UK Competition Commission’s provisional report shows lack of competition in the pay-TV market

On 19 August 2011 the UK Competition Commission (the “CC”) published its provisional findings report, which indicates that Sky’s control over pay-TV movie rights in the UK is restricting competition between pay-TV providers and is ultimately leading to higher prices and reduced choice and innovation for subscribers.

The provisional report states that Sky has, for many years, held exclusive rights to the movies of all six major Hollywood studios in the first subscription pay-TV window (“FSPTW”).  Sky’s control over the FSPTW movie rights of the major studios, and, consequently, over the movie channels incorporating this content, would contribute to a lack of effective competition in the overall pay-TV retail market.

In particular, due principally to its large base of subscribers, would-be rivals are unable to bid successfully against Sky’s incumbency advantage for these rights. By contrast, Sky’s control of this content on pay-TV enables it to attract more pay-TV subscribers than its rivals, which further increases its advantages when bidding in the next round for pay-TV movie rights.  According to the CC, although Sky supplies its movie channels (“Sky Movies”) to some other pay-TV retailers, this supply has not enabled these retailers to compete effectively with Sky for movie channel subscribers.

The CC has also analyzed both how technology is changing the options available to consumers and the ways in which many firms are now seeking to offer consumers Internet-distributed movie services.  However, despite several significant developments taking place in the market, the CC found that the importance to many pay-TV subscribers of being able to watch recent movies makes other means of watching movies insufficient substitutes to Sky movies due to the value attached to Sky’s FSPTW rights with major studios.

As a result of this lack of effective competition, subscribers to Sky Movies are paying more than they otherwise would. What is more, there is less innovation and choice than in a market with more effective competition.

The CC would like to encourage greater competition by enabling more firms to secure the pay-TV rights of the major studios. The CC hopes that doing so will offer movie fans new choices in competition with Sky’s movie offerings. As such, the CC is consulting on possible remedies which might achieve such an outcome.  In particular, the possible remedies on which the CC would like to invite views are:

  • restricting the number of major studios from which Sky may license exclusive FSPTW rights, which would lower barriers to the acquisition of FSPTW rights by enabling other parties to license rights from those major studios with whom Sky was prevented from contracting;
  • restricting the nature of the exclusive FSPTW rights that Sky can license from the major studios, so as to enable other parties to license rights from those major studios with whom Sky was prevented from contracting and, therefore, to offer linear and/or subscription video on-demand movie products in competition with Sky’s movie products.
  • requiring “must retail” measures, where Sky must acquire on a wholesale basis and offer to its subscribers any movie channel containing FSPTW movie content created by a rival, reducing the risks faced by firms bidding for FSPTW rights by increasing the size of the customer base across which they could potentially monetize any rights they acquired.

The CC is seeking comments to its provisional findings and possible remedies by mid-September 2011. The deadline for its final report is 3 August 2012. [Gabriele Accardo]