After Setanta – Sky’s the limit

Given the regulator’s reluctance to split up Sky, will the government realise that competition law is not fit for purpose, if the purpose is changingSky’s behaviour to make life easier for its rivals?

Time for Regulators to Stop Promoting Sky’s Rivals?

In December 2001, after lengthy investigations, the OFT found that Sky had a dominant position in the pay TV market essentially because it had the best sports and film rights.  

In March 2002, a mere three months later, the complainant ONDigital, (which came into existence at the prompting of a government anxious that Sky should have a rival and which had inferior sports rights) went into administration.  The OFT eventually cleared Sky of abusing its dominance, in December 2002.

Fast forward to October 2008 and OFCOM, after another lengthy investigation, found that Sky has market power over the rights to premium sports and films.  So the market had not changed.  Now, less than a year later, Setanta, one of the complainants to OFCOM in 2007, appears to have reached the end of the road.  

Setanta’s complaint (which is supported by a number of others) relates to the terms on which Sky sells the rights it possess to other platforms.  Essentially, it is alleged that Sky’s terms for these ‘must have’ rights cause its rivals to incur losses.  Like ONDigital, Setanta seemed to be short of the rights necessary to thrive without depending on reselling Sky’s.  As we know, the best rights (namely the bulk of the English Premier League rights) are in Sky’s possession as a result of winning a tender process organised by the European Commission.  Crucially, the tender restricted the duration of the rights to three years.  Originally Setanta won two packages for 46 matches, but for the period 2010 to 2013 it won only one.  This left Setanta in an insecure position where private equity could never exit on the terms it wanted.

Quite early on in this investigation, OFCOM decided not to refer the issue of Sky’s position to the Competition Commission.  The Competition Commission could have ordered Sky to be split up; this at least would have been an effective remedy. However, the regulator’s reluctance to take the nuclear option has meant that it has had very ineffective tools at its disposal.  After this second failure, the government must surely realise that competition law is not fit for purpose, if the purpose is changing Sky’s behaviour to make life easier for its rivals.

Two real solutions are possible.  The first is for OFCOM to give up the fight and close the file.  It would lose face as a result.  File closure is also unlikely to happen because Setanta (and anyone who takes it over) is not the only complainant; Virgin Media and the other complainants might still be around when a final decision is reached.  Closing the file would mean concluding that Sky can have its dominance while it lasts.  Eventually, of course, the premium rights holders will receive much less money as they will be faced by a monopoly purchaser.  This happened before, in the terrestrial era.  

To avoid that eventuality (which would inevitably lead to a decline in quality of the football product) clubs could threaten to set up their own channel (as the Premier League did in the past) or sponsor a new competitor to ensure they get a decent price and the public continue to be satisfied.  In this market solution, if the clubs failed to get their act together and act efficiently that would be their own fault.  

The second alternative is sector specific legislation.  This would treat premium sports rights as a monopoly to be regulated in the public interest.  To be meaningful, a proposal of this nature would have to remove the rights from their holder, and football clubs and Sky would be fiercely opposed to that, making it a politically unrealistic option.  

While the whole regulatory show is likely to drag on – although hopefully for the last time – on balance the market solution is probably best and is what will happen anyway.”