Belfast Telegraph

Wednesday 20 August 2014

Sky is limited rules watchdog

Before we turn to the rights and wrongs of Ofcom's determination against Sky, let's deal with the complaints yesterday of the Premier League and its opposite numbers from rugby and cricket.

The bleating we heard from sports bodies that long ago sacrificed the interests of their long-suffering fans on the altar of grossly overpaid stars was thoroughly depressing.

If, as a result of this ruling, football does end up earning a few million less — and it is by no means clear that this is what will happen — there is no shortage of fat that might be trimmed before the Premier League and Football Association start cutting the grassroots programmes about which they say they are so concerned. Do I need to spell it out?

Apologies for the rant about the greed of football, and other sports that would like to compete with it. But even that aside, what these bodies forget is that the value of sports rights is not immediately germane to the dispute between Sky and its rivals. Ofcom's role in this case was to decide whether it needed to intervene in the broadcasting sector in order to promote healthy competition that will benefit consumers.

The nub of the debate is, in fact, philosophical. No one disputes that Sky took enormous risks in the late Eighties and early Nineties, sustaining heavy losses as it singlehandedly built the pay-TV market. In the two decades since then, pay-TV has become immensely profitable for Sky, but that outcome was not guaranteed — the company could easily have gone under in its early days.

Sky and its shareholders are quite entitled to expect to be rewarded for having taken those risks and succeeding. That is not only just, it is also crucial in a world where we wish to encourage businesses to be innovative and to stretch themselves for the benefit of customers and employees. The question, however, is for how long those rewards should continue. Sky has three times as many subscribers as Virgin, its nearest challenger, and 20 times as many as BT. Neither company is short on resources — this is no David versus Goliath — but the economics of those subscriber numbers make it almost impossible for either to compete head-on with Sky by bidding directly for sports rights.

Instead, they must rely on buying the rights from Sky as wholesale customers. In an unregulated marketplace, Sky is then able to price its rivals out of the competition for retail subscribers. Or, |to put it another way, Sky is in a position to ensure it goes on reaping the rewards of that initial risk-taking ad infinitum.

Jeremy Darroch, Sky's boss, rightly points out that Ofcom's inquiry into pay-TV did not follow complaints from consumers. Nor, as we have said, are BT and Virgin minnows that must be |protected from the big bad shark. But a marketplace in which |one company is so dominant — and set to remain so without intervention — cannot be healthy.

Remember too, that we are no longer talking only about pay-TV. All of the participants, plus would-be new entrants, want to sell consumers telephone and broadband services alongside TV. Since customers seem to like bundling, Sky's dominance in one market could give it a stranglehold here too, where it can't claim to have taken all the risk.

Sky deserves applause for the hugely impressive business it has built, but it is not entitled to expect to maintain its monopoly forever. It will continue to be protected where it is taking new risks —there is to be no regulated price for high definition services, for example — and some aspects of Ofcom's findings look flawed. It has made a horlicks of the inquiry into film rights, for instance.

On the central question, however — whether now is the time to insist Sky sells its sports channels to rivals at a regulated price — the regulator has made the right call.

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