High Noon at the TV Corral 

1 April 2007 tbs.pm/2143

The recent tussle between BSkyB and Virgin media has exposed the downside of the ‘light touch’ regulation that UK Television has ‘enjoyed’ in recent years. Dave Hastings reports.

Unbiased information about what really took place between BSkyB and Virgin Media during recent tense negotiations about the Sky channels may never be disclosed but lately Sky’s public behaviour has been nothing short of extraordinary. In some accounts it has been alleged to be bordering on the illegal.

It seems that having had most of the pay-TV playing field to itself until now, BSkyB is desperate to keep it that way and is thus willing to resort to rather dramatic brinkmanship to ensure continuation of that dominance.

The organisation seems to be pushing the boundaries to see what it can get away with. Over time the company has enjoyed a deal of freedom to establish its pay-TV services without much competition and has been very astute with most of its business tactics in relation to building the brand.

Sky is probably banking on being punished on an individual case-by-case basis, perhaps for example being forced to sell shares to reduce its ITV stakeholding to a more politically-acceptable figure.

Some of the BBC’s commercial competitors may from time to time accuse the Corporation of being over-dominant in some respects but they remain curiously silent as to whether BSkyB misuses its own dominance of the pay-TV sector. I suspect for example that the BBC would never threaten to double the content provider charges for its channels.

Ultimately the only solution may be to split BSkyB into separate programme provision and satellite service divisions, but politicians may not wish to face the wrath of Rupert and James Murdoch by doing so. News Corp’s newspapers are, however, enjoying less and less influence these days so BSkyB’s long-standing luck may at some point begin to fade.

That day may come sooner than expected with the help of Richard Branson and his publicity machine.

BSkyB’s latest move in this unfolding saga of Virgin Media baiting may not win it many friends, either amongst Virgin Media customers – who may either be hostile towards Sky or cannot have satellite TV for a variety of reasons – or amongst anyone trying to make sense of the tangled mess that has resulted from this messy and temperamental conflict.

Suddenly Virgin Media customers were faced with blank screens for the non-premium Sky subscription channels as final negotiations between it and BSkyB collapsed. Clearly BSkyB were not going to compromise on their demand for a significant increase in the fee charged for the carriage of their basic channels.

Without knowing the full facts we can never be certain but BSkyB seems to have done a risk assessment on the potential future growth of Virgin Media and what damage it could do to BSkyB’s subscription packages, and then raised fees charged to Virgin Media in order to compensate for these predicted losses.

Given the fact that BSkyB refused to lower its demanded fees to anywhere near what Virgin could reasonably be expected to pay, it’s clear that BSkyB ultimately thought that removing the basic Sky channels from Virgin Media was a viable option from the beginning. The premium movie and sport channels are not involved as they are charged on a per-household basis.

The alternative scenario – existing Sky subscribers cancelling in preference to a more attractive Virgin Media deal – would have posed a big threat to Sky’s profits. Hence a significantly increased rate is demanded by BSkyB to compensate for this risk, since Virgin’s subscription charges would no longer be competitive in relation to Sky’s.

Virgin Media’s position is interesting. They could have asked their existing customers whether they were prepared to pay the extra money demanded for the Sky basic channels instead of trying to force a ‘reasonable’ deal out of Sky, but that wouldn’t have been Richard Branson’s style. It would have been undesirable from both strategic and marketing perspectives.

BSkyB doesn’t seem to care too much about its advertisers, but given its sheer dominance of the market it can afford to make such a bold move. Sky strategy is all about the long term and the crushing of potential rivals before they can significantly damage its market share.

What will be interesting is the effect that the removal of these channels will have on Virgin’s package. It may make attracting new customers more difficult. Some new customers will be annoyed at having been locked into twelve month contracts just before this particular dispute became apparent.

The number of customers jumping ship from Virgin to Sky will depend on just how many of their subscribers have the ability to cancel and whether or not they really want to continue watching the likes of 24, Lost, Battlestar Galactica and the inevitable Simpsons repeats, a feature of Sky output for which ubiquity knows no bounds.

Inevitably the now barely-existent regulation of television in the UK seems to be ‘let things happen, ask questions later’. This half-hearted, supposedly ‘free market’ approach inevitably ends up distorting that market towards the largest players, those with both the distribution and the content.

Every anti-competitive move made by Sky these days serves to increase the potential punishment they may receive at a future date and makes any lack of action from politicians even harder to justify from a ‘without prejudice’ standpoint. In the long term, that may just prove to be BSkyB’s undoing.

A Transdiffusion Presentation

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