Sky ‘restricts movie competition’

The UK’s Competition Commission (CC) has provisionally found that Sky’s control over pay-TV movie rights in the UK is restricting competition between pay-TV providers, leading to higher prices and reduced choice and innovation for subscribers.

Sky has for many years held exclusively the rights to the movies of all six major Hollywood studios in the first subscription pay-TV window (FSPTW). In a summary of its provisional findings, the CC has provisionally found that, due principally to the incumbency advantage Sky has in the form of its large base of subscribers, would-be rivals are unable to bid successfully against Sky for these rights. Although Sky supplies its movie channels (Sky Movies) to some other pay-TV retailers, the CC has provisionally found that this supply has not enabled these retailers to compete effectively with Sky for movie channel subscribers.

The CC says that because of the importance of being able to see recent movies to many pay-TV subscribers, Sky’s control over the FSPTW movie rights of the major studios, and therefore over the movie channels incorporating this content, contributes to a lack of effective competition in the overall pay-TV retail market. Many consumers do not consider the other ways of watching movies as close substitutes to Sky Movies, which is confirmed by the value attached to the FSPTW rights of the major studios by Sky and the studios.

Although the CC is aware of some significant developments taking place in the market, it has not seen evidence that these are likely to diminish Sky’s bidding advantages to any meaningful degree in the foreseeable future.

The CC is inviting responses to its provisional findings and consulting on measures to make the market more competitive.

Laura Carstensen, Chairman of the Movies on pay TV market investigation said: “Sky has had control of recent movie content on pay TV for many years. At the heart of the problem is Sky’s strong position in the pay-TV market, with twice as many subscribers to pay TV as all other traditional pay-TV retailers put together. This provides Sky with a great advantage when it comes to bidding for movie rights, which no rival bidder has yet been able to overcome—and, if things stay as they are, we see no likely prospect of change.”

The CC suggests that recent movie content is important to many pay-TV subscribers. As a result, Sky’s control of this 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.

The CC finds 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.

“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. 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,” it said.

“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.”

The principal possible remedies on which the CC would like to invite views are:
1. restricting the number of major studios from which Sky may license exclusive FSPTW rights;
2. restricting the nature of the exclusive FSPTW rights which Sky can license from the major studios (e.g., so that rights for distribution methods such as subscription video on demand could be made available to other providers); and/or
3. ‘must retail’ measures requiring Sky to acquire on a wholesale basis and offer to its subscribers any movie channel containing FSPTW movie content created by a rival.

The CC expects to publish the full provisional findings report next week. The CC would like to hear from all interested parties in response to its Notice of Possible Remedies by 9 September 2011 and in response to its provisional findings by 16 September 2011.

The CC will consider all responses before publishing its final decision. The deadline for its final report is 3 August 2012, although it intends to complete its investigation sooner.

In August 2010, Ofcom announced a decision to refer the supply and acquisition of subscription pay-TV movie rights and the wholesale supply and acquisition of packages including core premium movies channels, to the CC for investigation. This reference followed a three-year study by Ofcom into the pay-TV market.

In a statement, BSkyB noted the provisional findings and said: “BSkyB continues to believe that no regulatory intervention is required and that consumers benefit from high levels of choice, value and innovation across a wide range of providers.

We note that the CC’s findings remain provisional and have been issued for consultation. We will continue to engage with the CC during the on-going regulatory process.”

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