APPENDIX 39
Further supplementary memorandum submitted
by ITV Digital
I was present for the oral evidence given by
Tony Ball, Sheila Cassells and Ray Gallagher of BSkyB on Tuesday
29 January 2002. I have also read a copy of BSkyB's written evidence
to the Committee. BSkyB raised a number of points about the regulation
of pay television which I would like to respond to in order to
correct any misapprehension that may have been created.
Annex 1 sets out a more detailed response to
these points. However, our main comments are as follows:
BSKYB'S
VERTICAL INTEGRATION
The Select Committee raised concerns about BSkyB's
vertical integration from content through to distribution activities.
BSkyB's response was that the Committee need not be concerned
by its market power because of the existence of the current OFT
and Oftel regulatory regimes.
We strongly disagree. Neither the OFT nor Oftel
have regulated the level of prices BSkyB charges either rival
platforms for premium content or other broadcasters for access
to its platform. Instead, the current regimes rely on time-consuming
and cumbersome "after the event" analysis by the regulators.
In ITV's experience this does not sufficiently temper BSkyB's
pricing and attitude.
ITV SPORT CHANNEL
Mr Ball claimed that a deal had been reached
between BSkyB and ITV for the carriage of the ITV Sport Channel
on satellite, only for ITV to change its mind at the last minute.
Again, this is not the case. Mr Ball was correct, however, in
stating that ITV has sought a minimum financial guarantee from
BSkyB for inclusion of the channel within its retail package.
BSkyB would have much to gain from the failure of ITV Sport and
we believe that its viability on satellite depends on BSkyB being
sufficiently incentivised to sell ITV Sport against its own premium
sports channels—this can only be achieved by a minimum guarantee.
CHANNEL HOLDBACKS.
Mr Ball suggested that ITV Digital's shareholders
had taken the strategic decision to "pepper" its platform
with their own channels rather than acquire more attractive channels
at a greater cost. This is also inaccurate. Rather, BSkyB ensured
that many of the more attractive channel providers entered into
restrictive agreements which explicitly prevented them offering
their channels to DTT. In July 2001 ITV Digital formally complained
to the European Commission that BSkyB had entered into such an
agreement with the Discovery Channel. Following a preliminary
investigation, BSkyB agreed with the European Commission unconditionally
to renegotiate its arrangement with Discovery and, we understand,
20-30 other channels for which similar "holdbacks" had
been put in place. As a result, in November 2001 the Discovery
Channel finally launched on ITV Digital. The European Commission's
investigation is on-going.
ITV1 ON SATELLITE
ITV maintains that the principal beneficiary
of carriage of ITV1 on satellite is BSkyB and, therefore, that
no payment would be due to BSkyB in a competitive market. Yet
under Oftel's current regulatory regime, BSkyB was able to demand
some £17 million per annum from ITV, of which we estimate
only £100,000 relates to the direct cost of making ITV1 available
to satellite viewers. The remainder represents pure profit for
BSkyB.
This effectively means that ITV, and all other
public service broadcasters (PSBs), are being asked to subsidise
BSkyB's set top box give-away to subscribers. The other platforms
receive no such subsidy from the PSBs.
This is why we refused for so long to pay the
charges demanded by BSkyB and have now asked Oftel to settle this
disagreement. This is also why we believe extending the current
"must carry" regime to the satellite platform is the
only way of delivering the Government's public policy objective
of universal access to PSBs in a platform neutral way.
THE VIABILITY
OF DTT
Mr Ball claimed that DTT had "got off to
a pretty bad start everywhere". If the viability of DTT in
the UK is in jeopardy, then this is largely due to the anti-competitive
practices of Mr Ball's own dominant satellite platform. Despite
this, in the UK, DTT has grown from scratch faster than any multi-channel
platform in the world and this has prompted the rest of Europe
to follow our lead. Every EU country bar Luxembourg has launched,
or is about to launch, DTT.
One of the key advantages DTT has over other
platforms is cost. Independent research from November 2001 estimates
that using DTT to deliver the Government's objective of universal
coverage of digital television would cost less than one quarter
what it would cost to meet this objective using cable and satellite
alone.
I hope this information is of assistance to
the Committee and, as mentioned above, all of these points are
elaborated upon in the enclosed Annex. Please do not hesitate
to call me if you need any clarification.
| 
