Ofcom asks competition regulator to act on TV film market

Ofcom is concerned by the fact that films are licensed for their first television showing jointly via dedicated film channels and subscription video on demand (SVoD) services, where users would select and pay for a single film at a time.

It has asked the Competition Commission (CC) to consider using its powers to change the way the market for films on television works by either regulating more closely the way film rights are bought and sold by film studios and broadcasters, or by forcing Sky to offer its film assets to other broadcasters on a wholesale basis.

Film distribution is carefully structured to allow film studios to control access to works which can cost hundreds of millions of pounds to make. Release is staggered from cinema to home rental to home purchase to broadcast.

This means that viewers are prepared to pay for access to the first broadcasts of major films, Ofcom said.

"First-run Hollywood movies on a subscription basis are particularly important to competition in the pay TV sector because they are highly attractive to a large number of consumers, and shown only on pay TV," it said in its outline of the CC referral. "This is the first time they are shown on TV and consumers typically value films more the closer they are to their theatrical release date."

Ofcom said that its referral was for two markets: that for the rights to show films major Hollywood studios in the first pay TV subscription window in the UK and the wholesale supply of pay TV packages including core premium film channels.

"We consider that the markets we have identified are distinct economic markets and that within these markets a combination of features has an adverse effect on competition," Ofcom's statement said. "This in turn negatively affects the consumer experience, particularly in terms of reduced choice and innovation and higher prices."

Ofcom said that subscription film channels were in decline as viewers increasingly turned to the purchase of the right to watch individual films via video on demand services. This progress is in danger of being hampered by Sky's dominance, it said.

"To date, subscription to packages of linear channels showing first-run movies has been the most compelling movies offer on TV," Ofcom said. "However, the importance of linear movie channels appears to be gradually declining over time. Subscription services offering recent movies on demand present an important long-term proposition. They offer consumers many of the same characteristics as linear channels, but with the added convenience of providing access to a wide range of content on demand."

"We consider that the combination of the features has resulted in a situation in which Sky has control of premium movie rights. We are concerned that Sky will maintain and exploit its market power by restricting the distribution of its movies channels and exploitation of SVoD rights," it said. "In the longer term we are concerned that as Sky develops its SVoD services, its current market power in relation to linear channels could be transferred across to these new services. Therefore, it is unlikely that, absent intervention, competition will develop and consumers will benefit in terms of choice and innovation."

Ofcom said that it had examined its powers and believed that they were not sufficient to correct the market problems it had identified. It suggested two ways in which the CC could solve the problem.

"We consider that there is a reasonable prospect that the CC has appropriate remedies available to it," it said. "The CC could seek to change the way in which key premium movie rights are bought and sold. Such intervention may involve restrictions on the ability of firms to aggregate different types of rights or requirements to make the sale process more contestable."

"The CC could intervene to reduce Sky's ability to act on incentives to exploit market power, by requiring it to provide wholesale access to linear and SVoD premium movie content on regulated terms," it said.