Pay TV operator, Sky has lost an appeal to keep its 17.9% stake in TV broadcaster ITV. ITV is a UK public company. Sky acquired its stake in November 2006 at the time of speculation that Virgin Media may have bid for ITV.

The Competition Appeals Tribunal (CAT) rejected Sky’s challenge to the January ruling of the Competition Commission (CC) that Sky's stake must be reduced to less than 7.5%. The CAT upheld the CC’s view that otherwise Sky could be expected to wield “material influence” over ITV and thereby lessen competition in the UK TV market. This is an important ruling in confirming the circumstances when minority shareholders may wield influence over rivals.

But the CAT went even further than the CC’s ruling. Virgin Media also appealed arguing that full divestiture was necessary. Although it did not succeed in arguing that any stake above 3% was necessarily too high, it won its claim that the CC had inadequately considered the impact on “media plurality”. The CC had ruled that it was satisfied that “internal” safeguards at ITV were enough to protect media plurality despite Sky’s stake. Virgin Media argued that the protection of plurality contained in UK legislation demanded a more stringent test and the CAT agreed. CAT will hold further hearings on this issue. Sky may appeal.

And in another UK Pay TV development…

In the Pay TV market investigation by the Office of Communications (Ofcom), Ofcom has concluded that Sky is dominant in selling key sports and movie premium content and should be forced to sell these rights to rivals. Ofcom has released a consultation paper saying that, currently, Sky may have the incentive and ability to limit distribution of this key content in order to “limit the ability of other retailers to compete properly”. Also, wholesale prices may be set “above the competitive level”. Ofcom is continuing to consult on how a manadatory wholesaling regime should be structured, including how prices and other terms and conditions should be set.