Mediatique

Carriage consent in the UK

July 2012

Presentation to DCMS seminar

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Key questions

What is the current balance of payments between PSB channels and platforms?

Are ‘carriage consent’ fees a basis on which to ensure equitable payments?

Can carriage consent fees contribute to greater investment in original content?

What are the benefits of carriage to each party?

The brief: promote investment in original content alongside a deregulatory approach to public policy

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Some policy context...

“Carriage” of PSB channels in the UK varies by platform:

Platform Must offer? Must carry? Copyright? Payments?

Cable Yes Back-stop provision only

No - exempt None

DTT Yes Yes Yes None

Satellite Yes No Yes Channels pay platforms:- Sky – TPS regime- Freesat – EPG charges

PSB channels effectively unable to deny carriage

Payment flows in favour of Sky under regulated Platform

Contribution Charges (TPS) regime: £14m

currently

PSB channels are also multiplex operators/

tenants in DTT

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The benefits of carriage...

Benefit from being able to reach pay TV homes (c14m)

...a key element of their mass-market access and unlocking advertising revenue streams

Key benefit of carriage

What is the benefit at risk if channels are not

carried?

Channel Pay-TV operator / platform

Benefit from offering PSB channels on an integrated basis, within their EPGs and linked to their “players”

...consumers do not have to “toggle” to get their PSB services

Viewing impairment – the drop in viewing generated by those that remain on the platform after it has stopped carrying the channel

Incremental churn – those subscribers that would switch to a rival platform as a result of the channel(s)’ absence

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From benefits to payments...

A “carriage consent” regime would permit the two sides of the carriage bargain to withhold or deny carriage at will – at the risk of service black-outs

Payments might flow in either direction, from broadcasters to pay TV operators or the other way around...

...depending on assumptions on churn and viewing impairment – for which international and domestic data is limited

Benefits to channel

Benefits to pay-TV operator

Whichever side has higher “benefits at risk” would be willing to pay the other

For modelling purposes, 50% of the difference between the two sets of benefit

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From payments to content investment...

What would the party receiving payments do with the incremental money?

Short of imposing obligations, there is no sure way to predict how payment flows will affect content and subscribers

...but, past behaviours provide guidance...

Impact of/on... Investment in original content by PSBs

Investment in original content by platforms/pay-TV channels

Subscriber prices

Payments from PSBs to TV platforms

Payments from TV platforms to PSBs

Key factors Mitigated by PSB commitments at BBC/C4

...and commercial objectives at ITV/C5

How important is content spend to platform robustness – vs. functionality, technology etc?

Will current plans be honoured, or costs passed onto third-parties?

Competitive context is important – is there scope to raise prices?

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Policy options...

a) Status quo

b) Removal of all relevant payments for PSBs

(i.e., platform charges = 0)

a) Negotiations – with backstop

b) Negotiations – no backstop

Collective or separate negotiations?

Policy options

I.e., allow PSBs to withhold channels by removing must-offerobligations

Backstop of must-carry based on US experience (at regular intervals – 3 years)

Basis of assessment

Deregulatory?

Impact on content investment?

Risk of black-outs?

Impact on subscription prices?

Legal and execution issues?

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Key issues for discussion

Are international case studies relevant in light of UK platform penetration trends?

Would the parties accept the risks of market negotiation?

Is reform worthwhile if the expected payment flows are small and content outcomes broadly unaffected?

Are the regulatory hurdles too great (EU/domestic)?

Will level of TPS trend downward in any event, short of any reform?

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