Competition Commission probes paybox's exclusive deals

LONDON — BSkyB is making “excess profits” on its 10 Sky Movies channels, according to U.K. regulator the Competition Commission.

In a preliminary working paper, the watchdog said that the paybox’s exclusive deals with the six big Hollywood studios had “consistently” made “excess profits,” both recently and over a long time frame.

“Some elements of Sky’s excess profits may be due to successful innovation or the weakness of its competitors,” said the commission.

“However, we would not expect such profits to persist for a significant period of time.

“Although Sky has taken significant risks in the past, its most risky investments were made 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 risks of its earlier investments.”

Last August, U.K. media regulator Ofcom asked the Competition Commission to scrutinize the satcaster’s studio deals and the wholesale prices it charges rivals such as Virgin Media to broadcast its movie webs.

As the market for watching movies has become more competitive with the emergence of such services as Lovefilm, the number of Sky Movie subscribers has taken a hit, but analysts reckon film channels are bigger money spinners than the satcaster’s premium sports channels.

According to the Financial Times, BSkyB last year forked out around £272 million ($438 million) to Hollywood for film rights, compared with $553 million in 2008.

U.K. media analyst Toby Syfret told the FT that he would not be surprised if the paybox generates double the amount it pays for the movies in revenue.

In a statement, BSkyB said: “We stand by our record in bringing choice and innovation to U.K. consumers.

“We believe that Sky’s profitability today reflects its past investments and its success in delivering highly valued products to customers.

“The Competition Commission’s movies investigation is at a preliminary stage and we will respond to its working papers as the process continues.”

Separately, Ofcom has recommended that the Competition Commission examine whether News Corp.’s proposed takeover of the 60.9% of BSkyB it does not own is likely to impact on U.K. media plurality.

But the government is negotiating with News Corp. to see if it can come up with “remedies” that would preclude an investigation by the regulator.

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