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Old 1st October 2008, 10:41   #1
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Default Will Ofcom make TV football cheaper?

Could Ofcom's Sky consultation make live football cheaper to watch?

Owen Gibson
Tuesday September 30 2008 14:33 BST
The Guardian

Debate over Sky's market influence over how much we pay to watch football is the pay-TV equivalent of Groundhog Day.

So will today's news that regulator Ofcom may force Sky to make its football and movies cheaper to competitors lead to cheaper pay-TV packages for us?

The debate over Sky has raged since Alan Sugar - then an object of derision for Spurs fans and manufacturer of white satellite dishes rather than a gruffly loveable TV star - was overheard telling then Sky chief executive Sam Chisholm to "blow them out of the water" to secure the TV rights to the fledgling Premier League. Was Sky an 800lb gorilla crushing the competition underfoot? Or a British success story that improved the entertainment options of millions and turned the Premier League into the glitziest, richest and often greatest sporting show on earth? Probably a bit of both.

First, a bit of context. In the past 16 years, rivals have perpetually complained that Sky's dominance of premium movies and sport has hampered their ability compete. ITV Digital, the mismanaged train wreck undone by misguided strategy and poor technology, complained that Sky's wholesale rates helped to send it bust. Cable companies accused Sky of hampering growth by adhering to the letter of the law to ensure it sold premium content at a fair price - but consistently flouting the rules in spirit. NTL and Telewest blew billions before merging and becoming Virgin Media, which promptly became the loudest complainant to date. Meanwhile, a new breed of competitors - Setanta, Top Up TV, BT Vision - queued up to complain that Sky was unfairly using its position in the market.

Ofcom's stab at solving this perennial puzzle boils down to revamping the rules that currently apply to cable - forcing Sky to offer its movie and sports channels to rivals at a reasonable price - and extending them to everyone. Price will be set by a formula based on the "retail minus" principle. In other words, Ofcom will look at how much Sky sells its channels for and deduct the costs, using the outcome to set a wholesale price for its rivals. What will this mean to the average punter? Presuming the proposals survive the consultation process unscathed, Ofcom thinks it would lead to lower prices, more choice and greater innovation. Critics, particularly those in Osterley, think it might mean the opposite.

It could give Setanta - which faces a tough struggle to boost subscriber numbers, having shelled out hundreds of millions of pounds on rights - a boost. It would be able to buy Sky's channels, bundle them and sell them at an attractive price - perhaps even as a loss leader - to boost its own subscribers.

Operators like Top Up TV could offer Sky premium channels as an add-on to Freeview. In these cash-conscious times, might the idea of Freeview plus Sky Sports be an appealing idea for a significant minority of Sky subscribers?

Sky argues that it has won all its rights in free and fair auctions and, having gambled billions on building its business, should be free to reap the rewards. And it will point to Setanta's very existence and the European Commission directive to make sure at least one package of Premier League rights goes to a rival as evidence that the market is working.

Nowadays people make their pay-TV and broadband choices based on a host of factors from customer service to technology to choice, not just on how much it costs to see Arsenal play.

The truth is that the outcome could have been much worse for Sky and, while it will do little to change chairman James Murdoch's less than rosy view of regulation in general and Ofcom in particular, less partisan observers will probably chalk it down as a draw. Analysts have already suggested as much, with UBS saying this morning that the Ofcom proposals could lead to a "fair outcome" and a "swift resolution" for Sky.

The most interesting - and potentially damaging - unintended consequence could be on the value of rights. Will Sky's rivals be as keen to engage in a head-to-head auction for Premier League rights, say, in the knowledge they are guaranteed access to the games at a regulated price anyway?

The Premier League was banking on another bumper haul when the rights come up for auction again next year, but if Ofcom's proposals remain unchanged the ripples will reach all the way from the living room to the football pitch.
Our lives begin to end the day we become silent about things that matter. Martin Luther King
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