Sky ordered to cut sports prices – so will players pay the penalty?
Days of huge Premier League wages could be numbered after regulator tells Murdoch to charge his rivals less
Cahal Milmo is the chief reporter of The Independent and has been with the paper since 2000. He was born in London and previously worked at the Press Association news agency. He has reported on assignment at home and abroad, including Rwanda, Sudan and Burkina Faso, the phone hacking scandal and the London Olympics. In his spare time he is a keen runner and cyclist, and keeps an allotment.
Thursday 01 April 2010
Millions of fans could have easier and cheaper access to watching sport on television by as early as this autumn after the broadcasting regulator, Ofcom, yesterday ruled that BSkyB must reduce its wholesale prices by more than 20 per cent.
After a three-year investigation, Ofcom decreed that Sky Sports, which carries exclusive coverage of Premier League football, English cricket and domestic rugby union, be made available to rivals such as BT and Virgin Media for a monthly fee of £10.63 per subscriber. The current price is £13.88. With Top Up TV also keen on showing football, there will be more choice for viewers.
Ofcom decreed that BSkyB "exploits their market power", which "prevents fair competition and reduces consumer choice".
BSkyB and sports bodies responded angrily and may well launch a joint legal challenge. BSkyB will appeal the decision after initially applying to the Competition Appeal Tribunal for a stay on implementing Ofcom's ruling. Should that be refused, they will have to start the process of cutting prices immediately. That could mean the reduction coming into effect as early as August.
Sky said: "Ofcom's actions represent an unprecedented and unwarranted intervention," claiming that customers were already "well served with high levels of choice and innovation", and warning that "consumers will not benefit if regulators blunt incentives to invest and take risks".
The governing bodies of the affected sports were united in their condemnation, saying that it will cut the price of their television rights and that it will impact on the funding of grass-roots sport. BSkyB spent £944m last year on sports rights.
Richard Scudamore, the chief executive of the Premier League, described it as an "ill-judged and disproportionate intervention". He said: "We do not rule out a challenge to protect the interests of fans, clubs and the wider game." A Premier League statement added: "It will be harder to recruit and retain top talent."
The most aggressive response came from the Rugby Football Union. Francis Baron, the body's outgoing chief executive, said: "We believe this is little more than a confiscation of our rights by Ofcom dictat. We think it is grossly unfair and our lawyers are looking into it."
BSkyB's share price rose on the back of the Ofcom announcement as it was not as severe as some City analysts had feared. BSkyB has had exclusive rights to the Premier League since it was formed in 1992. Last year, it paid more than £1bn for a deal that runs to 2013.
How the ruling would change the playing field
Q. So what will this mean to me?
A. Ofcom's ruling is intended to give British viewers more opportunity to watch premium sport. The decision should free up customers who don't necessarily want to pay a monthly subscription for Sky's basic package as well, or those who want a bundled offer of television, phone and broadband from a rival. Several providers said they would price their products "aggressively".
Q. Who currently shows the channels?
A. Viewers can watch Sky Sports 1 and 2 by taking a Sky basic package and paying extra for the premium content. Virgin also offers different packages including the channels.
Q. Who will show the sports channels?
A. BT has been after the Premier League for a while, and sees it as a cornerstone to drive up the subscribers to BT Vision from 451,000 into the millions. Top Up TV is also interested. Virgin is looking at different pricing and bundling options.
Q. Why has the regulator targeted Sky?
A. BT, Virgin Media, Top Up TV and the now-collapsed Setanta Sports lobbied the regulator to break Sky's exclusive hold on premium sport and movies. The companies were desperate to get their hands on Premier League football, and Ofcom launched its investigation in March 2007.
Q. What is Sky's reaction?
A. It is fuming. The higher-than-expected wholesale price, and the resurrection of Picnic – a Sky initiative to replace its free channels on digital terrestrial platforms with a paid service – has not curbed the anger. Sky's CEO, Jeremy Darroch, said the regulator had got it "badly wrong".
Q. And its rivals' reaction?
A. Not as happy as some would have expected. Virgin Media's chief executive, Neil Berkett, said: "Some significant loopholes remain which provide an opportunity for Sky to further undermine competition." Gavin Patterson, the chief executive of BT Retail, said: "Ofcom should have gone much further than it did."
Q. How will this affect sports funding?
A. Darroch said it would drive down the value of television sports rights and reduce competition. The England and Wales Cricket Board said it was "greatly concerned" by the decision. Francis Baron, the head of the Rugby Football Union, said the process was "inadequate and flawed". BT and Virgin believe it will have little effect on the rights' value.
Q. Will this see Wayne Rooney move to Spain?
A. Rooney is unlikely to move, but should the Premier League rights sell more cheaply, it will have an effect on the quality of players in the league.
Q. What is the initial impact?
A. Sky is expected to lose about £25m on its initial annual hit, but the longer-term impact is less than obvious. Analysts believe it will have a drag on its customer base. All are expecting a price war.
Q. What happens now?
A. A huge legal battle is on its way. The most important initial hearing for Sky is at the Competition Appeal Tribunal (CAT), where it will lobby for a "stay of implementation", which would block the process. If denied, Sky will have to push through Ofcom's rulings as it potentially appeals to the CAT or the High Court. Several sporting bodies are also considering legal action.
Q. What is the political reaction?
A. The Conservatives have been silent so far. Ben Bradshaw, the culture secretary, has used the decision to go after them. Labour have long criticised the Tories for being too closely aligned with Rupert Murdoch, whose News Corporation holds the largest stake in BSkyB. Bradshaw demanded that his opposite number, Jeremy Hunt, make his party's position clear on the ruling. The Liberal Democrats backed Ofcom's ruling.
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