with the requirements of our key rights partners. And second, the terms of distribution need to be such that we can see a prospect of a fair and reasonable return on our investment in content.” He added the debate was not about distribution, but the terms of that distribution, and who gets to set the terms. “In essence, Ofcom’s proposal is that Sky should sell its content for prices that do not fully reflect the underlying costs and the high levels of risk in our content business.”

Darcey said Ofcom’s proposals represented a cut of 30% in the current wholesale rate, making it in effect a subsidy, at Sky’s expense, for BT and Virgin Media. “In proposing to force down the price of content, Ofcom appears motivated principally by a desire to promote investment in new delivery platforms.” He said the two platforms had done little to invest in the content business themselves.

According to Darcey, the regulator believes it can make BT retailing a more attractive business, but in the process risks undermining the £1.3 billion invested by Sky in movies and sports each year. “ When Sky pioneered the launch of HD in the UK a few years back, it was greeted with widespread scepticism – but we pushed ahead and invested hard. If we had known then that Ofcom, a few years later, having seen some initial success, would impose detailed price regulation on our new HD channels, it might just have coloured our enthusiasm for investment in the first place.”

Sky has already publicly stated that it is prepared to challenge Ofcom’s proposals in the courts, and Darcey’s comments can only go down as the opening shots in what is already feels like a protracted battle.