Sky Win Pay-TV Appeal: The Ramifications for Football Viewers


August 10, 2012

Summary

An Ofcom decision requiring Sky to sell its Sky Sports 1 and 2 channels to its competitors at a regulated price has been recently overturned giving Sky an important victory against its pay-TV rivals.

Background

For some time Ofcom has been investigating into the way that Premier League (PL) football is distributed to consumers in the UK.  Its main concerns were that Sky (as a wholesaler and retailer of PL football through its Sky Sports channels) could have had an interest in limiting the distribution of premium content, and that it could set its prices at a level as to make selling its Sky Sports channels uneconomical for its competitors like Virgin and BT Vision.

In December 2007, Ofcom launched an investigation into the pay TV market in the UK. Ofcom had competition concerns about the way premium content is distributed by Sky. It issued a number of consultations and in March 2010 published a Decision imposing an obligation for Sky to sell its Sky Sports 1 and 2 channels to its platform competitors (Virgin, BT Vision and Top Up TV) at a regulated price. 

Ofcom’s main concerns were that:

  1. Sky had an interest in limiting distribution of premium content, possibly as a result of a ‘desire to limit the growth of potential competitors’; and
  2. Sky could, in theory, set their wholesale prices at a level above the competitive framework making it uneconomical for other broadcast retailers to compete with Sky.

Both these outcomes were beneficial to Sky as it would mean that subscribers for example, to BT Vision, would not be able to subscribe to Sky Sports because such channels were only available on Sky. (Note: Sky Sports channels have been available on Virgin for a number of years but Virgin had argued at a price which made selling them unprofitable).

Ofcom Decision

The Ofcom decision in March 2010  required Sky to offer at a wholesale level its Sky Sports 1 and 2 channels at a price determined by Ofcom. This would have provided a mechanism for other platform providers to gain access to Sky Sports 1 and 2 on fair and reasonable terms. The decision would have meant, the wholesale price Sky charged for Sky Sports 1 and 2, to platforms such as Virgin Media or BT, would have been reduced by around 10%. 

So What Has Happened Now?

Sky appealed the Ofcom Decision on a number of grounds including the fact that Ofcom’s evidence that it used to show that Sky did not constructively negotiate in good faith with other platforms for the provision of Sky Sports 1 and 2 was flawed. The Competition Appeal Tribunal (the CAT), where the appeal was heard, ultimately accepted  that Ofcom misinterpreted the evidence of the negotiations and as a result, Ofcom’s conclusions were inconsistent with the evidence. As such, the CAT decided for this, and other reasons, Ofcom’s Decision should be overturned. The judgment is available here.

The Significance of the Decision 

  1. As Sky does NOT have to provide Sky Sports 1 and 2 to platforms like BT through an Ofcom regulated price, Sky are free charge what they believe is appropriate to other platforms like BT Vision to show its Sky Sports channels. Platforms like BT Vision and Top-TV (possibly along with Virgin) will have to individually negotiate a price with Sky for Sky Sports 1 and 2. Presumably, if Sky does not like the offer their competitors propose they can refuse to supply the channels.
  2. BT Vision has somewhat safeguarded its position through winning two packages in the latest PL auction process. BT’s desire to win the latest PL rights at source in the latest auction may have also been to ensure they did not have to rely on Sky to show live PL matches. It means regardless of an agreement with Sky over Sky Sports 1 and 2 on its platform, BT Vision will have a number of games from the 2013-14 season to screen to its subscribers.
  3. If commercial negotiations fail between BT Vision and Sky it may start a PL broadcasting war with BT potentially refusing to sell its PL channel (from 2013) on the Sky platform. This could leave both Sky and BT customers without a full set of PL matches to watch on their own platform.
  4. There is little doubt that this is a crushing blow for the regulator Ofcom after over 3 years of investigations and consultations into the provision of live PL matches. Although further Ofcom action cannot be ruled out against Sky, they will have to go back to the drawing board.