Netflix gives itself a year to out-bid Sky for top UK movies

Netflix may change its model and urge UK’s media and anti-trust regulators to launch a second movie monopoly probe against BSkyB if it cannot wrestle top film rights from the News Corp outfit there by summer 2013.

The Competition Commission in May provisionally ruled that Sky Movies’ exclusive deals for six Hollywood studios’ films do not overly dominate the UK market for first pay-TV subscription window (FPTSW) movie rights.

That conclusion was a reversal of the commission’s earlier decision and was based on the recent and future arrival, since the investigation began, of IPTV movie services from Netflix itself, Lovefilm and Sky’s own upcoming Now TV service.

In its response to the conclusion, published on Wednesday, Netflix, which launched in the UK and Ireland in January, says that conclusion is “dangerous”, arguing:

“Despite the entry of Netflix and Lovefilm’s presence in the UK, Sky continues to hold a near monopsony on the acquisition of these rights.

“While Netflix intends to continue to compete vigorously against Sky for content, including FSPTW content, it remains the case that none of Sky’s competitors currently have meaningful FSPTW content from the major studios.

“If, in the upcoming year, it becomes apparent that Netflix and other Sky competitors are not able to obtain significant FSPTW rights from the major studios, this may demonstrate that continuing market dominance by Sky has resulted in Netflix having to find other routes to the acquisition of FSPTW content—other routes which avoid head to head competition with Sky for the acquisition of rights which Sky wishes to obtain in order to maintain the market position of Sky Movies.

“Netflix believes it would be irresponsible and dangerous for the CC (Competition Commission to simply conclude at this point that any AEC (adverse effect on competition) arising from the dominance of Sky in the acquisition of FSPTW rights will be offset by new competition emerging for these rights from Netflix and Lovefilm.

“For this reason, Netflix is strongly of the view that the CC should now expressly anticipate a further review in one year’s time. This would allow Ofcom and if necessary, the CC to review whether the emergence of OTT SVOD services in the UK has in fact created strong competition for Sky Movies by recruiting subscribers at the retail level, and, in particular whether this has actually resulted in erosion of Sky’s market power as an acquirer of FSPTW rights.”

The submission, Netflix’s first to the investigation which began in August 2010, is an interesting insight in to how it regards its chances of success in the UK. Effectively, Netflix is giving itself a one-year run at outbidding Sky Movies for first-run rights – if it fails, it will call for regulators’ help.

The “other routes” referred to by Netflix are not clear but could include jointly bidding for shared rights against Sky, or sub-licensing from Sky .

This is also a more cautious tone than the company previously struck on its entry to the UK, when CEO Reed Hastings told paidContent in January: “We could just bid against them (Sky). We are not dependent on whatever the Competition Commission does.” Netflix has spent heavily on other UK rights and a large marketing campaign but has not disclosed sign-ups so far.

In other responses to the Competition Commission’s revised provisional conclusion, BSkyB, NBC Universal and Paramount are supportive, but the British Film Institute and Consumer Focus expressed concern and NBCU suggested competition could become even greater than the commission has finally concluded…

British Film Institute:

  • “The CC appears to have overturned almost five years worth of analysis with undue haste on the basis of highly speculative market forecasts.”
  • “The reversal of position appears to be based on assumptions about the future growth of very new entrants to the video-on-demand market. Such growth is far from guaranteed.”
  • “VoD services cannot be accessed by people who do not use the internet” … “As it stands, the impact of these new services (Lovefilm, Netflix and Now TV) is very small.”
  • “We urge the Commission to reconsider its position.”

Consumer Focus:

  • “Not convinced that material changes have occurred in the  market which would remedy the lack of competition”
  • “Does not believe that competition between providers of movie services in relation to FSPTW rights has materially changed with the entry of Netflix to the UK market”
  • “Not convinced that the launch of Now TV would remedy the consumer detriment.”

NBC Universal:

  • “The Commission may be too conservative in its assessment that SVOD OTT services of LOVEFiLM and Netflix are unlikely to become close substitutes for bundled packages of traditional pay TV in the foreseeable future.”
  • “The evolving pace of competition between OTT services and traditional pay TV should not be underestimated, particularly given continuing growth in the smart TV sector.”