Stuart Smith's Blog

James Murdoch certainly hit a chord when he likened the UK media sector to the Addams Family in his MacTaggart Lecture. Yes, all the elements of dysfunction are there: stunted growth prospects, an unnecessarily complex and muddled regulatory framework, commercial interests constantly being wrongfooted by the overweening power of the BBC…

Well, not all commercial interests as it happens. Take his own in the pay-TV sector. Despite the existence of the BBC and everything the political establishment has tried to throw against it, BSkyB has managed to create an enviable quasi-monopoly of its own. It has a market share of 80%, over 9 million subscribers, an annual marketing budget of £900m, and a stranglehold over premium paid-for sports and movie channels.

I’m indebted for most of these statistics to David Chance, who has taken the opportunity offered by the MacTaggart lecture to indulge in a finely-judged bit of Murdoch back-stabbing in the Financial Times. Chance knows a lot about BSkyB. For many years he was its deputy managing director. But he now speaks with a different voice, that of the aggrieved and down-trodden competitor. As chief executive of Top Up TV he is part of that 20% of the market (others include Virgin Media and BT Vision) which is not – in his opinion – getting a fair crack at pay TV.

It’s no great surprise to discover that Chance fully upholds the regulator Ofcom’s proposals for trimming BSkyB’s sails. That is to say, because Sky’s actions are “not consistent with fair and effective competition”, it should be forced (Chance’s words) into “a ‘wholesale must-offer obligation’: in effect making Sky sell its sports and movie channels to other pay-TV retailers at regulated prices – enough for Sky to make a good profit but less than Sky’s wholesale prices to cable now. This would introduce competition at the retail level of pay-TV and could slash costs for consumers.” Could, eh?

I have problems with this argument, above and beyond the fact that Ofcom doesn’t seem to have fully mapped out its proposals.

First of all, there is the Murdoch riposte that regulation of this sort will likely subsidise inefficient competition. BSkyB has got where it is today by robust performance which owes little to state support. If the likes of Setanta go bust, is that entirely a consequence of BSkyB’s ‘monopolistic’ position – or is it just poor business acumen on the part of the Irish TV station’s board? Have we – turning Chance’s contention about unfair competition inside out – any reason to suppose that Top Up TV or BT Vision would, objectively speaking, perform adequately without the leg-up of a tilted competitive field?

Second, if Ofcom carries out its regulatory threat, it will be replacing an imperfect market with a false market. How exactly are these “wholesale prices” going to be determined, and with whose consent? How will they be enforced? Let’s take one example of what might happen if they take effect. Rivals eagerly buy up at a discount content which Sky has had to purchase at great expense (probably in competition with these self-same rivals). They then use this content as a loss-leader to steal share from Sky. If the price is low enough, which subscriber would not be interested in that? As yet, of course, we await Ofcom’s verdict on this potential weasel.

In a broader sense, however, Chance definitely scores his point. The Murdoch empire can’t have it both ways simultaneously. On the one hand we have Murdoch Jnr, inveighing in the MacTaggart lecture against the vested interests of the BBC and the distortion this causes to the UK’s media ecology; on the other, Murdoch Jnr turning that self-same argument on its head to defend the privileged position of BSkyB against its pay-TV rivals.