Stephen Wisking, Partner, stephen.wisking@hsf.com

20 MAY 2014

PAY TV UNDER THE COMPETITION REGULATORS’ SCRUTINY

THE FRENCH AND UK PERSPECTIVES

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• Pay TV Supply Chain

• History of Regulatory Scrutiny

• BSkyB/ITV

• Pay TV Movies

OVERVIEW

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PAY-TV SUPPLY CHAIN

Content rights holders

Content aggregators (including channel providers)

Pay-TV retailers

TVOD SVOD ‘Basic’ pay channels

‘Premium’ pay channels

Consumers

Pay-TV platforms

DTHCableDTT/IPTVDTTIPTVOpen Internet

Advertisers

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HISTORY OF REGULATORY SCRUTINY

• 1995 Sky cable price Undertakings to the DGFT (reviewed every two years)

• 1999 Restrictive Practices Court (Premium League, Sky, BBC)

• 2000-2002 OFT Competition Act Investigation of Sky

• 2006-2009 review of Sky acquisition of 17.9% of ITV

• 2007-2010 Ofcom Pay TV review

• 2008-2009 CC review of BBC/ITV/Ch4 VoD JV

• 2010 - ? Pay TV review appeals

• 2010- 2012 CC Pay TV Movies review

• 2014 Further Ofcom Pay TV Review

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SKY/ITV

• Sky acquired 17.9% in ITV plc a FTA broadcaster

• Public interest referral to the CC (plurality)

• Ability to materially influence:

• Ability to block special resolutions

• Potential to limit strategic options

• Weight would be given to Sky’s views

• All TV market analytical framework – FTA is a constraint on Pay TV – includes VoD

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SKY/ITV

• SLC because Sky could influence:

• Content production/commissioning

• Investment in HD on DTT

• Influence acquisitions by or of ITV

•No SLC in relation to:

• TV advertising

• Pay TV

• News provision

• No plurality concern

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SKY/ITV APPEALS

• JR grounds only

• Challenge on the basis that the CC failed to meet the standard of proof for material influence/SLC rejected by the CAT/CoA

• Virgin successfully challenged in the CAT the plurality test applied by the CC but reversed in the CoA

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PAY TV REVIEW

• 2007 complaints by BT, Setanta, TopUpTV and Virgin Media to Ofcom seeking a market reference to the CC

• 2010 Ofcom decision:

• Wholesale must offer remedy in respect of SS1 and SS2

• Consultation on a reference to the CC in relation to movies

• At the same time conditional approval of Sky’s 2007 application to offer a pay DTT service

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CC PAY TV MOVIES

• Referred the supply/acquisition of Pay TV movie rights for linear broadcast/SVoD services in the first pay window (FSPTW) and wholesale supply of packages including Sky movie channels

• Ofcom concern that Sky’s position in relation to SVoD rights could impede competition – CA98 and sectoral powers limited

• Theory of harm – vicious circle – without access to rights difficult to compete for retail subs and without retail subs harder to compete for rights

• CC provisionally finds an AEC in 2011 but not in the final report in 2012 – market developments and the reappraisal of evidence critical

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MARKET DEFINITION

• Context specific – wider than Ofcom/OFT but narrower than ITV

• Pay TV retail market including movies, sports and basic channels and SVoD but left open whether incl. TVoD and PPV

• FTA, telephony and broadband out of market constraints

• Did not define the market at the wholesale level

• At the content level all movie content in the FSPTW (not limited to Hollywood majors)

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CC ANALYSIS

• Sky is found to have market power in the retail market

• Difficulties of switching

• Costs of large scale entry and expansion

• Increased competition from Lovefilm and Netflix not enough

• But market power had not prevented development of SVoD services

• Sky Movies content was only significant to a small minority of Pay TV subscribers in choosing a Pay TV service

• Other attributes more valued than recency (e.g. cost, contract periods and range of content)

• OTT services are substitutable

• Change from PFs

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CC ANALYSIS

• Barriers to acquisition of rights were limited:

• Lower barriers for OTT retailers and expected to erode further

• Change from PFs

• It follows no strategic incentive to limit supply of Sky Movie channels to other retailers:

• Evidence inconclusive as to whether terms of supply placed other retailers at a disadvantage

• Change from PFs