Movies on Pay TV Market Investigation
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Movies on pay TV market investigation A report on the supply and acquisition of subscription pay-TV movie rights and services 2 August 2012 Competition Commission 2012 Website: www.competition-commission.org.uk Members of the Competition Commission who conducted this inquiry Laura Carstensen (Chairman of the Group) Robin Aaronson Alexander Johnston Peter Jones Stephen Oram Chief Executive and Secretary of the Competition Commission David Saunders The Competition Commission has excluded from this published version of its final report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. iii Contents Page Summary .............................................................................................................................. 4 Findings ............................................................................................................................. 1-1 1. The reference ......................................................................................................... 1-1 2. Background ............................................................................................................ 2-1 3. Theory of harm ....................................................................................................... 3-1 4. Market definition ..................................................................................................... 4-1 5. Pay-TV retail competition........................................................................................ 5-1 6. Significance of FSPTW movies to competition in the pay-TV retail market ............. 6-1 7. Barriers to the acquisition of FSPTW movie rights .................................................. 7-1 8. Sky’s wholesale supply ........................................................................................... 8-1 9. Competitive effects in the rights market .................................................................. 9-1 10. Overall findings ..................................................................................................... 10-1 Appendices 1.1 Terms of reference, background to the reference and conduct of our investigation 2.1 Consumer offerings with movie content of the principal subscription pay-TV providers 2.2 The growth of TVOD and EST services 2.3 Technology adoption in other sectors 2.4 Premium movie content on pay-TV services in the USA 3.1 Competition between movie studios in the upstream market 4.1 Demand-side substitutes for Sky Movies 4.2 OTT services 4.3 Movies on pay TV survey—A research report prepared for the CC by GfK NOP 4.4 Survey data showing responses of Sky Movies customers to hypothetical changes in the price of Sky Movies 4.5 Analysis for hypothetical retail monopolist over Sky Movies 4.6 Review of the Seabright report 4.7 Other evidence relevant to substitutability 4.8 Movie windows and demand-side substitutability 4.9 Survey data on reasons for subscribing to Sky Movies 4.10 Movies on pay TV survey—A research report prepared for the CC by GfK NOP 4.11 Weighted average price for Sky Movies 4.12 Movie content available on pay-TV services 5.1 Data from pay-TV retailers on new subscribers and churn 5.2 The retailing of pay channels directly to consumers (using the platforms of other traditional pay-TV providers) 5.3 Innovations in the UK pay-TV market (up to 2010) 5.4 Profitability of Sky 6.1 Research by Ofcom and pay-TV retailers on the significance of Sky’s linear movie channels in driving consumers’ choice of pay-TV provider 6.2 Importance of FSPTW content to the appeal of Sky Movies 6.3 Illustrative adjustment of survey responses for choice of pay-TV retailer with Sky Movies 6.4 Further analysis of survey responses on the importance of different attributes of a TV film service to Sky Movies subscribers 7.1 The extent of FSPTW content necessary for a competing movie service 7.2 Summary of evidence on negotiations to secure FSPTW rights from major studios 7.3 Summary of evidence on the recent negotiations for the FSPTW rights of some of the largest non-major studios 7.4 Activities involved in assembling movie services 7.5 Barriers faced by traditional pay-TV retailers (or aggregators wishing to distribute via traditional pay-TV rivals) 8.1 Analysis of Sky’s prices iv 8.2 Non-price terms of supply 9.1 Evidence on the effects of any bargaining power Sky may hold 9.2 Revenue shares by studio Glossary v Contents Page Summary .............................................................................................................................. 4 Findings ............................................................................................................................. 1-1 1. The reference ............................................................................................................... 1-1 Background to the reference ........................................................................................ 1-1 Conduct of our investigation ......................................................................................... 1-2 Structure of this report .................................................................................................. 1-3 2. Background .................................................................................................................. 2-1 TV industry overview .................................................................................................... 2-1 FTA digital TV ......................................................................................................... 2-2 The UK pay-TV industry ......................................................................................... 2-3 Overview of the pay-TV retailers .................................................................................. 2-4 Traditional pay-TV retailers .......................................................................................... 2-5 Sky ......................................................................................................................... 2-5 Virgin Media ........................................................................................................... 2-6 BT Vision ................................................................................................................ 2-7 Top Up TV .............................................................................................................. 2-8 TalkTalk TV ............................................................................................................ 2-8 OTT pay-TV retailers .................................................................................................... 2-8 LOVEFiLM .............................................................................................................. 2-8 Netflix ..................................................................................................................... 2-9 Provision of movie content to pay-TV providers ............................................................ 2-9 The major and non-major studios ........................................................................... 2-9 Movie release windows ........................................................................................ 2-11 Significance of UK pay TV to the major studios .................................................... 2-12 Provision and consumption of movies on TV .............................................................. 2-14 Overview of movie consumption ........................................................................... 2-14 Linear TV movie services ..................................................................................... 2-15 Home video .......................................................................................................... 2-22 VOD movie services ............................................................................................. 2-24 EST movie services .............................................................................................. 2-29 Distribution and accessibility of OTT services ....................................................... 2-29 Summary of the provision and consumption of movie services on TV................... 2-36 3. Theory of harm ............................................................................................................. 3-1 Context for the theory of harm ...................................................................................... 3-1 Theory of harm ............................................................................................................. 3-1 Market developments ................................................................................................... 3-3 Supply of movie rights .................................................................................................. 3-4 4. Market definition ........................................................................................................... 4-1 Introduction .................................................................................................................. 4-1 Summary ...................................................................................................................... 4-2 The retail level .......................................................................................................