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Sky Sports forced to drop prices, Sky Picnic terrestrial pay-TV service given go-ahead

A mix of good news and bad news for Sky today. On the plus side, it gets to launch its Picnic pay TV service, on the downside, it has to reduce the price of Sky Sports to broadcasters

Sky has been ordered by Ofcom to reduce the prices it charges companies such as Virgin Media and BT for access to Sky Sports. Interestingly, as part of this deal, Sky has also been given permission to launch its Picnic pay TV service on digital terrestrial TV. Mixed news for Sky, but surely more of a win for the company than a lose?

The Picnic proposal will see Sky shutting its three, free channels, currently on Freeview -- Sky Sports News, Sky News and Sky 3 -- and replacing them with a pay TV service. (Shocking news for fans of Jeff Stelling's Soccer Saturday.) An initial proposal was that Sky would also offer Sky Sports 1, Sky One and a movie channel via the service. The company also indicated that the Disney Channel and Discovery might be included too, depending on capacity.

In return, Sky is expected to reduce the wholesale price of Sky Sports 1 and 2 from £13.88 to £10.63 per customer, per month. It will also be expected to offer Sky Sports 1 and 2 in HD to other broadcasters, although Ofcom has not set a price level on those services. It's fairly unlikely that customers will see their subscriptions drop though, and this will mostly benefit resellers such as BT and Virgin Media. The Guardian reports that analysts believe a quick drop in prices is unlikely.

BT has already complained, however, apparently upset because Sky's movie channels weren't included in the deal. It's also fair to say Sky isn't happy about the price reduction either, and intends to appeal the ruling, which Ofcom expects to be in place within six weeks.

Things have changed quite a bit since Picnic was first discussed. Now, the efficient MPEG-4 format is more widespread, which means Sky can put more channels into its multiplex space than would have been possible with MPEG-2. The company could even choose to deliver some HD content, which would surely make Picnic a much more attractive proposition for consumers. It does mean Picnic will almost certainly require a separate set-top box, unless you've already got a Freeview HD receiver with the correct card slot.

It would be remiss of us not to point out that digital terrestrial TV in the UK already has a pay-TV operator. Top Up TV has offered on-demand TV that works in conjunction with a PVR since 2004. It also offers one live service, ESPN, which provides football from the Premier and Europa Leagues and some coverage of NBA basketball. Top Up TV isn't all that cheap though, at £12 for its general TV, £10 for ESPN and another £7 for movies. Sky will be able to undercut those prices, and poses a real threat to Top Up TV's business.

The idea of filling up valuable terrestrial space with more pay TV is distasteful to us. Terrestrial space is extremely limited, and between the shopping channels and potentially two pay-TV systems, there's hardly any room left for high-quality telly. The picture quality on channels such as More4 and ITV4 is so atrocious you'd almost be better off watching live Internet streams instead. We'd far rather see this capacity used to bring more HD to Freeview, but Ofcom has made it quite clear it's not interested in quality TV of any kind.