Sky movie dominance disadvantaging rivals and consumers, competitions investigator says

Sky's "market power" in the pay-TV market was enhanced by its ability to outbid rivals for the right to show films on its subscription Sky Movies channels first, the Commission said. This further strengthens its advantages when bidding for future rights, it said in its ruling (16-page / 92KB PDF).

"Sky’s control of [recent movie] content on pay TV enables it to attract more pay-TV subscribers than its rivals and having more subscribers increases further its advantages when bidding in the next round for pay-TV movie rights, and so it goes on," Laura Carstensen, chairman of Competition Commission's investigation into the movies on pay TV market, said in a statement (3-page / 39KB PDF).

"We have found that, as a result of this lack of effective competition, subscribers to Sky Movies are paying more than they otherwise would, and there is less innovation and choice than we would expect in a market with more effective competition. On the basis of our findings, we would like to encourage greater competition by enabling more firms to secure the pay-TV rights of the major studios so as to be able to offer movie fans new choices in competition with Sky’s movie offerings. We are consulting today on the kinds of remedies which we might pursue," Carstensen said.

The Commission is an independent public body that is tasked with considering whether market competition conditions in the UK are healthy and the impact those conditions have on consumers and the economy. Both UK and EU competition law prohibit businesses with significant market shares unfairly exploiting their strong market positions.

In August 2010 the Commission was asked by communications regulator Ofcom to investigate the "supply and acquisition" of movie rights within the subscription pay-TV movie market. Ofcom also asked the Commission to look into the "wholesale supply and acquisition of packages including core premium movies channels". This followed a three-year study by Ofcom into the pay-TV market.

Under the terms of the UK's Enterprise Act Ofcom can refer competition matters to the Commission for investigation if it has "reasonable grounds" to believe that competition laws may have been breached.

The Commission said that none of Sky's rivals had been able to "overcome" the "great advantage" the broadcaster has in securing movie rights because the company has more pay-TV subscribers than all of its rivals put together. "If things stay as they are, we see no likely prospect of change," Carstensen said.

The Commission said that restrictions could be placed on the number of major film studios Sky could draw up exclusive license agreements with for the right to broadcast movies first on its pay-TV subscription channels.

Restrictions on the exclusivity agreements could also broaden competition in the market, the Commission said. Films could be made available through subscription video on-demand services operated by Sky's rivals during the same period that Sky makes the films available to viewers of its subscription channel, it said.

Sky could also be forced to "acquire on a wholesale basis and offer to its subscribers" rivals' movie channels where the rights have been obtained to first show films on pay-TV on a subscription basis, the Commission said.

The Commission said that Sky's dominance in the pay-TV movie market meant rivals, such as Virgin and BT, could not effectively compete with the broadcaster. The Commission said it had considered the impact that online services, such as video on-demand websites, had on Sky's ability to secure exclusive film rights. The Commission concluded that there was no current evidence that the services had a significant competitive impact on the market.

"We have considered carefully how technology is changing the options available to consumers and the ways in which many firms are now seeking to offer consumers internet-distributed movie services," Carstensen said.

"We have observed several significant developments taking place in the market at the moment. However, we have found no evidence to date that any of these alternative providers of movie products are likely to affect significantly Sky’s ability to secure the first pay-window rights of the major studios in the foreseeable future – though we will continue to monitor developments in this area through to our final report, which we expect to publish early next year," Carstensen said.

The Commission said it would consider responses to its provisional findings before issuing a finalised ruling into its investigation. The Commission must submit a final report by 3 August 2012 but it has said it intends to complete its investigation sooner.