Ofcom warns Sky has "market power"

Ofcom has signalled its intention to disrupt Sky's "market power" in the pay TV industry by regulating wholesale access to premium content.

In its latest pay TV market consultation, the watchdog has attempted to address "concerns" about Sky's restricted wholesale distribution of its premium sports and movies channels.

The report has said that the satellite firm is "acting on an incentive to limit the distribution of these channels to rival TV platforms", which has resulted in restricted short-term access for consumers and limited long-term developments in pay TV technology on non-Sky platforms.

Ofcom has ruled that Sky is earning "aggregate returns in excess of its cost of capital", which has been most noticeable in its wholesale operation.

Therefore, the consultation has suggested that there may be a case for "specific targeted interventions" in access to subscription video-on-demand (SVoD) movies and FA Premier League TV rights.

Ofcom is presently consulting on firmer proposals for a wholesale must-offer model around Sky's premium channels - including a regulated pricing structure - in order to increase competition.

"We do not believe that this proposed remedy would have a disproportionate impact on Sky, since we consider the proposed prices are above the level required to allow Sky a reasonable return on its content costs," said the watchdog in a statement.

"We believe that Sky's wholesale revenues would increase under the proposed remedy, due to its channels becoming more widely available."

Sky presently holds SVoD rights for all the major Hollywood studios, but does not utilise them on its platform, said Ofcom.

It has, therefore, proposed to separate the SVoD rights from standard subscription rights to potentially free up new movie services to be offered on IPTV or cable.

Ofcom is considering a market reference with the Competition Commission on this matter, while it also intends to "explore the commercial intentions of the Hollywood studios" before implementing any regulation.

Finally, the watchdog will work with the English Premier League to review the current TV rights process in order to ensure that the next auction in 2012 complies with competition law.

In response to the report, Sky said: "We disagree fundamentally with Ofcom's approach, analysis and conclusions.

"In light of Ofcom's determination to pursue its preferred outcome, we will use all available legal avenues to challenge this unwarranted intervention."