The Competition Commission has begun its inquiry into Sky’s movie deals with an analysis that BSkyB has consistently earned excess profits, both in the recent past, and over a long period.
The involvement of the Commission springs from Ofcom’s long running pay-TV review. Under question are the exclusive pay-TV rights held by BSkyB with the Hollywood majors. Ofcom referred the matter to the Competition Commission because it felt further investigation to be outside its powers.
As its starting point the Commission uses an analysis conducted by the Oxford-based financial analysts Oxera, though assessing whether it would have followed the same analysis.
The Commission says an element of the profits may be down to successful innovation or the weakness of its competitors. However, it concedes that such profitability may not continue into perpetuity. “Although Sky has taken significant risks in the past, its most risky investments were many years ago and achieved short payback periods. Therefore, it appears to us that Sky’s excess profits can no longer be explained by the risk of its earlier investments,” says the paper. However, by its own admission, the Commission remains at an early stage of the process.
It suggests Sky’s wholesale business may be more profitable than its retail business, but says ascertaining the split between basic and pay revenues or sports and movies is more difficult to ascertain. “We have seen no evidence that movies is a less profitable part of Sky than Sky as a whole, and there is some evidence (in addition to that put forward by Ofcom) which suggests that it is more profitable.”
A spokesperson for BSkyB told Broadband TV News: “We stand by our record in bringing choice and innovation to UK consumers. We believe that Sky’s profitability today reflects its past investments and its success in delivering highly valued products to customers. The CC’s movies investigation is at a preliminary stage and we will respond to its working papers as the process continues.”
The Competition Commission will now commence a second set of hearings, following those parties already heard in October. It anticipates the publication of its provisional findings in April 2011.