BSkyB’s ITV Stake Operates Against Public Interest, Says Competition Commission

The UK’s Competition Commission today dealt a blow to the all-mighty BSkyB (NYSE: BSY), the pay-TV provider 39.1 percent owned by News Corp. (NYSE: NWS), by ruling that its 17.9 percent stake in broadcaster ITV (LSE: ITV) “restricts competition and therefore operates against the public interest.”

In a statement issued today, the CC took note of the competition between Sky, the leader in pay-TV broadcasting, and ITV, the largest commercial terrestrial broadcaster in UK with a growing role in digital TV — an area that BSkyB eyes up alternately as a competitive threat and product opportunity. The CC said that while it didn’t feel that BSkyB played a strong role in daily management at ITV, as ITV’s largest shareholder “by some margin,” BSkyB could influence key strategic decisions at the company, particularly related to investments in content, capacity and new technology.

This will be seen as a victory for Virgin Media (NSDQ: VMED), which has been embroiled in a major, multi-leveled dispute with BSkyB over carrying Sky channels over its cable network, among other competition issues. At the end of last year, when still called NTL, it failed to secure agreement from ITV’s board for a takeover; and prospects there effectively closed after BSkyB made its surprise acquisition of 17.9 percent; the cableco promptly filed complaints with Ofcom and the the Competition Commission, and this ruling is a direct result of that.

Although the CC concluded that areas like sports rights, news provision and advertising were not adversely affected by BSkyB’s stake in ITV, the news is still a setback for BSkyB, which has been pushing against regulators on other fronts, too, including an investigation, currently with Ofcom, into whether it should be allowed to use the free-to-air, digital terrestrial television signals to offer pay-TV programming.

Despite the questions hanging over how Ofcom may decide to rule, Sky yesterday released more details of how it would productise such an offering. The new service, which it is branding Picnic, will offer customers bundles of broadband internet (see our previous post), telephony and television via Freeview with the option of taking up Sky premium channels for an extra charge.

Sky is currently trying to persuade Ofcom to allow it to offer some channels using the MPEG4 standard (versus the current MPEG2 standard) in order to increase how many channels it can provide. Eager to appear open to competition, Sky has emphasized in its promotional material that the set-top boxes for the service will be made by a variety of manufacturers and sold through various retailers — a departure from the proprietary model used for Sky’s satellite service, which serves 8.6 million homes, according to Sky’s Q4 figures from July.

The CC said it plans to present its findings in December to John Hutton, the Secretary of State for the Department for Business, Enterprise & Regulatory Reform, who will make the final decision regarding how to act based on the CC’s findings. In the meantime it has invited response from the public and industry at large on possible remedies and its conclusions as a whole.

link to release from Competition Commission | Summary of findings | Notice of remedies (all in PDF)

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