U.K. Regulator: Netflix, Amazon's LoveFilm Have Not Weakened BSKyB's Pay TV Grip on Hollywood Movies

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Ofcom tells the country's competition commission to continue efforts to loosen the News Corp.-controlled satellite TV provider's stranglehold on films from the six major studios.

LONDON -- U.K. regulator Ofcom has told the competition commission to not pull back from efforts to loosen BSkyB's stranglehold on Hollywood films on pay TV.

The Ofcom steer follows the regulator's decision to delay taking action against the satellite TV operator, in which Rupert Murdoch's News Corp. holds a 39 percent stake, while deciding the entry of Netflix into the U.K. market had led to a change in market prospects for customers.

But Friday, Ofcom said the arrival of U.S. VOD operator Netflix and the ramping up of Amazon.com-owned LoveFilm has not altered the broadcaster's market dominance.

The media regulator, in a submission to the Competition Commission published Friday, said that the potential market impact of the arrival of the online video giant in the U.K. in January and the expansion of LoveFilm into digital video streaming should "not be overestimated or overstated."

Ofcom said that it believed that services such as LoveFilm and Netflix do not act as a viable substitute for Sky Movies, but "appear to be designed to more closely resemble a general entertainment TV channel service."

"It is also unclear whether they have the potential in future to address the adverse effect on competition and the resulting detriment to consumers identified by the Competition Commission in its provisional findings."

In March, the competition regulator decided to revisit the U.K. pay TV market for films to see whether the arrival of new digital services weakened the case against Sky. It provisionally concluded last summer that Sky was anti-competitive and needed to be weakened to allow rivals to flourish.

"It is far from clear that the nascent offerings from LoveFilm and Netflix have changed the nature of the competition facing Sky's movie offering," Ofcom said in its submission published on Friday. "We have not seen any clear evidence presented to demonstrate that the subscription video on demand services offered currently by LoveFilm and Netflix exert a sufficient competitive constraint on Sky Movies."

Ofcom said that despite developments in the market, which includes Sky launching a pay-as-you-go VOD service called Now TV to take the battle to Netflix, it believed that the satellite broadcaster's exclusive deals with all six major Hollywood studios for U.K. pay TV and video-on-demand windows needed to be broken.

"We considered that first subscription pay TV window movie content from the six major studios was particularly important to competition in the pay TV sector," said Ofcom. "We do not see that the evidence presented means this assessment is no longer correct. Therefore we do not see that the new services from LoveFilm and Netflix have already addressed the issues identified in the Competition Commission's provisional findings, or that, in the absence of intervention, they can be relied on to do so in future."

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