Ofcom has told the competition regulator to stick to its guns and break BSkyB's stranglehold on Hollywood films on pay-TV, arguing that the arrival of video-on-demand services such as Netflix and LoveFilm has not altered the broadcaster's market dominance.
The media regulator, in a submission to the Competition Commission published on Friday, said that the potential market impact of the arrival of US online video giant Netflix in the UK in January and the expansion of Amazon-owned LoveFilm into digital video streaming should "not be overestimated or overstated".
In March the competition regulator decided to take another look at the UK 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 UK 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."
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," added the regulator. "It is not clear to us that the new services from LoveFilm and Netflix have had any demonstrable impact which requires the provisional findings to be altered."
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