So, a few years after Sky were told to sell their Sports channel to competitors at a cheaper price, now they are being told to sell their movie channels to their competitors at a lower price.
Contracts with six Hollywood studios gives Sky UK exclusivity on blockbusters such as Shrek Forever After for 15 months
BSkyB’s domination of premium movies on pay-TV is headed for a challenge next month when the Competition Commission is expected to announce that it will take action to weaken the satellite broadcaster’s stranglehold on Hollywood films.
BT and Virgin Media have led rival pay-TV and film businesses in pushing for regulators to limit Sky’s power on the grounds that it was keeping competitors out of the market. Preliminary findings published over recent weeks on the commission’s website have found that Sky has a case to answer. The commission will give its provisional decision in mid-August.
Combined with premium sports rights, Sky’s longstanding exclusive contracts with the six major Hollywood studios have enabled it to create one of the largest and most profitable pay TV companies in Europe.
One third of the UK’s £15m pay TV households subscribe to Sky Movies, and the company spends around £280m a year, more than its entire budget for its own news and entertainment channels, on buying films.
So far, the commission has found that the prices at which Sky wholesales its movie channels to other broadcasters is too high. Virgin Media customers can get Sky movies, but they pay less to watch them than Virgin pays Sky to carry them.
It has found that Sky’s contracts with the six major Hollywood studios, which run for years, and come up for renewal at different times, mean no rival operators can afford to risk bidding for them.
The commission has also decided that Sky has prevented BT and Virgin Media from developing a business selling films on demand via subscription. Since rivals first brought their complaint in 2006 Sky has been warehousing – or buying without using – the exclusive right to let viewers watch films on demand via subscription.
Sky initially made these on-demand films available via computers, and did not transfer the service to television sets until last year.
Rival operators say they cannot make serious profits from films because they can only show Hollywood movies for a short 45-day window after their theatrical release, and only on a pay-per-view, rather than subscription basis. After that point, the “first subscription pay-TV window” kicks in, meaning Sky channels can show films exclusively for 15 months.
Tron, Shrek Forever After, Inception and Sex and the City 2 are among the blockbusters about to become Sky’s exclusive property in the UK.
In a paper published last month the commission said: “It appears to us that, absent barriers to the acquisition of … movie rights, it is likely that Sky’s rivals would have paid lower prices for Sky’s … movie channels, would have been able to innovate more in terms of having greater flexibility to package and promote products, and would have been able to launch products earlier.”
BT and Virgin Media declined to comment.
They have said in the past that they want the commission to force Sky to wholesale its movie rights to them at lower prices. Once they have built up a base of movie subscribers, they will then be able to compete with Sky for Hollywood contracts.
There is a precedent. Sky has recently been ordered to wholesale Sky Sports 1 and 2 after regulators intervened.
Alternatively, the commission could set rules for studios about how they sell their films in the UK, for example by insisting that no more than half of their content should be signed away to any one operator.
A spokesman for the commission said: “These are preliminary working papers and thus represent our latest thinking, rather than conclusions on any issue. The provisional finding will be published in August.”