For Broadcast January 21, 2010

According to BT Vision, 2010 is a crossroads for TV in the UK.

The telephone company turned broadband TV provider says that if “properly priced” sports on TV and Canvas (internet TV) aren’t sorted out this year, then the UK risks “falling behind”. These are fighting words and no one likes hearing about the UK falling behind - certainly not politicians in an election year.

“Properly priced” sports certainly sounds like a populist sentiment, and Ofcom’s expected decision to impose a wholesale must-offer price on Sky Sports and Sky Movie channels could make or break BT Vision.

So far, viewers have been voting with their wallets: BT Vision has just 436,000 viewers after two years and a multimillion-pound marketing campaign. Sky, in contrast, is set to break 10 million subscribers this year. And it’s not just BT that’s suffering - even with around 4 million, Virgin Media has a tough time making money on the Sky sports and movie packages it sells.

BT Vision says that provided Ofcom sticks to forcing Sky to wholesale its sports channels for between £9.41 and £11.24 a channel, BT will offer Sky Sports 1 to punters for £15 a month compared with the £25.50 a month that Sky currently charges its subscribers. Virgin Media will likely also join in the pricing war, as will Top Up TV. So will new subscribers flock to Sky’s pay rivals? It certainly can’t hurt them.

But is it fair for the regulator to now impose new regulations that are aimed at curtailing Sky’s pricing power after all the years of investment and risk that Sky has put in? What message does such a regulatory change send to other competitors and to potential new entrants to the UK market? Come in, but don’t get too successful or you’ll be forced to sell to your competitors at a price set by a regulator?

The financial implications for Sky if Ofcom pushes ahead with the wholesale must-carry rules are difficult to quantify, but Sky’s wholesale revenues of £206m would certainly take a material hit.

One analyst’s calculations see the new rules theoretically implying a 5% fall in pre-tax profi t for 2010. But the variables include how much growth cheaper channels might generate in terms of wholesale volume, and how much this might offset the price cuts.

The bigger question is how the Ofcom cuts would change the business fundamentals of Sky, including the all-important churn being potentially ramped up.

And will Sky be willing to replicate its bid of £1.6bn for three years of Premier League games in the next auction? Not likely. No wonder the Premier League and other sports rights-holders are siding with Sky.

But while things don’t look great at the moment for BSkyB United, a dramatic, sports-style comeback could yet happen. Even if Ofcom does impose the price cuts, Sky is a formidable litigator, and with the election coming up, it may be able to hold off the changes long enough for the Tories to gut Ofcom of “policy-making” regulatory powers.

As the saying goes, it ain’t over till the fat lady sings - and she hasn’t even cleared her throat yet.