Competition Commission censures Sky over excessive profits
By Mark Banham, mediaweek.co.uk, Tuesday, 08 February 2011 09:26AM
BSkyB has come under fire from the Competition Commission for the "excess profits" made by its Sky Movies subscription service.
As part of a review of the service the body has indicated that the cable and satellite broadcaster has earned consistent profits through its exclusivity deal with six major Hollywood studios to supply content to its 10 film channels earlier than UK terrestrial channels.
In a report, entitled Profitability of Sky, the Competition Commission said: "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."
The report also states that an element of Sky's profits from its movie channels, "may be due to innovation or competitor weakness", but "would not expect such profits to persist for a significant period of time".
In response to the findings, a Sky spokesman said: "We stand by our record in bringing choice and innovation to UK consumers. We believe that Sky's profitability today reflects its past investments and its success in delivering highly valued products to customers. The CC's movies investigation is at a preliminary stage and we will respond to its working papers as the process continues."
Although the working paper is at an early stage the criticisms could lead to action from the Commission to cut the fees charged by BSkyB to subscribers of its movie services when the body comes to its conclusions in April.
Last year, the commission raised similar concerns about BSkyB's control of major sporting events, which led to the broadcaster cutting the price of its sporting channels.
The report could not come at a worse time for the satellite and cable broadcaster, as Rupert Murdoch's News Corporation already has the spectre of an investigation from the commission hanging over it, as it attempts to acquire the 60.9% of BSkyB it does not own.
BSkyB, in a statement, said: "The commission's movies investigation is at a preliminary stage and we will respond to its working papers as the process continues."
This article was first published on mediaweek.co.uk
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