Legal Briefing

Ofcom tackled over broadcasting rights

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Corporate & Commercial | 01 July 2010

The British Sky Broadcasting Group (Sky) and the Football Association Premier League (the Premier League) look set to challenge an order by Ofcom, the UK communications regulator, for Sky to reduce the price at which it sells premium sports content to its broadcasting rivals. The dispute arises from Sky’s exclusive rights to certain sports broadcasts, which it purchased from organisations such as the Premier League. Ofcom brought the order under the Communications Act 2003 (the 2003 Act) to ensure fair competition in the provision of broadcasting content. The dispute provides guidance as to how competition regulators will use their powers under the Competition Act 1998 (the 1998 Act) to regulate margin squeeze situations.

Ofcom argues that access to Premier League content is indispensable to Sky’s rivals in competing with it, given the huge consumer demand for a sports offering as part of any broadcasting package. Even Rupert Murdoch has described sports and movies as the ‘battering ram’ in Sky’s quest to increase market share.

The dispute highlights the following issues:

  • A business with access to an essential facility or content can potentially foreclose competitors from the market by refusing access to that facility or content, or by pricing wholesale rates at such a level that rivals cannot compete in the downstream market.
  • By resorting to a margin squeeze, a company with market power risks breaking the law. This article highlights possible legal remedies to this risk.
  • Regulators need to be confident that their intervention under competition or other regulatory powers are justified, as regulating prices can have a chilling effect on innovation and investment. In this dispute, the Premier League and Sky have challenged Ofcom’s actions on the basis that they fundamentally undermine the value of broadcasting rights and reduce sports revenues as a whole.

Background

In March 2010 Ofcom used its powers under s316 of the 2003 Act to order Sky to reduce the price at which it sells its premium sports channels by 23%.

Ofcom’s investigation was triggered by complaints from Sky’s competitors, including Virgin Media and Top Up TV, who contended that Sky’s wholesale price was too high. The cost of accessing sports content would need to be passed on to their consumers, making their final offering uncompetitive. The order sought to address this problem and enhance consumer choice.

Sky promptly announced that it would legally challenge the order, which followed a three-year investigation into the pay TV market before the Competition Appeal Tribunal (CAT).

Sky is not alone in contesting the decision. The Premier League has announced its intention to bring its own challenge. It is concerned that Ofcom’s actions will reduce the revenue that it receives from the sale of broadcasting rights. Virgin Media, on the other hand, has appealed against the Ofcom decision, arguing that Sky got off too lightly and should be forced to offer to sell Sky Sports 3 and Sky Sports 4 to its rivals.

The appeals by Sky and the Premier League must be filed in June, following which a final hearing date will be set. The CAT’s final judgment will provide a fascinating insight into the balancing act to be struck between protecting consumer choice and safeguarding investment in sport.

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Whatever the outcome of the CAT’s decision, the message for businesses could not be clearer. Companies in a strong market position with access to products needed by rivals should consider whether they have a legal duty to provide these at a ‘fair’ price, in the context of the 2003 Act, the 1998 Act and Article 102 of the Treaty on the Functioning of the EU. If businesses do not comply with their duties, the legal repercussions can be severe. Where an action is brought under the 1998 Act, a company can face a fine of up to 10% of its annual turnover.