BSkyB (“Sky”), through its ‘Sky Movies’ brand, has firmly established its position in the market for ‘First Subscription Pay TV Window’ (or FSPTW) movie rights. These are the rights which allow a broadcaster to show recently released films prior to such films being made available on regular, or Free-to-Air, television. Sky purchases these rights from movie studios. It, in turn, bundles these rights together into the ‘Sky Movies’ packages which it sells, on a retail basis, to its subscribers and, on a wholesale basis, to other TV content providers.
In August 2010, following a three-year study into the pay-TV market, the UK Office of Fair Trading referred the market for pay-TV movies to the Competition Commission (“CC”) pursuant to Section 131 of the Enterprise Act 2002. This provision allows the OFT to refer a matter to the CC if it has reasonable grounds for suspecting that any feature, or combination of features, of a market prevents, restricts or distorts competition. While this is a UK investigation, its findings are of considerable import in Ireland where Sky enjoys a similar market position to its position in the UK.
On 19 August 2011, the CC released its provisional findings. These findings, particularly when coupled with the recent European Court of Justice (“ECJ”) judgment in the FA Premier League case, presage potentially considerable future developments in the pay-TV market.
The CC began its assessment by defining the relevant market as being that for pay-TV retailing. This market is distinct from other markets for motion pictures. The purchase and rental of DVDs or the showing of movies on Free-to-Air TV are not deemed to be close substitutes for pay-TV movies.
The CC found that the pay-TV market is not competitive and is one where Sky enjoys market power, on the basis of factors such as, the high switching costs imposed upon consumers within this market, the significant barriers to entry and expansion and the high and stable levels of concentration in the market. Further, the CC found that Sky’s scale helps to solidify its market position: its established position and large customer base allowed it to bid for new content with significantly lower risk than its competitors.
Interestingly, the CC held that recent technological developments, notably the delivery of content via the internet, did not upset this analysis, largely because such new delivery systems enjoyed comparatively small market shares.
The CC found that, as result of the lack of competition, customers were likely to suffer financial detriment in the region of £250-300 million over the next five years, excluding loss resulting from a lack of market innovation.
In light of these findings, the CC has proposed three possible remedies and has consulted on the imposition of same;
- firstly, a restriction could be imposed upon the number of major studios from which Sky could licence FSPTW rights. This would enable competitors to effectively bid for rights from the remaining studios;
- secondly, Sky could be prohibited from acquiring both linear and video on demand rights. This would force a decision as to whether Sky was to show the movie as part of its regular Sky Movies channels or as part of its Sky Box Office video on demand offerings. The rights which Sky does not acquire would thus be available to competitors; and
- thirdly, Sky could be forced to purchase, on a wholesale basis, and to offer to its retail customers, pay-TV movie channels created by its competitors. This would provide competitors with access to Sky’s large and established customer base.
This is not the first time that the CC has taken an interest in the pay-TV market. For example, in 2007, the UK Secretary of State for Trade and Industry referred the acquisition by Sky of a 17.9 per cent stake in ITV plc. to the CC. In December of that year, the CC concluded, amongst other things, that the merger would likely result in a substantial lessening of competition due to the loss of rivalry between ITV and Sky in the market for ‘all TV’ (including both pay-TV and Free-to-Air services) and recommended that Sky reduce its shareholding to less than 7.5 per cent, combined with an undertaking that it not be represented on the ITV Board. These findings were ultimately upheld by the UK Court of Appeal.
The CC’s findings in this latest case are likely to have a profound impact on the structure of the pay-TV market. It should be noted that that it has not been alleged that Sky abused any dominant position or, indeed, committed any offence under the competition rules. The CC’s findings represent an economic, not a legal analysis. Yet, as a result of this analysis, a number of steps may be taken which may weaken Sky’s position in the market, in order to promote competition and the competitive process.