Ofcom: Breaking Sky’s movie dominance correct decision

Ofcom has recommended that the UK’s Competition Commission maintain its original stance, which provisionally found that Sky’s control over pay-TV movie rights in was restricting competition between pay-TV providers, leading to higher prices and reduced choice and innovation for subscribers. Ofcom contends that the arrival of video-on-demand services such as Netflix and LOVEFiLM has not altered the broadcaster’s market dominance.

In the Provisional Findings, the Competition Commission (CC) found that Sky’s market power in the pay-TV retail market gave rise to barriers to the acquisition of first subscription pay-TV window (FSPTW) movie rights, and Sky’s control of the acquisition of FSPTW movie rights gave rise to it controlling almost all FSPTW movie content in the wholesale market. It found that Sky’s control of the acquisition and distribution of FSPTW movie content on pay-TV affected adversely competition between pay-TV retailers.

In March 2012, the CC said it would reassess that decision, suggesting that market dynamics had changed since its August 2011 announcement. These included, in particular, that Netflix had launched a stand-alone ‘over the top’ (OTT) subscription video on demand (SVOD) service streaming movies and other content, and LOVEFiLM had launched a streaming-only SVOD service and enhanced the content available by streaming as part of its hybrid products (streaming and DVD rental by post).

Ofcom’s submission to the CC as part of the reassessment process suggests the potential market impact of the arrival of Netflix and the expansion of LOVEFiLM into digital video streaming should not be overestimated or overstated.

“The underlying competition issue, of access to premium content, remains a fundamental concern. On the evidence presented by the CC, it is far from clear that the nascent offerings from LOVEFiLM and Netflix have changed the nature of the competition facing Sky’s movie offering. It is also unclear whether they have the potential in future to address the adverse effect on competition and the resulting detriment to consumers identified by the CC in its Provisional Findings” said Ofcom.

Ofcom said that while it recognised that in the long-term there was the potential for the OTT SVoD services from LOVEFiLM and Netflix to have a positive impact on competition, the future development of these new services remained uncertain. “LOVEFiLM and Netflix clearly have ambitions in the pay-TV retail market, but their ability to compete directly with Sky on a sustainable basis is not certain and critically dependent on access to compelling content which is currently controlled by Sky and likely to remain so. Therefore, it is unclear that they can be relied upon in the future to address the adverse effect on competition and the resulting detriment to consumers identified by the CC in its Provisional Findings.”

 

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