Utilización de Nitrógeno en la congelación de alimentos

4.120 The Sky Movies products that Sky supplies to other retailers on a wholesale basis are the same as the Sky Movies packs which Sky retails to its own customers (see paragraph 4.39(a)), except that the wholesale products do not include the Disney Cinemagic channel (which other retailers can obtain directly from Disney).88 _{In this} subsection, we discuss whether there is a wholesale market for Sky Movies. 4.121 We noted that the wholesale market could be approached in two ways:

(a) It could relate to the actual wholesale supply of Sky Movies by Sky to Virgin Media and other retailers. This was referred to in our terms of reference but it represents a small part of the overall sale of Sky Movies (see Table 2.4).

87 _{Whether Sky Movies packs, products or packages.}

88 _{Certain cable retailers take a smaller range of channels at a lower price as, due to limited platform capacity, they are able to} transmit fewer channels.

(b) It could be expanded to include also a notional wholesale supply of Sky Movies from Sky (as a notional wholesaler) to Sky (as a retailer), ie Sky’s self-supply. The total actual and notional wholesale supply of Sky Movies was the wholesale market that Ofcom defined in its Pay TV Statement.

We start by discussing the total wholesale supply of Sky Movies (including both actual and notional supply) and then discuss just the actual wholesale supply.

Total wholesale supply

4.122 In discussing the retail market, we noted that retail competition was for subscribers and covered many pay-TV products, not just Sky Movies. Since the total wholesale demand for Sky Movies is derived from the retail demand,89 _{our discussion of a} narrow retail market (see paragraphs 4.33 to 4.54) is relevant here. With regard to the retail market, we found that: (a) competition between pay-TV retailers was across many pay-TV products and packages and not for single products within a bundled package; (b) there were no close substitutes for Sky Movies; (c) analysis of substitut- ability at existing prices was inconclusive because Sky was in effect an actual monopolist of Sky Movies which may already have priced above the competitive price while the hypothetical monopolist test requires a comparison with the competi- tive price and (d) it was unlikely that a hypothetical stand-alone retail monopolist of Sky Movies would be able profitably to impose a SSNIP over the competitive price. For these reasons, we found that it was not appropriate to define a narrow retail market for Sky Movies packs (see paragraph 4.54).

4.123 The total wholesale supply approach was based on the idea that there could be one or more wholesalers selling Sky Movies to retailers (ie wholesaler(s) are vertically separate from retailers). Therefore, we considered whether a stand-alone wholesale monopolist over Sky Movies without Sky’s other attributes (ie its pay-TV retailing activity and its Sky Sports and basic channels) would be able to impose a SSNIP over the competitive price. Only if this were the case would it be meaningful to say that Sky had market power arising specifically from its position in this wholesale market. We noted that Sky Movies had exclusive rights to FSPTW content from the six major studios and found that this FSPTW content was important to the appeal of Sky Movies (see paragraph 6.60). Therefore, given also that competition involves more than one supplier, for the purposes of our analysis, we identified the competi- tive price with the price that would be charged if there were two or more stand-alone wholesale suppliers of movies products with FSPTW content from the major

studios.90

4.124 In our view, the key factors affecting whether a hypothetical stand-alone wholesale monopolist over Sky Movies would be able profitably to impose a SSNIP over the competitive price were:

(a) The extent to which the offerings of the competing wholesale suppliers were sub- stitutes for each other. This depended on how far retailers could substitute products with other content for FSPTW content from the major studios.91

89 _{It is the retail demand from final consumers that gives rise to the wholesale demand from retailers. Without the retail demand,} there would be no wholesale demand.

90 _{A hypothetical competitive scenario may involve suppliers each with exclusive rights from some of the major studios or} suppliers with non-exclusive rights from all the major studios or a mixture of the two. In all these cases, we would expect subscribers to have a choice between different sized and priced packages.

91 _{It also depended on the extent of complementarity between the two or more competing services. If, in order to obtain the} desired variety of content, most consumers wished to subscribe to all or most services, these would be complementary ser- vices and weak substitutes and the upward effect on price of a hypothetical monopoly would be smaller than if the two or more competing services were strong substitutes. We discuss the complementarity of content on movie services in Section 7.

(b) The extent, if any, of economies of scope and scale. If economies of scope and scale were limited, we would expect the total cost of two hypothetical suppliers to be not much more than that of one supplier. For example, if Sky Movies’ costs were £16 per month per subscriber, the costs of two suppliers each wholesaling half of Sky Movies’ content would be about £8 per month per subscriber; how- ever, if economies of scale and scope were significant, the costs would be more than £8 per month per subscriber. Any such cost increases due to a lack of economies of scale and scope would potentially offset, at least to some extent, any upward price effect of a hypothetical monopoly.

(c) The extent of buyer power held by retailers (which have large installed customer bases), and which may be able to obtain rights directly. This could offset any ability of a stand-alone monopoly wholesale supplier to increase prices compared with two or more competing stand-alone wholesale suppliers.

4.125 On these points, our views were:

(a) While having a large proportion of FSPTW content was important to the appeal of Sky Movies, survey evidence suggested that this was less important to con- sumers than other attributes of a movies service, such as a large range of movies and price (see paragraph 6.80). We noted that other suppliers (such as

LOVEFiLM and Netflix) had succeeded in putting together an offer to consumers using FSPTW content from non-major studios, SSPTW, TSPTW and library content from both major and non-major studios and TV programmes, which the available evidence indicated was attractive to many consumers (and we found these services to be a substitute for Sky Movies for some Sky Movies subscribers (see paragraph 4.45)). For this reason, and given that wholesale demand is derived from retail demand, we believed these offerings also represented alterna- tives to Sky Movies to some extent for retailers. We noted that, in the USA, premium channels, such as HBO and Showtime, did not focus only on FSPTW movie content.92 _{Indeed, since 2009, Showtime had not licensed FSPTW rights} from any major studio, having stated a preference for investing money in original productions and for buying movies from other sources. Therefore, it appeared to us that retailers could substitute products with other content for Sky Movies and that Sky derived only a limited advantage from being the only supplier with major studio FSPTW content (given also that, compared with some other content, FSPTW movies require higher payments to studios and hence a higher whole- sale price).

(b) There are some fixed costs involved in transmitting content to consumers (whether by satellite, cable, IPTV or OTT) and in marketing movie services, but we did not see evidence suggesting that such fixed costs were large relative to content costs.93 _{Therefore, in our view, relevant economies of scale and scope} were unlikely to be large.

(c) To the extent that we found there to be barriers to parties other than Sky acquir- ing FSPTW rights, they appeared to derive largely from Sky’s position in the retail

92 _{While there are some differences between the UK and the USA (for example, the US market is much larger), the USA was a} useful comparator because it has several wholesale premium movie services competing to supply pay-TV retailers. This is not the case in most other countries.

93 _{In our provisional findings documents, we noted that other subscription movie services seemed to charge relatively high} prices compared with Sky, given their content. For instance, the charge for PictureBox was £5 per month (more than 30 per cent of the incremental retail price for Sky’s dual movies product), but this service offered only SSPTW and library movies (though, historically, it offered a small number of FSPTW movies), and only a small fraction of the number of movies on the Sky Movies channels. However, we considered it was difficult to draw conclusions from this evidence concerning the extent of relevant economies of scale and scope.

market (see Section 7). In the hypothetical situation we were considering (a stand-alone wholesaler selling to independent retailers), these barriers would not arise to anything like the same extent. Although the stand-alone wholesale monopolist would be selling indirectly to all customers of Sky Movies, the relation- ships with customers would be held by the pay-TV retailers/ platforms. For this reason, we believed that the pay-TV retailers/platforms would (at least over time) be able to obtain rights directly from the studios to establish their own movies ser- vices and hence would constrain the hypothetical wholesale monopolist. Ofcom and some other parties said that the staggering of contract start dates for FSPTW rights represented a barrier because it added to the costs of an entrant which needed FSPTW content from more than one major studio but, in the context of our analysis of a hypothetical stand-alone wholesale monopolist, we thought it was unlikely that the staggered availability of rights represented any significant impediment to entry.94

4.126 This assessment suggested that a hypothetical stand-alone wholesaler of Sky Movies would be constrained to some extent by services with content other than FSPTW content from major studios (see point (a) above) and by the possibility of others acquiring FSPTW content from major studios (see point (c) above). These points suggested that a stand-alone monopolist wholesale supplier of Sky Movies would have no sustainable source of market power as it would have no direct contact with the customers responsible for the demand for its product, and could, over time, be disintermediated by the pay-TV retailers/ platforms which did have this contact with customers. For these reasons, we did not believe that there was a separate whole- sale market for Sky Movies.

4.127 Notwithstanding this finding, we recognized that a stand-alone monopolist wholesaler of Sky Movies with medium- or long-term studio contracts would, over the term of those contracts, face no constraint from the possibility of others acquiring rights directly (though it would still be constrained by the substitutability of other content), and it may, consequently, have an apparent ability to price above the competitive level during the term of those contracts. However, we would expect retailers to have negotiated similar medium- or long-term contracts with the wholesaler at the time when competitive bidding was taking place, in order to capture the wholesale price at that time, and thus we did not believe that this factor would enable a stand-alone monopolist wholesaler of Sky Movies to impose a SSNIP.

4.128 In addition to its analysis of substitutability, Ofcom referred in its Pay TV Statement to considering evidence on pricing and profitability in reaching its wholesale market definition.95 _{We considered this evidence but concluded that we should attach little, if} any, weight to it in defining a wholesale market, for the following reasons:

(a) We judged that the high ‘premium’ price of Sky Movies (compared with the zero price of FTA TV and the low price of basic pay-TV channels) arose because consumers were willing to pay more to have access to a wide range of movies, including FSPTW movies from major studios (and due to the many other attri- butes of Sky Movies). This willingness to pay would be likely to exist even if there was more than one wholesale supplier. Consequently, we found that nothing about the wholesale market could be inferred from just the apparently high price

94 _{We noted in paragraph 7.79 that the risks of large scale entry (ie entry with rights from a number of major studios) might be} greater by virtue of the staggered availability of rights. However, in that discussion, the risks of large scale entry were associated with Sky’s incumbency position in retailing. The situation is different when considering entry into wholesaling by an incumbent pay-TV retailer or retailers.

of Sky Movies (for example, as to whether prices would be lower or higher if, hypothetically, there was more than one wholesale supplier of Sky Movies).

(b) As a general matter, we recognized that it may be useful to consider profitability as one among a number of indicators of competitive conditions within a market, but we did not believe that it was appropriate to use profitability to define the market in the first place. In our view, that approach would introduce a circularity, whereby, if a supplier of a differentiated product was earning high profits, the product would constitute a market in which the supplier necessarily had a monop- oly. Moreover, as noted in our guidelines, profitability is the key incentive and signal in a market economy and high profits by individual companies at various times can be fully consistent with competitive markets.

4.129 Overall, we did not see a sustainable source of market power arising simply from wholesaling Sky Movies and, therefore, for the purposes of our inquiry, we did not define a total wholesale market comprising both notional and actual wholesale supply of Sky Movies.