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Ofcom's publication of its latest consultation on the UK pay TV market looks set to shake up British broadcasting. But its proposals face fierce opposition from BSkyB, and turning them into a reality could be a long and drawn out process.
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The UK communications regulator believes that Sky's market power over sports and film content means "consumers face a restricted choice of channels and platforms". It has set out plans for a 'wholesale must-offer', which would force Sky to reduce its prices to rivals by around 12 per cent to 30 per cent. In a terse response, Sky said that it "disagrees fundamentally with Ofcom's approach, analysis and conclusions" and would be using "all available legal avenues" to challenge what it sees as an unwarranted intervention.
Analysts point out that wholesale only accounts for 4 per cent of BSkyB's revenues, so the proposal would have a limited direct impact on profitability. But Sky's angry response suggests they see a very real risk that increased platform choice for consumers hitting longer-term retail revenues.
When we wrote our sell tip (406p, 10 October 2008), BSkyB's dominance of pay TV broadcasting had already started to attract the attention of regulators, and we argued that as a result its competitive position could only worsen. And while the business is trading well through the recession, that's fully reflected in a forecast PE ratio of 15. At 456p, the shares remain a sell.
Last IC view: Sell, 482p, 4 May 2009
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