SUBMISSION 53
Memorandum submitted by BSkyB
1. At the request of the Select Committee,
Sky comments below on the supplementary memorandum entitled "UK
Film Council and the Terrestrial and Pay Television Broadcasters".
2. In its supplementary memorandum, the
Film Council alleges that it:
"13. . . .has received a number of complaints
from independent film distributors alleging that they have been
unable to licence [sic] the UK pay-TV rights to films which they
have acquired for UK distribution.
14. This is because the overwhelmingly dominant
market player, Sky has exclusive output deals with US studios
and is unwilling to deal in any significant way with other parties.
. . ."
3. These allegations are refuted by Sky.
The Film Council does not attempt to define the market in which
it alleges that Sky is "overwhelmingly dominant". It
should be noted that, in its Decision of 17 December 2002, the
only market in respect of films in which the OFT found Sky to
be dominant was the market for the wholesale provision of premium
pay-TV film channels, characterised by "Category A"
and "Category B" films shown in the pay TV window. The
Committee should note that this wholesale market is not relevant
to the Film Council's allegation (which concerns the upstream
activity of the sale and acquisition of distribution rights).
The Committee should also note that few if any UK films would
be classified as Category A or Category B, as defined by the OFT.
Thus the OFT's recent and extensive investigation into Sky did
not find it to be dominant in a market that is relevant to the
Film Council's allegations.
4. In any event, Sky does deal with independent
film distributors. For example, Sky has a new agreement with Entertainment
Film Distributors (EFD), the leading UK independent film distributor,
which supersedes its previous agreement with EFD that expired
at the end of last year.
5. In its supplementary memorandum, the
Film Council also alleges that:
"14. . . . Most Favoured Nations (MFN)
clauses are built into the agreements between Sky and the studios
which effectively ensure that all studios are guaranteed to receive
equivalent terms.
15. This means that the only way an independent
distributor can access a pay-TV window is by putting its film
through one of the deals between Sky and the studios. This results
in the realisation of a lower price than if Sky were willing to
deal direct. It also means unless a studio agrees to put the film
through its deal, then the distributor cannot sell UK pay-TV rights
to their film. As a consequence, there is a clear detriment to
the consumer since the available choice of films is diminished.
16. Legal advice received suggests that the
distributors have a case to challenge the conduct of Sky on two
particular issues: foreclosure of the market and discrimination
by Sky."
6. Again, these allegations are refuted
by Sky. Sky's film channels are not the only pay-TV services through
which independent distributors may offer their titles to UK viewers:
alternatives already exist, including many general entertainment
channels as well as specialist film channels such as FilmFour
and TCM. There is also the potential for exploitation through
the pay-per-view window via services such as Front Row (which
is provided by Telewest and ntl, the cable operators).
7. In addition, the Committee should note
that digital satellite is also an open platform, and any person
wishing to establish a new service, film-based or otherwise, may
gain access to the seven million or so households with digital
satellite reception equipment on regulated terms which must be
fair, reasonable and non-discriminatory.
8. In practice, the Film Council's complaint
of discrimination seems to be that UK independent film distributors
should command the same level of fees as those earned by the major
Hollywood Studios. Clearly, Sky's conduct does not amount to discrimination
merely because it declines:
(i) to pay the same price for each film (even
though they are differentiated products);
(ii) to pay UK distributors the same prices
today as the Hollywood studios negotiated many years ago; and
(iii) to pay UK distributors for ad hoc films
on the same basis as Hollywood studios are paid under long-term
output agreements for many different films.
9. Finally, in its Supplementary Memorandum,
the Film Council also alleges that:
"17. This legal case is in line with
the European Commission's current investigation into the MFNs
between pay television operators and US studios. The European
Commission has indicated informally to the UK Film Council that
it believes the MFNs breach Community competition law."
10. Sky understands that the European Commission
is currently investigating whether the major Hollywood studios
have breached Article 81 of the EC Treaty as a result of the terms
of their distribution agreements with pay TV operators across
Europe. Sky also understands that this investigation includes
a review of MFN clauses in such agreements which operate to the
benefit of the studios (and not to the benefit of pay TV operators
such as Sky). Indeed, the Commission has indicated to Sky that
it may be a "victim" of this potential anti-competitive
conduct. In the circumstances, there is absolutely no consistency
between the Film Council's unsubstantiated and untenable allegations
against Sky and this Commission investigation into the practices
of the Hollywood studios.
8 September 2003
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