In its revised provisional findings published as part of the Movies on Pay TV investigation, the UK’s Competition Commission (CC) has ruled that Sky Movies no longer provides Sky with a material advantage over its rivals in the pay-TV retail market, following recognition by the watchdog that market dynamics had changed since its August 2011 announcement which had suggested that remedial action was necessary.
Whereas in the past consumers wanting to watch recent movies on a pay-TV movie service had to subscribe to Sky Movies through a traditional pay-TV platform, the launch of new and improved movie services in the pay-TV market by Netflix and LOVEFiLM means that they now have other alternatives. The CC expects consumer choice to increase further when Sky launches its own Internet-based service in the summer (branded Now TV), which will offer Sky Movies without the need to take any other pay-TV content or subscribe to Sky’s satellite platform.
The CC has also revised its views on the relative importance consumers attach to seeing recent movie content within a pay-TV movie service compared with other service attributes, finding that the range of content offered and the price are as, if not more, important than recency.
This is a reversal of the CC’s original provisional finding published in August 2011 but reflects the evidence now available. In particular, Netflix launched in the UK in January 2012 and, since the original provisional findings, LOVEFiLM has enhanced significantly its Internet-distributed movie offering.
Although Sky currently holds the rights to the movies of all six major Hollywood studios in the first subscription pay-TV window (FSPTW), LOVEFiLM and Netflix have already acquired the FSPTW rights of several other studios (responsible for movies such as the Twilight series and the recently-released The Hunger Games) and rights to movies of many of the major studios in subsequent pay-TV windows. These competitively-priced services, distributed over the Internet to computers, TVs and many other devices, offer a wide range of movies and both the range and recency of the content they offer will increase further as more movies become available under existing licensing agreements. The CC has found that, as rival services increase the number of their subscribers, the barriers to them acquiring further FSPTW rights will continue to fall.
Laura Carstensen, Chairman of the Movies on Pay TV market investigation, said that competition between providers of movie services on pay TV had changed materially and, as a result of these changes, consumers now have much greater choice. “LOVEFiLM and Netflix offer services which are attractive to many consumers and they appear sufficiently well resourced to be in a position to improve the range and quality of their content further. Moreover, Sky is about to offer Sky Movies on Now TV, which will make Sky Movies available unbundled from other pay-TV content and not requiring a subscription to a traditional pay-TV platform,” she noted.
“Despite these developments, which are good for competition and good for consumers, we still believe that competition in the pay-TV retail market overall is ineffective. However, the scope of our investigation is limited by the terms of the reference to us to the impact of FSPTW movies and, in our view, Sky’s position with respect to FSPTW movies does not provide Sky with a material advantage over its rivals in the pay-TV retail market,” she said.
“For the purposes of our inquiry, the key effect of the market developments is that, as a result of the new options available to them, consumers’ choice of pay-TV platform can more easily be decoupled from their choice of pay-TV movie service. As a result, Sky Movies no longer provides Sky with the advantage that it used to when competing with other traditional pay-TV platforms, like Virgin Media or BT Vision,” she continued.
“Given that we no longer find there to be an adverse effect on competition in relation to movies on pay TV, we are not now proposing any remedial action,” she concluded.
The CC’s findings come contrary to a submission from Ofcom as part of the reassessment process, which suggested that 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.”
The CC is publishing its revised provisional findings to invite comments, which it will consider before reaching its final views. Interested parties are requested to submit their responses by 13 June 2012.