Sky Movies May Lose Hold Over Pay-TV Movie Market

Under a government order, the Competition Commission was asked to look into the allocation of movie screening rights of pay-TV providers. The investigation discovered that BSkyB, the largest pay-TV provider, has been enjoying too much control over premium movie rights, contributing to “a lack of effective competition in the overall pay-TV retail market.”

The company, which has about 15 million subscribers to Sky Movies, has exclusive deals with several large movie companies, namely 20th Century Fox, Dreamworks, Universal, and Walt Disney. These deals give BSkyB the exclusive rights to movies for 15 months, which means movie producers cannot sell to other pay-TV companies in the UK. Companies like Virgin or BT would have to buy these movies from Sky, but the prices BSkyB charges these smaller companies are so high that they stand to make almost no profit. As a result, Sky practically has a monopoly on pay-TV movies, and the effect on the public is that they end up paying £50m to £60m a year more than they should be if the movie market had a more level playing field.

Last Friday, the Competition Commission released their provisional decision, and it seems that BSkyB will be ordered to weaken its hold on pay-TV movies. The Commission's recommendations included restricting the nature of rights that Sky purchases, which should allow smaller companies to bid for alternative screen methods, such as video-on-demand; and restricting the number of major film studios that Sky can make exclusive deals with, which should allow smaller companies to create deals of their own.

Set to release their final decision on August 3, 2012, the Commission is making these first provisions public in order to gain feedback from viewers and people from the industry.

In an official statement, Laura Catsrensen, who is heading the investigation said: “Sky has had control of recent movie content on pay-TV for many years. At the heart of the problem is Sky's strong position in the pay-TV market, with twice as many subscribers to pay-TV as all other traditional pay-TV retailers put together. This provides Sky with a great advantage when it comes to bidding for movie rights, which no rival bidder has yet been able to overcome—and if things stay as they are, we see no likely prospect of change.”

Carstensen continued on to say that “recent movie content is important to many pay-TV subscribers. As a result, Sky's control of this content on pay-TV enables it to attract more pay-TV subscribers than its rivals and having more subscribers increases further its advantages when bidding in the next round for pay-TV movie rights, and so it goes on. 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.”

Spokespersons from both BT and Virgin Media welcomed the news and the Commission's provisional decisions. Neil Berkett, CEO of Virgin Media said: “Virgin Media has long argued that there are deep rooted problems in the pay-TV movies market which have been severely hampering competition. We're pleased that the Competition Commission has provisionally recognized that consumers have suffered significant harm from Sky's stranglehold and are paying far too much to watch films at home. We hope today's findings will lead to a dramatic transformation of the market and allow new compelling services to flourish that give consumers much greater choice of innovative film services. We look forward to working with the commission to ensure that movie fans reap the benefits of a more competitive dynamic market.”

Naturally, the only company against the Commission's decision was BSkyB. The investigation found that BSkyB spends about £250 million a year buying films, which is more than its budget for Sky News or its other entertainment channels. This means they are likely to be making much more in return.

“We don't believe there is any need for intervention,” started the statement of Ian Lewis, director of Sky Movies. “Consumers are very well served by a growing number of providers and Sky Movies is just one of the many ways they can choose to watch movies at home. It makes no sense to think that Sky Movies is somehow protected from the forces of competition. Sky has multiple competitors who offer a wide range of movies either before or at the same time as us. Consumers have never benefited from so much choice and innovation.

“We stand by our track record in creating choice and innovation, whether offering movies in HD and 3D or on-demand to your TV, PC, or laptop. Ultimately, we know that consumers can choose whether to subscribe, and studios can freely choose whether to deal with us or someone else, so we have to remain focused on delivering choice, value and innovation.”

Sky's upcoming films include: Inception, Sex and the City 2, Shrek Forever After, and Tron Legacy.