Sky could be forced to sell its premium sport and movies channels to other platforms for a much reduced rate, after Ofcom published a critical report into the Pay TV sector.
The communications watchdog says in the strongest terms its belief that Sky is not playing fair with its dealings for movies and sports – with its wholesale costs, the price that other platforms can buy in Sky's content – set too high.
"We confirm our view that content aggregation has enabled Sky to gain a position of market power in these wholesale markets for premium sports and movies channels, says the report, adding:
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"We confirm our view that Sky is acting on an incentive to restrict the distribution of premium channels, with effects on a variety of platforms including cable, DTT and IPTV."
Sky has already been told to set a fairer wholesale rate, but Ofcom is not happy with the results.
"Despite lengthy negotiations and its own claims that it has an incentive to distribute its channels as widely as possible, Sky has still concluded no wholesale agreements for premium channels with non-cable retailers," adds Ofcom.
"This situation is not consistent with fair and effective competition. It has a detrimental effect on consumers, in the short term by reducing choice, and in the long term by dampening innovation."
Prices driven up
Ofcom goes on to confirm that it is consulting on the view that prices are being driven up for wholesale, and that customers are suffering by other platforms being forced into setting prices high.
And that will see the imposition of a wholesale 'must offer' obligation; meaning that Sky could be forced to set prices at a rate set by Ofcom.
"We continue to believe that it is appropriate to deal with our concerns about restricted distribution by imposing a wholesale must-offer obligation under our sectoral powers.
"…We are now setting out options for the specifics of this obligation. We consult in particular on a range of regulated retail-minus prices for Sky's wholesale products."
Premier League rights
Although Ofcom insists that there is no need to intervene to require 'far-reaching changes in the way content rights are bought and sold' it does suggest that 'targeted interventions' could occur for key premium content such as the Premier League rights.
"We…believe that there may be a case for more targeted interventions in relation to subscription video on demand movie rights, and in relation to the next FAPL auction.
"In sports, the existing FAPL commitments will not apply to the 2012 auction. We therefore intend to review with the FAPL how it intends to ensure that this auction complies with competition law.
"That might involve exploring with the FAPL whether it is willing to provide new commitments."
The potential loss of football will come as a huge blow for Sky – a platform that has risen to success on the back of its investment in the football in this country.
The recent collapse of Setanta – a company that prised some of the football packages away from Sky – has left many wondering what could break Sky's dominance, and it appears that the answer could be Ofcom intervention.