BSkyB May Change Output Deals With Hollywood Studios

Regulators rule the U.K.-based satcaster is guilty of making “excess profits” on its movie channels.


LONDON -- In what could prove a landmark judgment against the News Corp.-controlled satcaster, the Competition Commission has found BSkyB's Sky Movies guilty of making "excess profits" on its movie channels as part of an interim report.

The regulator, which is looking at the satcaster's exclusive output deals with the Hollywood majors and a number of independent studios as part of a review to assess whether Sky has excessive market power.

The regulator could now order the satcaster to change the terms of its output deals with Hollywood studios.

BSkyB has made no secret of the fact that its movie channels have contributed to its overall strength, and has argued to the regulator that its track record of investment and risk mean that its profits are fairly earned.

The satcaster, which has grown from 1.3 million subscribers in 1992 to over 10 million subscribers at the end of last year, has led the U.K. pay TV market with innovations like digital television, DVR-enabled boxes, HD and 3D services -- and a succession of premium content supplied by all the major studios.

But worryingly for Sky, the Competition Commission has taken the view that despite Sky's undoubted program of investment and risk-taking, it is still outperforming what it considers to be a fair market.

"We recognize that it is possible for a firm to earn excess profits within a competitive market particularly where significant investment risks have been taken. Some element of Sky's excess profits may be due to successful innovation or the weakness of its competitors," the Competition Commission said.

"However, we would not expect such profits to persist for a significant period of time. Although Sky has taken significant risks in the past, its most risky investments were many years ago and achieved short payback periods. Therefore, it appears to us that Sky's excess profits can no longer be explained by the risk of its earlier investments," it concluded.

BSkyB would not comment on the interim paper beyond saying that it maintained its success was due to track record of innovation.

"We believe that Sky's profitability today reflects its past investments and its success in delivering highly valued products to customers. The Competition Commission's movies investigation is at a preliminary stage and we will respond to its working papers as the process continues."

It now has until Feb 25 to make final submissions ahead of the Competition Commission's preliminary report, which is due in April.