Premier League carrier Sky ordered to cut prices to rivals

British media regulator Ofcom has called on satellite broadcaster BSkyB to significantly cut the wholesale price of its Sky Sports channels to its cable, terrestrial and internet based rivals. The decision follows a three-year inquiry into the state of the UK pay-tv industry, with Sky's 85 per cent market share and aggressive business practices drawing concerns that competition in the market is being stifled.

The decision means that Sky will be required to sell its Sky Sports 1 and 2 channels, which carry Premier League and Champions League football as well as England Test cricket matches, at prices that are 10.5 per cent to 23 per cent lower than they are currently. Ofcom hopes that companies such as BT and Virgin Media will be able to offer more competitive television packages and create real choice for consumers. However, while Sky has been told it must also offer its high-definition channels to other broadcasters, it will not be expected to set a fixed price for them as Ofcom believes it has a right to benefit from technical innovations it has made in this area.

In return, Sky will be permitted to sell its premium channels over the digital terrestrial Freeview platform for the first time. This opens up the market for Sky to the ten million British homes that only have Freeview access, and could help reduce any potential shortfall that results from the reduction in its wholesale prices. Ofcom predicts that as many as two million people could begin subscribing to Sky channels via Freeview over the next five years. 

Ofcom said: "We have designed the remedy to minimise the potential risk of any negative impact on the value of sports rights. The wholesale revenue available to Sky to pay for sports rights should not be reduced, and should in fact increase as the market expands."

Nevertheless, Sky has complained that the move is an "unwarranted intervention" which will threaten its rights budget for sport. These concerns have been echoed by figures at key sporting bodies. Last week, reports emerged of a letter composed jointly by six governing bodies - the Premier League, the Football Association, the England and Wales Cricket Board, the Professional Golf Association, the Rugby Football Union and the Rugby Football League - which accused Ofcom of neglected to consider the impact that moves to curb Sky's dominance would have on their income from television rights. The letter, delivered to the home addresses of Ofcom chairman Collette Bowe and other board members, warned that "grass roots of sport will suffer and be irreparably damaged through loss of funding." The letter also slammed Sky's rivals for initiating the investigation, claiming that their complaints were invalid and that "any market failure is a result of their unwillingness to invest and take risks."

The ECB has reiterated its concern in the wake of Ofcom's ruling, with a spokesman for the organisation saying that it was "greatly concerned at the implications of the decision," adding: "A decision that leads to less investment in our sport is not to the benefit of fans who want to play cricket at their local club and enjoy watching successful men's, women's and disabilities teams." A spokesperson for the Premier League described the news as "very disappointing", while the RFU has confirmed it is investigating the possibility of legal action.

BT, on the other hand, has argued that Ofcom has not bee aggressive enough. It was among the four broadcasters, along with Top-Up TV, Virgin Media and the now-defunct Setanta, that demanded an inquiry into Sky's operations in 2007. Describing the ruling as "disappointing but a step in the right direction", BT Retail chief executive Gavin Patterson said: "They should have included all Sky Sports channels, not just two [and] the wholesale price for the two sports channels is higher than the regulator had previously suggested." He went on to suggest that more should have been done to assist pub and club owners over what they are obliged to pay for Sky subscriptions.

In spite of the economic downturn proliferation of pay-TV packages in the digital era, Sky has continued to assert its control over the market. It has enjoyed a 13 per cent rise in subscriptions between 30th June 2007 and 31st December 2009, and cites its exclusive sports coverage, particularly the Premier League, as a key driver in attracting new customers.