3.6. Tratamiento de la información, procesamiento y análisis
4.6.4. Análisis de la rentabilidad en la implementación de una empresa
4.75 Having found that the appropriate retail market definition for our inquiry was at least as wide as pay TV, we considered next whether it was wider still. In particular, we considered whether, in the absence of barriers to competition, the constraints on pay- TV products came from other pay-TV products or from other sorts of product. Again, we considered both evidence on product characteristics and the ways in which rivalry occurred and sought to apply the hypothetical monopolist test, asking the conceptual question of whether a hypothetical monopolist retailer of pay-TV would be able profit- ably to price above the competitive price by at least a SSNIP.
4.76 As a general observation, we noted that pay-TV products were quite different from other products. Pay-TV products (a) require a monthly subscription (for most tra- ditional pay-TV subscribers this is substantial, often more than £200 per year); and
(b) offer the ability to choose from a large range of content by viewing linear channels and/or on-demand content immediately on TV, as distinct, for example, from DVDs which require upfront payment for the right to view a movie or TV programme and either a shopping trip or a wait for the DVD to be delivered by post. We noted that the latter point was becoming less important over time as more consumers purchased content via EST rather than on physical DVDs (see Section 2) but we judged that, at the time of our report, the distinction between pay-TV products and DVDs/EST remained significant. As a first step in our application of the hypothetical monopolist test, we considered whether a hypothetical pay-TV monopolist could charge higher prices than those charged by existing pay-TV retailers, which involved relaxing the constraint that pay-TV retailers imposed upon each other. However, this was only a first step as, in the presence of barriers to competition, we would have expected the prices charged by existing pay-TV retailers to be above the competitive level (see paragraph 4.51), so some further analysis or reflection on the results was also required.
4.77 We recognized that pay-TV retailers were not identical to each other in that they did not offer exactly the same packages as each other or charge the same price for simi- lar packages, and we accepted that this differentiation limited the strength of the con- straint they imposed on each other. Even so, we recognized that such constraints might be sufficiently strong for pay-TV retailing to be a separate market. According to the hypothetical monopolist test, it would be a market if monopolizing pay-TV retailing (and thereby removing the constraints that competing pay-TV retailers currently imposed on each other) would enable the hypothetical monopolist profitably to impose a SSNIP. As Sky was the pay-TV retailer with by far the largest number of existing subscribers, and Virgin Media had most of the remaining pay-TV sub-
scribers,54 the constraints imposed by Virgin Media on Sky, and vice versa, were key to assessing the extent to which a hypothetical pay-TV monopolist could charge higher prices than those charged by existing pay-TV retailers.
4.78 Econometric analysis based on differences in Sky’s penetration across local areas in 2008 provided some evidence on the constraint that Virgin Media imposed on Sky (see Appendix 4.6). In our view, this evidence was consistent with a hypothetical pay- TV retail monopolist being able profitably to increase prices above existing levels by a SSNIP.
4.79 We also reviewed Sky’s monitoring of its competitors in the recent past (see Appendix 4.7). In our view, this evidence suggested that other traditional pay-TV 54 OTT services are developing rapidly but, at present, we found them to be closer competitors to each other than to traditional pay-TV retailers (see paragraph 4.69). Hence, for the purposes of our inquiry, the constraints imposed by Sky on Virgin Media and vice versa remained the most important within pay-TV retailing as a whole.
retailers (Virgin Media and BT) were Sky’s closest competitors, and a more signifi- cant constraint on Sky’s pay-TV products than non-pay TV companies (eg FTA broadcasters). Again, we took the view that this evidence was consistent with a hypothetical pay-TV monopolist being able profitably to charge higher prices than those charged by existing pay-TV retailers (though it did not enable any quantifi- cation).
4.80 In general, these two analyses related to the constraint imposed by other pay-TV retailers on Sky but, because of the asymmetry in existing subscribers, we expected the constraint imposed by Sky on other pay-TV retailers to be at least as strong. 4.81 Given that the hypothetical monopolist test should be carried out at competitive
prices (see paragraph 4.51), we considered how the evidence considered above, which related to existing price levels (see paragraphs 4.78 and 4.79), should be interpreted. We noted that to the extent we believed competition between pay-TV retailers to be ineffective (see Section 5), existing average prices were likely already to be above the competitive level. However, this suggested that the prices charged by a hypothetical monopolist would be further in excess of competitive prices than they were of existing prices. Since our assessment was based on existing prices and competition, this increased our confidence that pay TV was not too narrow a market definition.
4.82 In the light of the above, we judged that a hypothetical monopolist retailer of pay-TV would be able profitably to increase prices compared with competitive levels. For this reason, and on the basis of evidence on product characteristics (see paragraph 4.76) and rivalry more generally, we found that the appropriate retail market definition for our inquiry did not need to be widened beyond pay TV.
4.83 Having reached this view, we did not, for market definition purposes, need to con- sider other products which could be substitutes for pay TV. Nevertheless, in the light of responses we received to our working papers, our August 2011 provisional find- ings and our May 2012 revised provisional findings, and other submissions, we con- sidered two specific products and the extent to which they affected pay-TV retail competition: communications products and FTA TV.
Communications products
4.84 Communications products comprise broadband, telephone calls and line rental, and all these products are offered by most of the traditional pay-TV retailers (ie Sky, Virgin Media, BT and TalkTalk), as well as by other parties. These four pay-TV retailers offer bundled packages of communications products with packages of pay TV, referred to as ‘triple play’ packages.55 For example, Sky offers free ‘lite’ broad- band and evening and weekend telephone calls to UK landlines to all its pay-TV customers (see Table 2.5). We noted that two of the largest suppliers of telecom- munications services (BT and TalkTalk) had started to supply pay-TV services rela- tively recently and, to date, had obtained only a small share of pay-TV subscribers (see Table 2.4 and Section 5).
4.85 In September 2011, about [] per cent of Sky’s pay-TV subscribers took a com-
munications product from Sky (this included subscribers taking up the offer of free ‘lite’ broadband and those taking other communications products). We noted that the percentage was [] for Virgin Media56 and that Sky’s percentage increased during
55 They are referred to as ‘triple-play’ packages because they include pay-TV, broadband Internet and telephony products. 56 At this time, the percentage of Virgin Media pay-TV subscribers taking broadband and/or line rental was [] per cent.
the course of our inquiry and was likely to increase further (we noted that the per- centage was considerably higher for new subscribers).
4.86 Other evidence we saw also suggested significant linkages between competition in communications products and competition in pay TV.57
4.87 We considered whether our reasoning concerning a wide pay-TV retail market (see paragraph 4.60) implied that bundling of pay-TV and communications products justi- fied a wider market comprising both these retail products. However, we noted that the percentage of pay-TV subscribers taking a communications product remained much lower than the percentage of Sky Movies subscribers taking other pay-TV products (which was all Sky Movies subscribers except those subscribing on Now TV).58
4.88 Overall, we judged that the pay-TV retail market was separate from a market for communications products. Nevertheless, we recognized that features of one market could affect another and features of the pay-TV market may have effects in related communications markets, and vice versa. Moreover, we recognized that interactions were likely to increase if competition continued to be increasingly focused on ‘triple- play’ packages. We believed that it was appropriate to take account of communica- tions products as an ‘out-of-market constraint’, ie a factor which is outside the market but which we nevertheless take into account in our assessment of competition. We considered the effects of these products as necessary in our analysis of pay-TV retail competition (see Section 5).
FTA TV
4.89 In considering FTA TV, we noted that there was a distinction between, on the one hand, competition between broadcasters for viewers and advertisers and, on the other hand, competition between pay-TV retailers for subscribers. Sky is both a broadcaster and a pay-TV retailer and so is involved in both types of competition. Consequently, Sky competes with other broadcasters (including FTA broadcasters) for viewers and advertisers, as well as competing with other pay-TV retailers for subscribers.
4.90 We considered how FTA broadcasting affected competition for pay TV, noting the following points:
(a) Since consumers’ willingness to subscribe to pay TV is likely to depend to a sig- nificant extent on the attractiveness of pay-TV channels relative to FTA program- ming, FTA broadcasting may exercise an overall constraint on the charges of pay-TV retailers. In principle at least, this constraint might be very strong and, if so, there would be minimal distinction between competition between broad- casters for viewers and advertisers and competition between pay-TV retailers for subscribers. However, we noted that subscribers to pay TV were prepared to pay significant sums to view pay-TV programming in addition to FTA services (see paragraph 4.76), which suggested that subscribers perceived a distinction in the services offered by pay TV and FTA TV. We also noted that the focus of pay-TV retailers was different from that of FTA broadcasters, as expressed, for example, by the Chief Operating Officer of Sky who has said that, for a pay-TV company, it was ‘much, much more fundamental’ to get subscribers than viewers.59 For these
57 [] 58 []
reasons, we did not believe the constraint from FTA TV to be so strong that there was minimal distinction between competition between broadcasters for viewers and advertisers and competition between pay-TV retailers for subscribers. On the contrary, we found that the primary constraint on pay-TV retailers was the com- petition for subscribers from other pay-TV retailers.
(b) In order to encourage viewing of FTA channels, FTA broadcasters have formed or participated in consortia to promote the take-up of platforms which are pre- dominantly or exclusively devoted to FTA channels, ie Freesat and Freeview. Freesat has promoted the sale of equipment that enables viewing of FTA chan- nels on satellite without a pay-TV subscription, and Freeview60 has promoted the use of DTT. In this way, Freesat and Freeview, together with the retailers of the relevant STBs, could be seen as having competed with traditional pay-TV retailers for consumers to use their platforms. Indeed, from Sky’s internal docu- ments, it appeared to us that the development of Freeview in the early to mid- 2000s affected Sky’s subscriber growth and caused Sky to respond by altering its packaging and marketing (see Appendix 4.7). However, Sky’s recent business documents suggested that Freeview may be less of a constraint on Sky than pre- viously. A new consortium (YouView) recently began to promote its STBs with an Internet connection, offering seven-day catch-up of FTA programmes via scrolling back through the EPG (see Section 2).61 However, while YouView may facilitate FTA viewing, it may also facilitate pay TV. We noted that two traditional pay-TV retailers (BT and TalkTalk) were part of the YouView consortium and would soon offer pay TV through YouView STBs. Overall, it seemed to us that there was likely to be a mix of opportunities and threats for the traditional pay-TV retailers from YouView. Similarly, it seemed to us that YouView was likely to give rise to a mix of opportunities and threats for OTT retailers. We noted that []. We noted
also that Sky had announced its intention to offer Now TV on YouView. YouView told us that its primary target audience was the Freeview base, specifically Freeview homes with a broadband Internet connection; its secondary target audience was Sky and Virgin Media homes looking for a second set; and its tertiary target audience was newcomers to broadband and even digital TV (though YouView noted that this audience was likely to be within the core Freeview base).
4.91 Although, for the reasons set out above, we found that there was a retail market for pay TV (see paragraph 4.82), we noted the evidence suggested that FTA TV imposed some constraint on pay-TV retailers, including Sky. In particular, [], and
the 2008 econometric evidence submitted to us by Sky (see Appendix 4.7) supported this conclusion. We believed that it was appropriate to take account of FTA TV as an ‘out-of-market constraint’,62 reflecting that consumers have different preferences for FTA TV and pay TV but that there are some pay-TV subscribers for whom the next best alternative is FTA TV, eg due to the fact that the principal competitor, Virgin Media, covers only about half of the country (though we noted that the number of such consumers was likely to be lower following the emergence of OTT pay-TV services). It also possibly reflected an absence of effective competition in pay-TV retailing (see Section 5) as, if prices were above the competitive level, more pay-TV subscribers would be likely to regard FTA TV as their next best alternative than would otherwise be the case. On this basis, we took constraints from FTA TV into
60 Sky (which is a broadcaster of FTA as well as pay-TV channels) is a member of the Freeview consortium. 61 See www.youview.com/get-youview/.
62 We have set out above (see paragraphs 4.68 & 4.69) the reasons for including OTT SVOD products in the pay-TV retail market. These include that OTT SVOD products are relevant to competition between subscribers and that one of the OTT SVOD products (Sky Movies on Now TV) offers substantially the same content as Sky Movies on traditional pay TV. These services therefore appeared to us to be highly relevant to our assessment of competition.
account as appropriate in our analysis: in particular, in our analysis of switching between pay-TV retailers (see paragraph 5.32), the possibility of Freesat assisting entry into pay-TV retailing (see paragraph 5.67) and innovation (see paragraph 5.79).
Conclusions on pay TV or a wider market
4.92 For the reasons set out above, we found that the retail market definition was pay TV, including both traditional pay-TV packages and OTT SVOD services. We found that it may or may not include TVOD/ PPV services and à la carte channels (see paragraph 4.73). We did not include either communications products or FTA TV in the retail market definition but we considered their effects as necessary in our analysis, recog- nizing that they were ‘out of market’ constraints.