March 31, 2010 / 6:25 AM / 9 years ago

UPDATE 4-BSkyB ordered to cut sports channels rates

* Regulator cuts BSkyB wholesale price by 23 pct

* Bundled price cap not as bad as expected -analysts

* Ofcom says BSkyB can offer channels on Freeview

* BSkyB says will challenge ruling

* Shares up 3 percent on flat index, top FTSE gainer (Adds sports body reaction)

By Kate Holton

LONDON, March 31 (Reuters) - Britain’s dominant pay-TV group BSkyB BSY.L must make its sports channels available to rivals at a more than 20 percent reduction, after a ruling loosened its grip on premium programming and potentially sparked a price war for viewers.

In announcing the biggest-ever shake up of the UK pay-TV sector, Ofcom said it aimed to give greater choice to customers, following a three-year review prompted by rivals Virgin Media VMED.O, BT (BT.L), Top Up TV and the now-defunct Setanta.

The groups had complained that BSkyB was anti-competitive.

BSkyB, which has Rupert Murdoch’s News Corp (NWSA.O) as its largest shareholder and James Murdoch as its chairman, said it would appeal “the unprecedented and unwarranted intervention”, but it is not yet clear whether that would prevent the changes from being introduced while a legal case is heard.

Ofcom said BSkyB had six weeks to draw up new contracts and BT said it hoped to launch channels showing the hugely popular Premier League soccer in time for the new season.

“This ruling will provide BT with essential content for making its TV proposition more attractive,” Collins Stewart analyst Morten Singleton said. “The balance of power has taken a shift from Sky towards Virgin and BT.”

However analysts said the ruling had been expected and noted that some price caps were better than forecast. Shares in the group were up 2.8 percent at 1420 GMT at 598 pence, valuing BSkyB at 10.5 billion pounds ($15.82 billion).

Under the new rules, BSkyB will have to cut the wholesale rates for its individual Sky Sports 1 and 2 channels by 23.4 percent, but by just 10.5 percent for a bundle of Sky Sports 1 and 2 channels, which was better than expected.

Sports bodies covering the Premier League, rugby and cricket condemned the move and said they feared it would result in less incentives for other broadcasters to bid for sports rights.

Numis analyst Paul Richards said he estimated that BSkyB had 150 million pounds of premium subscription income, with perhaps 100 million coming from sports.

Assuming an even mix of single channels and bundles sold, this would imply a 17 percent hit on these revenues, assuming there is no increase in subscriber numbers, he said. Numis said this would equate to under 2 percent of its June 2011 pretax profit forecasts.

MARKET POWER

Sky, which largely built its business on the back of Premier League and Champions League soccer, is the largest operator in the pay-TV market, with 9.7 million users.

Virgin Media has over 3.7 million TV customers while BT has struggled to get its TV offering off the ground. It had 451,000 customers after launching three years ago.

BSkyB already sells its channels to Virgin Media customers but the cable operator says the rates are so high it is unable to make a profit from the agreement. BT has already indicated it will offer sports channels at a lower rate to customers.

“Ofcom has concluded that Sky has market power in the wholesale provision of premium channels,” the regulator said. “Ofcom has also concluded that Sky exploits this market power by restricting the distribution of its premium channels to rival pay-TV providers.”

Ofcom said the pay-TV group must also offer to wholesale its high definition versions of Sky Sports 1 and 2, although it said Sky could set the rate, and it said it was considering referring concerns on premium movie rights to the Competition Commission.

“We will at last be able to sell two premium sports channels,” BT Retail Chief Executive Gavin Patterson said. Virgin said it was an imperfect remedy.

In a more positive ruling for the satellite group, Ofcom said Sky could also launch a paid-for TV service on the digital terrestrial TV (DTT) platform known as Freeview, which would allow it to target customers who do not have a satellite dish.

However Sky must allow other operators on a DTT platform, such as BT’s BT Vision, to also carry the content, and Sky has not yet said whether it will launch a Freeview product.

For a Buy or Sell on BSkyB, click on [ID:nLDE62U0VQ]. (Reporting by Kate Holton; Editing by Rupert Winchester)

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