Creación de empresas

3.2. The terms of reference covered both the supply and acquisition of major studios’ FSPTW movie rights and the wholesale supply and acquisition of packages which include Sky Movies (see paragraph 1.1). Following the reference, we sought views on the approach we should take to our investigation and the key issues we should consider.

3.3. Virgin Media, BT and other retailers of pay TV made submissions to Ofcom, which they repeated to us, that they faced a ‘vicious circle’ whereby Sky could continuously reinforce its market power due to its vertical integration and its ability to aggregate key content rights, whilst also creating high barriers to entry and expansion. These parties told us that these factors conferred on Sky considerable advantages in win- ning key premium movie rights. They said that Sky’s control of movie content in the FSPTW restricted competition between pay-TV retailers and led to higher prices and less choice for consumers.

3.4. BT told us that Sky’s refusal to supply key premium channels to its competitors pre- vented them from competing effectively to gain customers at the retail level, while Sky was able to use its ownership of these channels to drive the growth of its own subscriber base. BT said that its lack of scale relative to Sky at the retail level pre- vented it from competing effectively with Sky in the bidding process for rights to premium movie content, thereby allowing Sky to maintain its exclusive ownership of these rights. BT added that Sky had both the incentive and the ability to ensure that effective wholesale and retail competitors of packages containing channels showing recent movies from the six major studios in the FSPTW in the UK did not emerge, allowing Sky to sustain its position of market power in these markets.

3.5. Ofcom also expressed a concern that, as a result of Sky’s position with respect to both linear and SVOD FSPTW rights, the development of premium movie SVOD services might be constrained. It said that, in the short term, Sky might have a limited incentive to exploit its SVOD rights and, in the longer term, as it developed its own SVOD services, Sky’s market power in relation to its linear channels could be transferred across to these new services.

Theory of harm

3.6. On the basis of the reference and the initial submissions we received, we articulated the concern to be investigated in terms of a hypothesis as follows:

The control by Sky of the acquisition and distribution of movie content on pay TV during the FSPTW, as a result of its market power in the pay-TV retail market, adversely affects competition between pay-TV retailers. This adverse effect on competition in the pay-TV retail market results in effects both on consumers and/or on the suppliers of pay-TV movie rights for the FSPTW (with possible consequential effects on competition between the suppliers of pay-TV movie rights for the FSPTW).

3.7. As we progressed our analysis we continued to review this theory of harm to ensure that it articulated properly and fully the relevant issues for us to investigate. We found that our focus in the theory of harm on the pay-TV retail market as a whole and on the supply and acquisition of FSPTW movie rights from all studios (ie major and non- major studios) was appropriate.

3.8. In our view, this theory of harm also captured the specific concerns expressed by Ofcom with respect to the development of SVOD services (see paragraph 3.5) and, prior to publishing our revised provisional findings in May 2012, we received no comments to suggest otherwise.

3.9. We identified four circumstances which we expected would be present were this hypothesis to be correct, as follows:

(a) Sky has market power as a retailer of pay TV such that there is ineffective competition in the market for pay TV (discussed in Section 5);

(b) pay-TV movie content in the FSPTW is significant to consumers in choosing their pay-TV retailer, which requires, among other things, that movie content on pay TV in the FSPTW has no close substitutes (discussed in Section 6);1

(c) other pay-TV retailers (and/or third parties) cannot obtain the rights to sufficient movie content in the FSPTW directly from the studios in order to create movie services which compete effectively with Sky (discussed in Section 7); and

(d) most movie content in the FSPTW on pay TV is controlled by Sky, and there is limited availability to other pay-TV retailers both of movie content in the FSPTW and of Sky’s movie products which include this content (discussed in Section 8). 3.10. Accordingly, in order to answer the statutory questions (see paragraphs 1.1 to 1.3),

we focused our assessment of competition in the relevant markets around these four areas: (a) Sky’s position in the retail market; (b) the role of FSPTW content (and Sky Movies which has the majority of this content) in consumers’ choice of traditional pay- TV retailer;2_{(c) barriers to acquiring FSPTW movie content; and (d) Sky’s wholesale} terms of supply of Sky Movies.

3.11. Understanding Sky’s position in the retail market was important to inform our

approach to the subsequent issues. We then focused on the role of FSPTW content (and Sky Movies) in consumers’ choice of traditional pay-TV retailer because our views on this issue determined our approach to and the relevance of the other aspects of our theory of harm. If FSPTW content (and Sky Movies) was not

significant to consumers in their choice of traditional pay-TV retailer, it seemed to us implausible that (a) barriers to the acquisition of FSPTW rights could on their own be capable of giving rise to an AEC; and (b) the terms of Sky’s wholesale supply of Sky Movies could cause Sky’s rivals to be at such a disadvantage when competing for subscribers in the pay-TV retail market as to harm competition.

1 _{It should be noted that the absence of close substitutes would not mean, by itself, that FSPTW content was significant in this} way (see Section 6).

2 _{Our concern was with the significance of Sky’s FSPTW movie content to consumers’ choice of traditional pay-TV retailer} because Sky had the majority of FSPTW content and, from our analysis of part (a), we found that the ineffectiveness of competition in the pay-TV retail market derived from Sky’s position in traditional pay-TV retailing.