ITC proposes big pay-TV shake-up

The Independent Television Commission’s (ITC) proposals into the way cable and satellite channels are sold caught everyone on the hop. A body that is usually noted for holding the line between the powerful interests of advertisers, media owners and viewers through a continual series of compromises, spoke its mind last week.

The ITC’s six page consultation document called “Competition investigation into channel building in the retail pay-TV market” made two key proposals that if carried out will revolutionise the market.

First, it proposed that these channels should be sold either individually, or in much smaller packages than at present. Secondly, the report argues that premium channels, like Sky Sports One or the Disney Channel, should be available to viewers without them having to buy large bundles of other channels.

It is a direct challenge to BSkyB, which invented and dominates the Pay-TV market in the UK, and uses its power in the market to force subscribers to buy large basic packages of channels so that they can have access to its premium movie and sports channels. It’s a strategy that has worked spectacularly well for Sky. In the six months to December last year it raised operating profits by 1.1m compared with the previous period to 163.2m, despite paying an extra 45.6m for its Premier League football contract.

“People were surprised by this,” says one industry observer. “No one expected the ITC to go this far. The view was that they would fudge the issue and try to be all things to all people.”

Jonathan Patrick, general sales director at MTV, echoes this view: “They certainly didn’t hold back on what they thought, it is very clear and straightforward.”

The Commission is clear on its reasons for acting the way it did. ITC chairman Sir Robin Biggam says: “The ITC has carried out an extensive and thorough review of bundling. We are confident our proposals will open up the market and allow retailers to provide viewers with greater freedom of choice.”

The Commission will accept written comments on the document until May 5. If approved, and not delayed by any legal challenge, the proposals could be in force by the autumn.

Though many welcome the proposals, opinion is divided on whether this move, if passed as it stands, will lead to greater choice. “The consumer will lose out,” says Patrick. “There will be fewer niche channels, and so less freedom of choice for the consumer. We are pretty concerned about this.”

He argues that in the US where cable offers around 200 channels, research shows that viewers tend to watch only about nine with any regularity. If this pattern is repeated in a newly freed up UK cable market, Patrick claims it will leave little room for stations that offer anything other than mass entertainment.

Others, and this includes smaller channels, have no problem with the proposals. Adam Stanhope, director and joint founder of Rapture TV, a youth-oriented station which transmits for 20 hours over the weekend, thinks that a clear out may be good for the market.

“For too long stations have survived on who they know, and which large groups they are aligned with, rather than what they show,” he says. “If people don’t want to cross the road for your channel then maybe it doesn’t deserve to survive.”

If the ITC proposals go through, observers say that over the next two years we could see ten or more stations close. This year The Country Music Channel and The Weather Channel have already closed.

Others tipped by industry observers to follow suit include the wholly-owned Sky channels, Sky Soap, Sky Travel and The Computer Channel, and the Associated Newspapers-owned Performance TV.

Stanhope believes that the testing conducted by smaller cable operators outside London shows that smaller basic packages of about five to six channels attract more subscribers than large packages of 12 or more stations, such as Sky’s basic package of 28 channels for 12 per month.

After more than 15 years, cable still only reaches 21 per cent of homes passed. Some in the industry hope that the ITC proposals, if accepted, could push penetration up to 35 per cent within five years.

Jonathan Webb head of marketing at Flextech, the cable operator which owns or jointly runs 14 channels including Living and Bravo, believes the ITC move will boost marketing. “The brand marketing of the stations will need to improve. At the moment people don’t really ask for specific stations themselves, but that will need to change.

“We will not go to a wholly la carte system, but if we group the channels together in a pragmatic way, such as music or youth stations, that should prove popular. At the moment, the cable operators tend to group the channels in an arbitrary manner without consulting – that needs to change too,” says Webb.

A spokesman for Sky, the station affected most by the changes says: “We welcome the opportunity to discuss these issues. We will be studying the proposals in the document carefully and responding at the appropriate time.”

This development is hardly a death knell for Sky. Its ownership of football and other sport, as well as movies, and the first run of series like The X-Files, The Simpsons, and Friends leaves it with a list of properties terrestrial broadcasters would kill for – let alone other cable broadcasters.

Observers also say that in effect Sky retains the potential to bundle stations by shifting around programmes across various stations midway through their runs.

See Torin Douglas page 17

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