Sky Movies too expensive, says Competition Commission

Sky's movie business, enjoyed by a third of the households in Britain, may be devastated by a new competition ruling. The Competition Commission's investigation into the pay TV movie business has made a preliminary conclusion – and reckons punters are paying £50m to £60m more each year than they should.

Ofcom had previously spent three years looking at the issue, but had decided not to force Sky to wholesale its exclusive movie rights, deciding against a "must-offer" order – because "the importance of linear movies channels appears to be declining over time". Then, last summer, it threw it over to the Competition Commission.

"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," said Laura Carstensen, head of the Commission, in a canned statement.

Sky's gamble in creating the platform, backed by billions of pounds and years of red ink for investors, has given it a strong bargaining position in Hollywood today. Sky enjoys the pick of the FSPTW (first subscription pay-TV window) rights when movies are released, which costs the company around £280m a year. Sky also wholesales these rights to rivals, such as Virgin. But not cheaply enough, says the Commission.

Three remedies are suggested.

According to the Commission, it may act by:

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 (eg, 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 movies on a wholesale basis and offer to its subscribers any movie channel containing FSPTW movie content created by a rival.

Movie studios are unlikely to be impressed. They simply want the best price for their wares, and that comes from retailers with large audiences and a willingness to part with their money.

There's also the issue of technological change. While innovation in music services has slowed down, digital movie distribution is about to see the biggest shake-up in its history. IPTV and cable services are signed up to UltraViolet, which allows Tesco (and others) to retail movies over your broadband connection.

Sky may rule the roost today, but could become roadkill tomorrow.

The decision, along with a ton of supporting documents, can be found here. ®