Extensive response to Ofcom pay TV review

Ofcom has revealed that it has received an "extensive" response to the latest consultation on a wholesale access model for premium content in the pay TV industry.

In an investment briefing held today, Ofcom's new chief technology officer Steve Unger revealed that all formal responses to the proposal, including one from Sky, are currently being reviewed.

The regulator first initiated its consultation into the pay TV industry back in 2007 after receiving a joint submission from BT, Virgin Media, Setanta and Top Up TV.

In June, it signalled an intention to disrupt Sky's "market power" by regulating wholesale access to premium content, particularly the Sky Sports and Sky Movies bouquet of channels (both standard and high definition variants).

The proposed model would involve freeing up access to Sky's subscription video-on-demand movies and premium sports content at significantly reduced prices. For example, the current wholesale price for Sky Sports 1 and 2 of £18.39 per month, per subcriber (based on June figures) would drop by 15% down to £15.69 under Ofcom's plans.

Unger said that a new licence condition on the channels would be used to implement the approach under Section 316 of the Communications Act, which refers to "fair and effective competition". However, Sky's own platform would be exempt from the model, along with all associated commercial premises and pricing thereof.

Writing in The Times last Friday, Sky chief executive Jeremy Darroch said that the "virtuous circle of risk and reward" in the pay TV industry is under threat from Ofcom's regulatory plans.

Darroch claimed that Ofcom's plan would "undermine Sky's ability to earn a fair return" from its channels, but he did indicate that Sky would happily enter into a wholesale access arrangement if the terms were right.

Unger accepted Sky's willingness to participate in some kind of wholesale regime, but also indicated that the two organisations still disagree over pricing, largely because Sky insists that prcing should remain solely in its domain, not Ofcom's.

He explained that pricing has been set to encourage long-term growth rather than benefit companies trying to make a "fast buck", and stressed that the model "would not be disruptive" to Sky's business. Unger also observed that the risk/reward balance associated with Sky's heavy investments in premium content rights back in the 1990s is "less relevant" to revenue calculations today.

Previously, Darroch has also expressed concern that the plans would limit motivation for other platform holders to make similar investments in securing premium rights. However, Unger believes that it would be quite the opposite.

"As those businesses build their subscribers bases, they will be in a better position to bid for rights," he said.

"Despite the presence of the wholesale must offer they will have an incentive to bid for those rights, because ownership of those rights brings editorial and branding control of the channels they are able to develop. So on balance we even feel this could even be beneficial to rights owners"

Also speaking at the briefing, Ofcom chief executive Ed Richards indicated that the regulator intends to issue a further statement on the consultation around Christmas, which he "fully expects" Sky to mount a strong appeal against.

However, both Richards and Unger pointed out that it would be "highly speculative" at this stage to judge the grounds of such an appeal as Ofcom has not even reached a firm conclusion as yet.