Clash over UK media: Ofcom vs BSkyB

David Elstein
2 April 2010

Whilst our Public Service Broadcasting Forum captures the range of arguments over the future of public service content in our media world, New Labour’s poster child modern regulator, Ofcom, established in 2003, has finally locked horns with the heaviest hitter in the commercial media, BSkyB, over the issue of fair competition in pay television.What should we make of this clash between a quango regulator that is designed to be independent of parliament, the executive and the commercial sector and one of Rupert Murdoch’s most innovative media operations whose penetration into the lives of British people and financial muscle is arguably much more important than his control of the Sun?Ofcom’s 650-page report was three years in the making. Published two days ago on 31 March, it concludes that Sky was not just dominant in the supply of premium sport and movie channels, but abused that dominance in its pricing of those channels for supply to other pay TV operators.As usual devils lurk in the detail. I have posted a full assessment that sets out what the report does in the Forum. Here is a brief summary and a wider reflection. Ofcom concluded that, instead of maximizing its revenues and profits, BSkyB habitually used high prices and endless negotiations to restrict the supply of its channels, with the aim of inhibiting competitors both for retail customers and sports rights.Its remedy? An imposed wholesale price, coupled with an obligation to supply the likes of Virgin Media, BT Vision and TopUp TV. Two cheers for fair competition and more consumer choice. But Ofcom disappointed BSkyB’s rivals by only imposing wholesale pricing on Sky Sports 1 and 2 in standard definition. High definition versions, and all movie channels, escaped the imposed price, though there is still an obligation to supply.Ofcom has also given conditional approval (dependent on agreeing supply of premium channels to new pay TV operators) for BSkyB to launch those premium services on the Freeview capacity it controls.This package of measures is less hostile to BSkyB than had been suggested by Ofcom’s preliminary assessment, published nine months ago. BSkyB’s share price moved up smartly, as analysts calculated that the biggest beneficiary of the package would be BSkyB’s bottom line. It stands to gain millions more wholesale customers, even as it helps competitors to build their businesses.BSkyB – as always – denounced the regulator and launched legal appeals. Joining its noisy complaints were a group of English sports – rugby union, cricket, Premier League football – who have misguidedly signed rights contracts with BSkyB that give them no upside from wider distribution of sports channels: a mistake no movie studio would ever make.Having conceded some ground to BSkyB’s vociferous pre-publication threats, Ofcom is determined to push its reforms through, and has used a little-noticed clause in the 2003 Communications Act – requiring it to pursue fair and effective competition – to hasten implementation, rather than alternative powers which might have allowed BSkyB to delay a final outcome through years of appeals.Potentially, this could mean football supporters being able to subscribe just to sports channels, rather than the full Sky package, in time for the 2010 Premiership season. The battle between Ofcom and BSkyB could meanwhile give a run for their money to the likes of Manchester United v Chelsea and Barcelona v Arsenal: a fixture for the fans.It is good news that a battle is taking place. The regulator now seems more determined to open up the marketplace and impose its will. Evidence, perhaps, that the financial crash and the new mood that big operators must be tamed is having some real influence. In European terms, compared for example to Germany, regulation in the UK if not as spineless as it was, remains pretty weak. But as the role and place of the BBC comes under scrutiny, we should welcome Ofcom’s less timorous approach. It legitimises the fact that broadcasting as a whole should be subject to public scrutiny and external regulation.

Read David Elstein's in depth assessment on the Public Service Broadcasting Forum 

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