This marks a change of position for the regulator, which said last August that Sky's contracts with the six major Hollywood studios - Warner Bros, Paramount, 20th Century Fox, Disney, Sony Pictures and Universal - were throttling competition and preventing rivals from successfully operating.
In revised provisional findings released yesterday, the commission found that Sky Movies "no longer provides Sky with a material advantage over its rivals in the pay-TV retail market".
Whereas in the past consumers had to watch new movies by subscribing to Sky Movies via pay-TV, the launch of Netflix and LoveFilm means they have "other alternatives", the commission said.
The regulator said that it expects consumer choice to increase even further when Sky launches its NOW TV service in the summer, which will offer content from Sky Movies without the need to take a pay-TV subscription.
"Competition between providers of movie services on pay-TV has changed materially and, as a result of these changes, consumers now have much greater choice," said Laura Carstensen, the chairman of the Movies on Pay TV market investigation,
"LoveFilm and Netflix offer services which are attractive to many consumers and they appear sufficiently well resourced to be in a position to improve the range and quality of their content further.
"Moreover, Sky is about to offer Sky Movies on Now TV, which will make Sky Movies available unbundled from other pay-TV content and not requiring a subscription to a traditional pay-TV platform."
The Competition Commission also reported other findings from its investigation, revealing that the range of content and price are "as, if not more, important than recency" for consumers.
The regulator said that since it made its initial judgement in August 2011, Netflix has launched in the UK and LoveFilm has "enhanced significantly its internet-distributed movie offering".
Despite Sky holding the rights to movies from all the major Hollywood studios in the first pay-TV window (FSPTW), LoveFilm and Netflix have also acquired the online streaming rights to many titles from other studios, such as the Twilight series, The Hobbit and The Hunger Games.
Both Netflix and LoveFilm are able to offer consumers a broad range of content across various digital devices for a competitive price, noted the commission, and the growing size of these companies will soon enable them to acquire further rights to new movies.
Carstensen said that the commission still believes that "competition in the pay-TV retail market overall is ineffective", but it is satisfied that Sky no longer gains a competitive advantage from Sky Movies.
"The scope of our investigation is limited by the terms of the reference to us to the impact of FSPTW movies and, in our view, Sky's position with respect to FSPTW movies does not provide Sky with a material advantage over its rivals in the pay-TV retail market," she said.
"For the purposes of our inquiry, the key effect of the market developments is that, as a result of the new options available to them, consumers' choice of pay-TV platform can more easily be decoupled from their choice of pay-TV movie service.
"As a result, Sky Movies no longer provides Sky with the advantage that it used to when competing with other traditional pay-TV platforms, like Virgin Media or BT Vision.
"Given that we no longer find there to be an adverse effect on competition in relation to movies on pay TV, we are not now proposing any remedial action."