BSkyB (NYSE: BSY) has been ordered to weaken its stranglehold on Hollywood films on pay-TV after an investigation by the Competition Commission. In a provisional decision published on Friday morning, the commission said that BSkyB’s contracts with the six major Hollywood studios present a significant barrier to entry to potential competitors, including BT (NYSE: BT) and Virgin Media.
The industry watchdog ruled that the prices charged by Sky to Virgin are too high, meaning Virgin cannot make a business selling films to its customers.
One third of the UK’s 15m pay-TV households subscribe to Sky Movies, as the network enjoys exclusivity on many Hollywood blockbusters for 15 months.
Inception, Tron Legacy, Shrek Forever After and Sex and the City 2 are among the blockbusters about to become Sky’s exclusive property in the UK.
Among a number of recommendations from the commission, the regulator said that Sky should be restricted from signing exclusivity deals with all of the major Hollywood film studios for movie rights in the so-called “first subscription pay television window”.
The Competition Commission recommended that exclusivity deals with the film giants should be weakened so that rival operators can buy the rights to other distribution methods, including video on demand.
Laura Carstensen, chairman of the Competition Commission’s movies on pay-TV 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.
“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.”
The commission said that the adverse effect on competition caused by Sky’s movie domination meant that consumers were paying £50 to £60m a year more than would otherwise be the case.
Under the present system, a number of Hollywood blockbusters are available only on Sky in the UK. The satellite broadcaster spends about £280m a year on buying films, more than its budget for Sky News and other entertainment channels.
Under recommendations put forward by the Competition Commission, BT and Virgin Media (NSDQ: VMED) would be able to rival Sky Movies by offering their own selection of new releases.
BSkyB said in a statement: “BSkyB notes today’s announcement of provisional findings by the Competition Commission (CC) in its movies on pay-TV market investigation.
“BSkyB continues to believe that no regulatory intervention is required and that consumers benefit from high levels of choice, value and innovation across a wide range of providers.
“We note that the CC’s findings remain provisional and have been issued for consultation. We will continue to engage with the CC during the ongoing regulatory process.”
The Competition Commission will invite views on its recommendation before publishing a final decision in August 2012.
This article originally appeared in MediaGuardian.