BskyB is holding a monopoly in major sports which have a significant barrier to entry for a new broadcaster or even an existing broadcast sports like that of SKY. This results in a barrier to entry from high capital investment.
Improvement competition has allow the market of broadcasting to become more contestable, there is greater choice on viewing digital on platforms with three platforms available, the market can be characterised as an oligopoly, as with attempts of product differentiation. But the services offered are very similar, as channels on different platforms not differ so much. Channels to become established, of them available only on a subscription basis, this has affected the barriers to entry, and enabled the market to be more contestable than before. In the UK, there are now more than 300 channels available
There is a scope for price competition between platforms, especially for recruiting new subscribers, who tend to be loyal once they have chosen their platform, generating revue streams for years to come. Existing customer tends to be unaware of the prices of competitors or don’t want to switch. The way that technology has developed to enable broadcasts to be restricted to subscribers or paying customers has enabled a number of new developments in this market. In particular, there are segments of the market where consumers are clearly prepared to pay a premium in order to view particular programmes
BskyB have seen supernormal profits with them holding a significant amount of subscribers due to their sports services, interdependence of firms exist causing a kinked demand curve, a demand curve composed of two parts of which are elastic and inelastic. Suggests that if a firm lower the price in an oligopoly then demand will be inelastic, due to the fact other companies (competitors) are very price sensitive and thus lower price as well. So demand won’t increase as much. But this will have an effect on to the marginal revenue of the firm will likely to lower prices. This is because the ratio of fixed to variable costs is very high, which in turn means that there are substantial economies of scale. The major costs arise in establishing the network of transmitters, and in making the programmes. The marginal cost entailed in transmitting the programmes is very small compared to these fixed costs
By being efficient, the incumbent firms are able to deter new entrants as well as please consumers, as they are receiving a fair and efficient service. On the other hand, if the incumbent firms fail to operate efficiently, then new firms could enter the market and produce at a more efficiently, which may force existing firms out of the market.
There are large economies of scale which can be offered, its mainly fixed cost which provides television changes, which don’t alter depended on viewing figures, economics of scope may occur to those firms which have a range of other media services, like online and newspapers e.g. News Corp.
Suggested that the broadcasting market is less contestable that it appears, but it may become less contestable and more concentrated in the future, the extent to which television creates and encouraging competition may be seen of low quality shows, danger of market failure if not Ofcom is regulating the market. The broadcasting industry has significantly changed the type of market which it has from once being an oligopoly towards a contestable level. However, contestability may not necessarily result in increased efficiency and economic welfare. This is because, if new firms enter the market, competition may reduce the profitability of the industry. This may leave insufficient funds to finance investments in improving networks, research and development and machinery.
Also, firms have a temptation to offer short-term price cuts rather than invest in the long-term future. The consumers may benefit in the short term, but loose out in the long term. One advantage of the system that allowed BSkyB to gain a monopoly in the supply of televised live football and cricket matches is that this brought money into the respective sports, enabling investment in football clubs and cricket.