Sky faces further regulation of its premium content after Ofcom confirmed plans to refer the sale of pay-TV movie rights to the Competition Commission.
Ofcom published a consultation on March 31, 2010 in the light of the Pay-TV Review that lead to Wholesale Must Offer (WMO) obligations being placed on Sky Sports 1 and Sky Sports 2.
The Competition Commission will now look at whether the sale of rights to show movies from the major Hollywood studios in the first pay-TV subscription window in the UK and the wholesale supply of pay-TV packages including the core premium movie channels is in contravention of the Enterprise Act 2002.
Ofcom believes that the market areas represent distinct economic markets with a combination of features that keep consumer prices artificially high. These include the limited pool of genuine premium content from the Hollywood studios, the windowing system itself, and the bundling of SVOD (subscription video on demand) rights with those for premium linear channels.
For once we have a case of the regulator acting ahead of technology. BSkyB currently has no SVOD offer of the type practiced by HBO and Canal+. This is not surprising given it currently has no television-based on demand service. But by purchasing rights it cannot immediately use, the regulator will want to know if the market is being distorted.
“We believe that we have reasonable grounds to suspect that the combination of these features prevents, restricts or distorts competition in these closely linked markets,” said an Ofcom statement. “In particular, the combination of the features identified creates a situation in which one player is enabled and incentivized to prevent, restrict and distort competition.”
Ofcom’s discussions with the studios indicated that a change in sales policies was unlikely, and it arguably faces a greater challenge than with sports rights, given that these are practices found across the world.
The Competition Commission could now seek to change the way in which movie rights are bought and sold. This could arguably affect UK cable’s major supplier of VOD content, the Disney-Sony owned FilmFlex, as well as Sky. It is within the powers of the Competition Commission to restrict the ability of firms to aggregate different types of rights or requirements to make the sale process more contestable.
It could also intervene to reduce Sky’s ability to act on incentives to exploit market power, by requiring it to provide wholesale access to linear and SVOD premium movie content on regulated terms as has been done with Sky Sports.
Such a move is likely to hasten the launch of a Sky VOD service that could take place in the autumn, once the satcaster’s Sky+ HD receivers are connected to the internet for the delivery of VOD content.