On 19 August 2011, the UK Competition Commission ("CC") announced its provisional finding that Sky's control over subscription pay-TV movie rights in the UK is restricting competition between pay-TV providers, leading to higher prices and reduced choice and innovation for subscribers.
In the UK, movies are sold in distinct or overlapping "windows", which enable the film studios to maximise the value they are able to generate from their films. Typically, a film is first released in cinemas, then on DVD, then on video on demand, then subscription pay-TV and then finally on free-to-air TV. Sky is the largest provider of pay-TV in the UK, with over 10 million subscribers, and has for many years held the exclusive rights to distribute films from the six largest Hollywood studios in the so-called "first subscription pay-TV" ("FSPTW") window in the UK.
On 4 August 2010, the UK communications regulator Ofcom referred to the CC for investigation the supply and acquisition of pay-TV movie rights. The CC has provisionally found that, due principally to the incumbency advantage Sky has in the form of its large base of subscribers, would-be rivals are unable to bid successfully against Sky for these rights. Although Sky supplies its movie channels to some other pay-TV retailers, the CC has provisionally found that this supply has not enabled these retailers to compete effectively with Sky for movie channel subscribers. Due to the importance of being able to see recent movies to many pay-TV subscribers, Sky's control over the FSPTW movie rights of the major studios, and therefore over the movie channels incorporating this content, contributes to a lack of effective competition in the overall pay-TV retail market.
Accordingly, the CC has proposed three remedies with the aim of lowering the barriers to the acquisition of FSPTW rights, thereby encouraging competition with Sky in the acquisition and distribution of FSPTW content. The first remedy comprises restricting the number of major studios from which Sky may license exclusive FSPTW rights. The CC has stated in respect of this proposal that it is not minded to specify with which studios Sky could contract but instead simply indicate how many and allow Sky to choose which ones. With respect to the second remedy, this comprises restricting the nature of the exclusive FSPTW rights which Sky can license from the major studios (e.g., so that rights for distribution methods such as subscription video-on-demand could be made available to other providers). The third remedy comprises the introduction of "must retail" measures requiring Sky to acquire movies on a wholesale basis and offer to its subscribers any movie channel containing FSPTW movie content created by a rival. The CC has stated that it will consider whether a single remedy should be implemented or instead a package of remedies.
The CC has invited comments on the proposed remedies until 9 September 2011 and comments on its provisional findings by 16 September 2011. The deadline for the CC's final decision is 3 August 2012.
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