1. Stephen Wisking, Partner, stephen.wisking@hsf.com 20 MAY 2014 PAY TV UNDER THE COMPETITION REGULATORS SCRUTINY THE FRENCH AND UK PERSPECTIVES 45420667

2. 2 Pay TV Supply Chain History of Regulatory Scrutiny BSkyB/ITV Pay TV Movies OVERVIEW

3. 3 PAY-TV SUPPLY CHAIN Content rights holders Content aggregators (including channel providers) Pay-TV retailers TVOD SVOD Basic pay channels Premium pay channels Consumers Pay-TV platforms DTH Cable DTT/IPTV DTT IPTV Open Internet Advertisers

4. 4 HISTORY OF REGULATORY SCRUTINY 1995 Sky cable price Undertakings to the DGFT (reviewed every two years) 1999 Restrictive Practices Court (Premium League, Sky, BBC) 2000-2002 OFT Competition Act Investigation of Sky 2006-2009 review of Sky acquisition of 17.9% of ITV 2007-2010 Ofcom Pay TV review 2008-2009 CC review of BBC/ITV/Ch4 VoD JV 2010 - ? Pay TV review appeals 2010- 2012 CC Pay TV Movies review 2014 Further Ofcom Pay TV Review

5. 5 SKY/ITV Sky acquired 17.9% in ITV plc a FTA broadcaster Public interest referral to the CC (plurality) Ability to materially influence: Ability to block special resolutions Potential to limit strategic options Weight would be given to Skys views All TV market analytical framework – FTA is a constraint on Pay TV – includes VoD

6. 6 SKY/ITV SLC because Sky could influence: Content production/commissioning Investment in HD on DTT Influence acquisitions by or of ITV No SLC in relation to: TV advertising Pay TV News provision No plurality concern

7. 7 SKY/ITV APPEALS JR grounds only Challenge on the basis that the CC failed to meet the standard of proof for material influence/SLC rejected by the CAT/CoA Virgin successfully challenged in the CAT the plurality test applied by the CC but reversed in the CoA

8. 8 PAY TV REVIEW 2007 complaints by BT, Setanta, TopUpTV and Virgin Media to Ofcom seeking a market reference to the CC 2010 Ofcom decision: Wholesale must offer remedy in respect of SS1 and SS2 Consultation on a reference to the CC in relation to movies At the same time conditional approval of Skys 2007 application to offer a pay DTT service

9. 9 CC PAY TV MOVIES Referred the supply/acquisition of Pay TV movie rights for linear broadcast/SVoD services in the first pay window (FSPTW) and wholesale supply of packages including Sky movie channels Ofcom concern that Skys position in relation to SVoD rights could impede competition – CA98 and sectoral powers limited Theory of harm – vicious circle – without access to rights difficult to compete for retail subs and without retail subs harder to compete for rights CC provisionally finds an AEC in 2011 but not in the final report in 2012 – market developments and the reappraisal of evidence critical

10. 10 MARKET DEFINITION Context specific – wider than Ofcom/OFT but narrower than ITV Pay TV retail market including movies, sports and basic channels and SVoD but left open whether incl. TVoD and PPV FTA, telephony and broadband out of market constraints Did not define the market at the wholesale level At the content level all movie content in the FSPTW (not limited to Hollywood majors)

11. 11 CC ANALYSIS Sky is found to have market power in the retail market Difficulties of switching Costs of large scale entry and expansion Increased competition from Lovefilm and Netflix not enough But market power had not prevented development of SVoD services Sky Movies content was only significant to a small minority of Pay TV subscribers in choosing a Pay TV service Other attributes more valued than recency (e.g. cost, contract periods and range of content) OTT services are substitutable Change from PFs

12. 12 CC ANALYSIS Barriers to acquisition of rights were limited: Lower barriers for OTT retailers and expected to erode further Change from PFs It follows no strategic incentive to limit supply of Sky Movie channels to other retailers: Evidence inconclusive as to whether terms of supply placed other retailers at a disadvantage Change from PFs