Sky gets regulatory double whammy

The bad news keeps on coming for Sky, with adverse rulings from Ofcom and the Competition Appeal tribunal...

Last Updated: 31 Aug 2010

This is turning into a bad week for BSkyB. Yesterday a tribunal rejected its appeal against the Competition Commission ruling that it should be forced to sell its 17.9% stake in ITV – in fact, it even suggested the original verdict wasn’t tough enough. And this morning it suffered a further blow, after regulator Ofcom said it was investigating whether Sky should be forced to make its prize assets, football and films, available to rivals at cheaper prices. It never rains but it pours…

Ofcom published the initial findings of its long-awaited report on the pay TV sector today, and they made grim reading for Sky. The regulator suggested that its Premier League football coverage and film premieres – Sky’s most valuable premium content – was ‘of particular importance to consumers of Pay TV services’. It now plans to consult on whether the broadcaster ‘has market power in the wholesale supply of this content, and… has an incentive to limit the distribution of this content to competitors, in a manner that favours its own satellite platform’.

In other words, the regulator appears to be agreeing with rival broadcasters that BSkyB is using its control of these two assets to dominate competition in the pay-TV sector – either by restricting the extent to which it is available on alternative platforms, or by making it so expensive that rivals can’t afford to buy it in. Ofcom will now investigate whether Sky should be forced to make this content ‘more widely available on a wholesale basis’ - which could mean Ofcom ends up regulating the prices directly, with the aim of encouraging greater competition between providers.

The threat to Sky is obvious: this content is a major part of its competitive advantage, and it pays through the nose to get it – so being forced to give it away to rivals at cut-price rates would be less than ideal. On the other hand, as the broadcaster diplomatically pointed out today, it would also increase the availability of its content on other providers, which might have long-term benefits. But on the whole, we imagine they’re less than keen on the idea…

Meanwhile the row over ITV continues, with a tribunal rejecting BSkyB’s latest appeal against the forced disposal of its stake. In fact, it also appeared to support Virgin Media’s claim that the punishment was too lenient, which could mean BSkyB ultimately has to dump its entire 17.9% holding. As well as depressing the ITV stock price still further, this will cost Sky hundreds of millions of pounds, at current prices. Not surprisingly, it’s expected to drag out the legal dispute for a while yet.

So it's double trouble for Sky boss Jeremy Darroch and his bosses at NewsCorp. One thing's for sure: we can't imagine this will do anything to change the Murdochs' notorious aversion to regulators...

In today's bulletin:
FTSE up despite US bail-out flop
Tesco beats crunch with big sales hike
Sky gets regulatory double whammy
Consultants suffer in Tory council tax freeze
You can't trust les rosbifs

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