Mike Darcey, Sky’s Chief Operating Officer, has called on Government and regulators to ensure that public intervention in the media sector is directed in a way that does not undermine commercial incentives for investment.
Speaking in London at the Institute of Economic Affairs’ “Future of Broadcasting” conference,
Mr Darcey warned that Ofcom’s approach to its Pay TV market investigation may have broad implications for future investment in content. Commenting specifically on proposals for Ofcom to regulate the price at which Sky must wholesale its premium channels to other pay-TV platforms, he said that the proposed prices “do not fully reflect the underlying costs and the high levels of risk in our content business”.
Mr Darcey continued:
“In proposing to force down the price of content, Ofcom appears motivated principally by a desire to promote investment in new delivery platforms. Ofcom wants to make pay-TV retailing a more attractive business and is prepared to squeeze margins in content creation in order to achieve that goal.
One of the many things that is remarkable about the proposals is the ease with which Ofcom feels able to undermine incentives for continued investment in high-quality content. Ofcom seems to assume that Sky will just go on putting around £1.3 billion at risk in sports and movie rights every year, even though it has damaged our ability to make a reasonable return.”
He added that Ofcom appears to assume that its intervention will do nothing to deter investment in other areas.
“The assumption is that Sky will go on finding the incentives and resources to expand its content offering into new areas of programming, as with drama and the arts at present, or bringing forward new innovations for the benefit of consumers.
“When Sky pioneered the launch of HD in the UK a few years back, it was greeted with widespread scepticism – but we pushed ahead and invested hard. If we had known then that Ofcom, a few years later, having seen some initial success, would impose detailed price regulation on our new HD channels, it might just have coloured our enthusiasm for investment in the first place.
“By the same token, Ofcom risks undermining the incentive of BT and Virgin Media to go out and bid for content rights themselves. After all, why go to all that risk and expense when you can rely on Sky to do it for you and Ofcom to deliver it at a risk-free, knock-down, per-subscriber price?”
Mr Darcey added that Ofcom’s proposals raised broad questions about the value of content, the balance of power between content creator and distributor and the role of the regulator in managing tensions between different parts of the value chain. He concluded:
“If Ofcom’s actions were to undermine the incentives for content investment, then the UK will be all the poorer for it. Customers don’t care about pipes, platforms or plumbing. What they care about is great TV. And we’re proud of the part Sky plays in delivering that. Can the same be said of BT and Virgin?”
