Ofcom has finally made a decision on Sky's Picnic – the company's plan to swap its current digital terrestrial channels for a mix of premium subscription channels – giving its agreement, but only if BSkyB makes wholesale changes.
Sky recently insisted that it was putting its Picnic planning in mothballs due to the delay in Ofcom's decision on the matter – and it will not be considered a coincidence that that decision has now been reached.
However, far from opening the gates for Sky, the communications watchdog has insisted on a number of conditions to okay the plan, including making Sky sell its channels wholesale to other broadcasters for a reasonable cost.
Wholesale changes
"We are further consulting on a proposal to address our concerns by requiring Sky to wholesale premium channels on regulated terms," said Ofcom in its official verdict.
"In the light of these views we reach the view in this document that it is highly unlikely that any competitor would be able to compete effectively with Picnic in the absence of a wholesale arrangement."
The terms of that wholesale agreement could fundamentally change the UK broadcast market if Sky gives the go-ahead.
Ofcom insists on a 'wholesale must-offer arrangement, under which Sky would be required to supply its premium sports and movies channels on a suitable wholesale basis which is commercially viable, in particular, subject to certain conditions in relation to wholesale pricing.'
What do the wholesale changes mean?
What this actually means is that Sky would have to offer its premium channels to ALL of its competitors (Virgin Media for instance) at a price that would allow those competitors to compete with Sky in price terms.
Competing retailers of pay TV services could obtain Sky's Core Premium channels on a wholesale basis.
It was not restricted to DTT but would apply in respect of pay TV platforms over all distribution technologies (i.e. cable, DSat, DTT and IPTV).
It would offer a sufficient margin and certainty of supply so that competing retailers could compete effectively with Sky.
The relevant Sky channels could be received by STBs [set top boxes] using Nagra CA (in excess of one million existing STBs) as well as by Picnic STBs…"
Dominate pay television
Ofcom explained its conditions by pointing out that, without a wholesale deal in place, Sky could effectively dominate subscription based pay television on two of the three main viewing platforms – namely satellite and DTT, with only cable as a rival.
"If, as a result of Sky's position in the wholesale provision of sports and movies channels, the proposal was to lead instead to Sky becoming the main provider of pay TV services on DTT as well as satellite, this in turn might lead to be the source of significant concern and potential consumer detriment in the long term," adds the report.
"In the context of our pay TV investigation, we are consulting on a view that a wholesale must-offer arrangement, under which Sky would be obliged to supply its Core Premium channels on a suitable wholesale basis, would be the most appropriate solution to the competition concerns raised. This would seek to create an environment to promote fair and effective competition."
We have contacted Sky for its response – on what could be a huge day for British broadcasting.
