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Sky too powerful in pay-TV industry, finds regulator

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The UK's competition regulator has expressed concern over Sky's "market power" in the pay-TV industry, but said that it is unable to investigate further at this stage.

The Competition Commission yesterday issued its final report in the two-year investigation into Sky's alleged control over rights to new movies in the pay-TV industry.

It cleared Sky in the probe, but expressed concern over the firm's power in the overall market for paid television services.

In the report, the Commission found that due to increasing consumer choice from the emergence of streaming services such as LoveFilm and Netflix, the exclusive deals Sky has with all of the major Hollywood studios do not hinder fair competition.

The decision confirms the Commission's provisional ruling released in May this year, stating that Sky will face no action over its exclusive first subscription pay-TV window (FSPTW) deals with the studios.

"Overall, we do not believe that Sky's position with regard to first pay movie content is driving subscribers' choice of pay-TV provider," said the Commission in a statement yesterday (August 2).

It was noted by the Commission that several Hollywood studios had agreed FSPTW deals with LoveFilm and Netflix, such as agreements involving the Twilight series, The Hunger Games and upcoming The Hobbit films.

The rivals have also snapped up rights to newer movies in subsequent pay-TV windows, and the Commission expects that trend to increase as the streaming firms grow their subscriber bases.

Alongside Netflix and LoveFilm, the regulator also noted that Sky's decision to start selling pay-per-view movies via the NOW TV internet-delivered service has boosted consumer options to access the newest content.

Despite clearing Sky in the movies review, the Commission warned that the satellite broadcaster still has too much overall power in the British pay-TV industry, while competition in the market "remains ineffective".

"Together with Sky's large number of existing subscribers deriving from its historical position and the restricted geographical coverage of Sky's main historical competitor, [cable TV operator] Virgin Media, it appeared to us that these factors resulted in Sky having market power in the pay-TV retail market," the report said.

However, the Commission noted that as it was only asked by Ofcom to review Sky Movies, it is unable to take any further action to address its current concerns over wider market dominance.

Laura Carstensen, the chairman of the Inquiry Group, said: "In our view, competition in the pay-TV retail market overall remains ineffective but we were asked by Ofcom to look specifically at the role of first pay movie content and Sky's position with regard to these rights.

"We have concluded that this content does not provide Sky with such an advantage when competing for pay-TV subscribers as to harm competition and, given this finding, we are not proposing any remedies.

"We note that, were there to be a material change in the circumstances which have led us to our findings, this might warrant renewed scrutiny of these issues."

Carstensen noted that Ofcom has already taken action to "remedy Sky's position with regard to sports content", involving the reduction of wholesale prices charged by the firm to other TV platforms to offer Sky Sports 1 and Sky Sports 2.

The ruling in 2009 not only cut the costs for Virgin Media, but also allowed BT Vision and Top Up TV to launch the two premium sports channels on their pay-TV platforms, effectively opening them up to a Freeview audience.

Ofcom is already investigating whether Rupert Murdoch and News Corporation - 39.1% shareholders in Sky - remain 'fit and proper' to hold a UK broadcasting licence for Sky.

The regulator could now take into account the Competition Commission's findings, and even request a broader investigation into the Sky operation, which generated record profits of £1.2bn in the last financial year.

But in a statement issued to The Guardian, Sky denied any suggestion that there is not effective competition in the UK pay-TV market.

"Sky considers there to be overwhelming evidence that UK consumers are well served by strong competition between a growing number of TV providers, including those offering movies," said a spokesman.

"As this dynamic marketplace continues to evolve, we remain committed to innovating for customers so that UK consumers continue to benefit from choice, value and innovation."

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