On March 31, 2010, the UK communications regulator, the Office of Communications (Ofcom) published a report which concluded its three year investigation into the pay TV market (Pay TV Statement).

Summary of the Pay TV Statement

Ofcom began its investigation into the pay TV market in March 2007 following submissions from BT, Setanta, Top Up TV, and Virgin Media requesting Ofcom to consider whether to make a market investigation reference to the UK Competition Commission (CC) in relation to the pay TV industry. The companies maintained that the UK pay TV market is not functioning effectively.

After a series of three consultations, Ofcom has made the following decisions:

  • Wholesale obligations on Sky's premium sports content: to require that Sky Sports 1 and 2 are offered to retailers on platforms other than Sky's, at prices set by Ofcom.
  • Pay TV services over digital terrestrial platforms: to approve Sky and Arqiva's request for Sky to offer its own pay TV services on digital terrestrial TV (Picnic). This is conditional on a wholesale mustoffer obligation on Sky Sports 1 and 2 being in place as described above. Any movie channels included in Picnic must be offered to other digital terrestrial TV retailers.
  • Consultation on sale of premium movie rights and services: to consult on a proposed decision to refer the sale of premium movie rights and premium movie services to the CC. A CC reference would be intended to investigate and, if appropriate, remedy concerns which Ofcom has identified in relation to the exploitation of subscription video-on-demand movie rights. Ofcom does not consider that it can adequately address such concerns using its sectoral regulatory powers under section 316 Communications Act 2003 (which mainly relate to linear channels).

The Pay TV Statement, spanning around 700 pages, together with expert reports and submissions throughout the three consultations, serves to highlight that the imposition of a must-offer obligation is highly controversial and has been subject to intense debate throughout the investigation. Ofcom acknowledges that Sky is opposed to the remedy but considers that it has designed a remedy to minimize the potential risk of any negative impact on the value of sports rights. The sports remedy and the decision regarding Picnic have immediate effect.

While the Pay TV Statement brings closure to the latest round of debate, all industry participants will be considering the implications of the remedy and a proposed CC reference, which could itself last for up to two years. The consultation on Ofcom's provisional decision to make a reference to the CC closes on May 15 and Ofcom expects to announce a final decision before summer 2010. The full Pay TV Statement can be found here.