Virgin Media - Spraying bullets in all directions
I’m struggling to understand why Virgin Media have taken Sky to court. First of all, it implies that Virgin Media are not happy with the OFCOM payTV investigation. Next it implies that Virgin Media are quite happy to settle in for a long legal case – remember Article 82 and the EU vs Microsoft long running saga? We could be tied up here for a minimum of a couple of years. The only certain winners will be the lucky lawyers.
In fact, I can’t see how Virgin Media can prove that the withdrawn Sky channels are essential to the cable platform. The only way they can show the channels are important are if they have lost a load of subscribers which Virgin Media have been in the press claiming hasn’t been the case. Even if they do prove the Sky channels are important, doesn’t this prove Sky’s case that they deserve a bigger share of the cake? More importantly, I don’t understand what is wrong with the Sky proposal to sell them direct to the cable customers as is permitted on the Satellite platform. We are talking complex service bundling questions.
My analogy would be a football manager arguing a player is really important to his team, but didn’t want to pay the wages the player demanded and furthermore wouldn’t allow the player to start up a new football team in the same league. In fact, since the prima-donna said “Pay-up or I’m taking my ball home” the football manager has been saying to the tabloids that the player is rubbish anyway whilst simultaneously saying to the fans that if they don’t avoid relegation this season it is the players fault not the managers.
I also can’t see how Virgin Media can really argue that they were forced to accept the lower prices from Sky for satellite transmission of its channels. I can imagine Sky doing all sort of viewer number crunching to show the value of channels have fallen over the years. Also, don’t forget that all the numbers on the Sky platform have increased significantly over the last five years so the absolute amount of cash that Virgin Media receive will appear nowhere near as bad as they claim in unit pricing.
Virgin Media were also completely free to go outside the Sky encryption system and develop an alternate package of Satellite channels. It is further complicated by Virgin Media could have rented capacity on the Freeview platform if they so desired and sell their channels on a different platform. Theoretically, Virgin Media could have also done a Setanta-esque deal and encrypted the channels with TopUpTv technology and charged for the access - I'm sure they could have even bought TopUpTV. They had a lot of options. I admit, these options sounds a little far fetched but is this not the Beeb are trying to achieve with the Freesat platform?
Again with the football analogy, Sky is basically saying to old Flextech that they are past their best and rarely make it off the bench onto the playing field, but it isn't doomsday and they won't be kicked out of the club. Luckily because of club successes in the league the wage budget has doubled over the last five years since the last contract negotiation, so Sky are only asking them to take a minor cut in average wages earnt during their peak playing years. Old Flextech are taking a smaller wage, but not as bigger cut as their whinging agent is confusing the tabloids by quoting earnings as a percentage of the overall current club wage budget. If they don’t like it, old Flextech are free to go elsewhere or even hang up their boots if they feel really tired after all the years of struggling to keep up with the improvement in quality of the league.
In terms of economic argument most of these types of competition cases seem to revolve around the definition of “Significant Market Power”. I can’t see how Sky has SMP in the withdrawn channels. I also can’t really see anything unique on the Sky channels, certainly nothing that can’t be replicated. Virgin Media if they so desired could have gone and bought the Lost franchise and decided not to invest. I think the train of thought from the Virgin Media legal team can only be that Sky has SMP in the PayTV market and a probable remedy for this is that prices should be regulated and that would include Virgin Media as well as Sky.
All of this makes me think that Virgin Media are bluffing and really don’t want the court case to play out, because the outcomes could be extremely risky for them as well as Sky. If all Virgin Media want to do is to force Sky back to negotiating table, they might have a big surprise coming, because I don’t think Sky are in negotiating mode.
The problem with spraying bullets in all directions in a crowded market is that there is good probability that you are going to end up shooting yourself or worst still some innocent bystander.
In fact, I can’t see how Virgin Media can prove that the withdrawn Sky channels are essential to the cable platform. The only way they can show the channels are important are if they have lost a load of subscribers which Virgin Media have been in the press claiming hasn’t been the case. Even if they do prove the Sky channels are important, doesn’t this prove Sky’s case that they deserve a bigger share of the cake? More importantly, I don’t understand what is wrong with the Sky proposal to sell them direct to the cable customers as is permitted on the Satellite platform. We are talking complex service bundling questions.
My analogy would be a football manager arguing a player is really important to his team, but didn’t want to pay the wages the player demanded and furthermore wouldn’t allow the player to start up a new football team in the same league. In fact, since the prima-donna said “Pay-up or I’m taking my ball home” the football manager has been saying to the tabloids that the player is rubbish anyway whilst simultaneously saying to the fans that if they don’t avoid relegation this season it is the players fault not the managers.
I also can’t see how Virgin Media can really argue that they were forced to accept the lower prices from Sky for satellite transmission of its channels. I can imagine Sky doing all sort of viewer number crunching to show the value of channels have fallen over the years. Also, don’t forget that all the numbers on the Sky platform have increased significantly over the last five years so the absolute amount of cash that Virgin Media receive will appear nowhere near as bad as they claim in unit pricing.
Virgin Media were also completely free to go outside the Sky encryption system and develop an alternate package of Satellite channels. It is further complicated by Virgin Media could have rented capacity on the Freeview platform if they so desired and sell their channels on a different platform. Theoretically, Virgin Media could have also done a Setanta-esque deal and encrypted the channels with TopUpTv technology and charged for the access - I'm sure they could have even bought TopUpTV. They had a lot of options. I admit, these options sounds a little far fetched but is this not the Beeb are trying to achieve with the Freesat platform?
Again with the football analogy, Sky is basically saying to old Flextech that they are past their best and rarely make it off the bench onto the playing field, but it isn't doomsday and they won't be kicked out of the club. Luckily because of club successes in the league the wage budget has doubled over the last five years since the last contract negotiation, so Sky are only asking them to take a minor cut in average wages earnt during their peak playing years. Old Flextech are taking a smaller wage, but not as bigger cut as their whinging agent is confusing the tabloids by quoting earnings as a percentage of the overall current club wage budget. If they don’t like it, old Flextech are free to go elsewhere or even hang up their boots if they feel really tired after all the years of struggling to keep up with the improvement in quality of the league.
In terms of economic argument most of these types of competition cases seem to revolve around the definition of “Significant Market Power”. I can’t see how Sky has SMP in the withdrawn channels. I also can’t really see anything unique on the Sky channels, certainly nothing that can’t be replicated. Virgin Media if they so desired could have gone and bought the Lost franchise and decided not to invest. I think the train of thought from the Virgin Media legal team can only be that Sky has SMP in the PayTV market and a probable remedy for this is that prices should be regulated and that would include Virgin Media as well as Sky.
All of this makes me think that Virgin Media are bluffing and really don’t want the court case to play out, because the outcomes could be extremely risky for them as well as Sky. If all Virgin Media want to do is to force Sky back to negotiating table, they might have a big surprise coming, because I don’t think Sky are in negotiating mode.
The problem with spraying bullets in all directions in a crowded market is that there is good probability that you are going to end up shooting yourself or worst still some innocent bystander.
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