Examination of Witnesses (Questions 146
- 159)
TUESDAY 29 JANUARY 2002
MR TONY
BALL, MS
SHEILA CASSELLS
AND MR
RAY GALLAGHER
Chairman
146. Lady and gentlemen, I should like to welcome
you very much here today. I understand, Mr Ball that you would
like to make a brief introductory statement.
(Mr Ball) Indeed. Thank you for inviting
us here today. We have heard a lot about the problems of digital
television this morning and I should like to focus on some of
its successes. First, take-up. Over 35 per cent of homes in the
UK have now taken up digital television and that is more than
any other country in Europe. According to the ITC, consumers have
gone to digital more quickly than they took to colour television,
the video and indeed the PC. I am very proud of Sky's role in
facilitating that. Second, services. Digital television has given
consumers more choice, particularly in quality niche channels
such as Discovery, Artsworld or The History Channel. It has also
made interactivity a reality with things like e-mail, games, banking
and soon to be launched government services, all available on
the digital platform. More television has not meant less quality
television as many people predicted. The explosion in the hours
of television on our screens means that some people can always
point at bad programmes, but many of your constituents benefit
from a huge increase in good programming since satellite broke
what was really the television cartel here ten years ago. As an
industry we need to build on this success, working to increase
choice, embrace quality and improve services. Finally, what is
the Government's role in all of this or what should it be? We
should like to see them repeal much of the legislation which holds
our industry back. Viewers choices are no longer limited by spectrum
scarcity as they were. The need for such tight regulation is falling
away. Competition law and the notion of consumer detriment should
really be the guiding principle in how this market is liberated.
I should like now to turn over to questions and we look forward
to hearing what you have to ask.
Alan Keen
147. The broader questions will come later.
I always praise Sky, particularly for the production of football
on television and the breadth of the provision and the technical
ability and analysis which helps educate the football public and
sometimes the football public need educating. You have done a
great job there. Because of the heavy investment you have made
in the production of football, both acquiring the rights and the
delivery systems, you have reached a situation of a fair amount
of dominance. Obviously it is the aim of Government to encourage
investment and enterprise and people who do that have to be rewarded,
but when you reach a position of dominance, how do you think regulators
should ensure that competition continues rather than is brought
to an end because of the real success somebody like Sky has had
in that particular field?
(Mr Ball) With our platform. That is addressed by
virtue of the fact that our platform is an open platform, that
anybody has access to our platform unlike any other platform in
Britain, whether it be cable or indeed the DTT platform. If a
channel wants to launch and they cannot come to an arrangement
where we retail that channel on the platform, they have access
to Sky's infrastructure on a rate card which is regulated by OFTEL.
I think that addresses the competition issue you referred to.
148. One point I was making was that because
of the heavy investment you have made, not just in the advertising
but having a delivery system, a platform, you obviously have that
control.
(Mr Ball) That is the point. We do not have that control.
A cable company, absolutely right, has that control. ITV Digital
has that control. I do not have that control. If somebody wants
to come up on Sky, they are perfectly entitled to come up on Sky
on a rate card on fair and reasonable terms as regulated by OFTEL.
So that is a non-issue.
149. How does OFTEL regulate that on pricing?
(Mr Ball) We publish a rate card, they take a view
on the investment Sky has made to create the digital infrastructure.
There is a myth here. Britain did not wake up one morning and
there was a digital satellite infrastructure in place. We built
it. We spent over £2 billion building it. We continue to
invest in it by subsidising boxes. For that we get a consideration
which is the rate card. More than 180 different agreements on
the Sky digital platform are regulated by OFTEL. Only one has
complained and I am sure you can all guess which one that is.
150. I have been praising you for that initiative
and investment. It is just worrying. In this case I am talking
very narrowly and worried about the future of football. I am also
worried about the future of competition in this field. Do you
not think there is a need to change? I am not saying there is,
I am merely asking for your expertise, I am asking whether you
need help.
(Mr Ball) I am not quite sure I follow your worry
about football. Firstly, Sky as a company over the last ten years
or so has put massive investment in football which everyone has
benefited from at all levels, not just Sky and the football players.
There is competition for rights in football. You saw the last
round of rights for the Premier League and FA and so forth. Plenty
of people were bidding for those rights and football clubs or
authorities have done very well out of that. I am not quite sure
where you are going with your concern about competition, but there
is competition at channel level, at platform level, for football
product.
151. I am concerned that it is an all-or-nothing
situation in that to compete with Sky people have to bid very
high and it is difficult to see how in the end they can compete
and I am concerned about that. I have no problems with Sky. I
treat Sky as one of my best friends, but we have reached a position
where certainly other people are complaining about it and the
regulator will have to have some concern about that and this is
where I am asking for your help.
(Mr Ball) To follow and continue your argument, if
you are saying that there should be regulation which would get
rights costs down, you would find myself and my colleagues in
the industry would look forward to that. It is unlikely. You have
seen over the last couple of years that we have not always been
able to win the bidding for rights, whether it be football or
sports or other rights. We have seen BBC, we have seen Channel
4, we have seen ITV with some of their football purchases, pay
pretty big sums to acquire product which has not necessarily gone
to Sky. So the premise that it is always going to go to Sky is
wrong and the content providers have access to Sky's customer
base in the way I described earlier because it is an open platform
with which they can directly access, as some choose to do, those
customers without going through Sky. I think that the way the
competitive landscape is at the moment as far as rights acquisition
is concerned is pretty fair.
Derek Wyatt
152. What is your position on OFCOM with respect
to the Competition Commissioner and the OFT? In other words, if
OFCOM says eventually X, would the broadcast business then say
they do not quite like that so they will go across to the other
Act? Do you think that by creating OFCOM we have to incorporate
the law within OFCOM and close down the other two? I am just asking.
In America, as you know, it is one regulator. I am just wondering
whether we have got it right in the way in which we are thinking
about how OFCOM will develop?
(Mr Ball) You are right that in America it is just
the FCC. I am not a lawyer but you have the Department of Justice
there as well and if you are very unhappy with an FCC decision
they get involved in some of the bigger media matters so there
are two there as well. Having fewer places for different views
on what the rule is, is good. We welcome OFCOM in the sense that
there will be fewer regulators regulating our business. On the
competition issue, as I understand it, OFCOM will have a mandate
to promote competition, which is similar to what OFTEL has. OFTEL
had that so BT could be held back to allow others to come into
the market. OFCOM having that is a worry because promoting competition
generally means distorting the market so inefficient bodies can
succeed. I would prefer OFCOM not to be involved in that area
and have that covered by the OFT.
(Ms Cassells) There is a genuine concern about how
OFCOM uses its promoting competition duties which stem from the
European Framework Directive and at the same time applies its
concurrent competition powers under the Competition Act. Our preference
would be for OFCOM to use the competition powers rather than the
specific sector rules. On the first part of your question, we
support the idea that there is a right of appeal. If there is
a right of appeal to the Competition Commission, if we feel that
justice has not been done within OFCOM, then we will pursue that
and that is quite right.
153. As we move apparently to this broadband
world, and if I understand it that is Internet access 24 hours
a day, permanently switched on everywhere you go, what does that
mean to you as a business if you are a satellite company? Does
that mean you migrate to that area? What does it mean?
(Mr Ball) We are not just a satellite company, we
are a company which exists to generate value for our shareholders,
so our business model will go where we can do that.
154. It does not disturb you too much that there
might be an alternative delivery mechanism.
(Mr Ball) No.
155. Would you prefer that delivery mechanism?
Do you think it would be more beneficial to you because you only
have 37 per cent take-up and you could get 100 per cent take-up
if broadband were available, which we know it will not be to 100
per cent?
(Mr Ball) As I am sure you know better than I, there
are a number of ways of providing broadband including by satellite.
We will take our business where the most efficient delivery system
for our content is available. At the moment there are many castles
in the air about what broadband is and what it will deliver.
156. There has been some discussion about an
alternative box, a digital terrestrial box, which may or may not
be funded jointly by the BBC and ITV companies and other companies.
How do you react to that?
(Mr Ball) The information is somewhat sketchy. It
seems that this box will enable people to get more television
channels and that is it. I do not think it is going to enable
them to do much else. We hear a lot about the benefits of digital
television, I mentioned some of them earlier. This planned free-to-air
box will not do much more than provide more TV channels, a bit
like when the country went from VHF to UHF and enabled more channels
to be available, BBC2 and latterly 4 and 5. Is this box going
to have a modem in it? Is this box going to have access to on-line
type services, interactivity and so forth? I doubt it at that
price. It is just a way of getting more television. Yes, we have
to find a way of getting more television because we agreed a year
or so ago for the BBC to have more money to create more television,
so it is a circular route.
157. The question I asked earlier was whether
we want a smart economy. We did lead the world five years ago
and we now languish in the third division—the OECD figure
is 31 in the world in digital. We have had a specular success
over the last five years. If you want to change that perspective,
you would need to put interactivity and Internet into a digital
platform box. What would be your reaction if the Government said,
"Hold on. We have unspent £11 billion of the 3G mobile
phone money, we could sponsor that box, we could enable that box"?
What would be your reaction?
(Mr Ball) If that is considered a good use of public
funds—and firstly we have to decide the simple cost/benefit
analysis on what that is going to bring—as long as it is
platform neutral, maybe a voucher system or whatever to help the
cost of people taking up such services—platform neutral
across cable, DTT and satellite, we would approve that; we would
be in favour of it.
158. If I understand correctly, it would only
allow certain free-to-air Sky channels, it would not allow Sky
Sport, so that would impact, or would it not impact? If the penetration
were 80 per cent on this digital box, that is high?
(Mr Ball) We are talking about a box which just provides
a dozen free-to-air channels. The pay proposition, premium services,
would still be available on DTT, unless the DTT model changes,
as they are available on cable and satellite.
159. Mr Keen mentioned football. What is the
fuss between ITV2 and yourselves? Why is football league not on
Sky? They blame you, you blame them. What is the truth?
(Mr Ball) The football league is not on Sky because
most of the content is within ITV Sport and we do not have a deal
with ITV Sport. Curiously we did have a deal with ITV Sport a
few weeks ago and then they changed their mind at the last moment.
I was told by a senior member of one of the shareholders of ITV
that they did that because they considered at the last moment
that it would be detrimental to ITV Digital with the Champions
League starting and so on. It is in their court. It suits them
not to have it on Sky at the moment and to lobby very hard. Just
for the record, the initial ask from ITV Sport for us to retail
that service was about the same as they are paying for the football
league rights, £80 million or so, which was absolute nonsense.
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