BSkyB lashes out at Ofcom demands

Watchdog says Sky must lower cost of sport, movie channels

LONDON -- BSkyB has declared war on U.K. regulators after media watchdog Ofcom Friday demanded changes to the pay TV giant's deals with Hollywood studios and the Premier League and said the satcaster must lower the cost of its premium sport and movie channels so that they can be carried by other pay TV platforms.

BSkyB said it did not accept the regulators' view and would use "all available legal avenues" to challenge the findings.

In the biggest challenge to Sky's dominance of the U.K. pay TV market in twenty years, Ofcom has recommended that BSkyB be forced to offer its premium-priced sport and movie channels to other platforms at a much lower cost on a wholesale basis.

The regulator also said it will talk to Hollywood studios about the way movie packages are currently sold, and wants to open up a market in subscription video on demand movie rights to benefit competition in the burgeoning IPTV market.

"Separating the sale of subscription video-on-demand movies rights from standard subscription rights could promote innovation, especially in relation to IPTV and might also increase competitive pressure on wholesale margins," the regulator said in its latest phase of Ofcom's review on the pay TV market in the U.K..

"We are considering a referral to the Competition Commission on this subject, but propose first to explore with the Hollywood studios what their current commercial plans are, and whether these would reduce the need for regulatory intervention."

Ofcom also wants to force down the amount consumers are charged for Sky's sport and movie channels, opening up a bigger pay TV market across new platforms. Currently those channels are only available either from Sky or from cable operator Virgin Media.

"Despite lengthy negotiations and its own claims that it has an incentive to distribute its channels as widely as possible, Sky has still concluded no wholesale agreements for premium channels with non-cable retailers," the regulator said, adding that the current situation was "not consistent with fair and effective competition."

"It has a detrimental effect on consumers, in the short term by reducing choice, and in the long term by dampening innovation," Ofcom added.

In an angry response to the report, BSkyB said it would challenge the findings under law and branded the regulators intervention "unwarranted."

"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."