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BT squares up to Hollywood over broadcast rights

Telecom giant tells Competition Commission inquiry that Sky has unfair advantage on films

BT is blaming Hollywood's big studios for its failure to break into Britain's pay-TV film market. It has told the Competition Commission that the studios' policy of staggering the sale of rights to feature films creates an unfair business base.

The competition watchdog is investigating the pay-TV movie market after a reference from Ofcom, the media regulator. BT has complained that despite investing millions of pounds it still has fewer than 500,000 subscribers compared with BSkyB's 10 million. And it accuses Sky of warehousing movies – buying rights but not showing the films.

BT is offering its Vision subscribers films over Christmas such as Tom Cruise and Cameron Diaz in Knight And Day plus Sex And The City 2, but it believes the studios' sales methods prevent it from buying the best movies.

Major studios such as Universal, Sony and Paramount have defended their policy during grillings by the commission, however, and claim that BT has often not bid against Sky. Twentieth Century Fox, whose parent, News Corporation, owns 39 per cent of Sky and is seeking to take total control of the broadcaster, said no other UK company approached it during its window for selling rights.

But BT claims: "The release window structure, and the way in which rights negotiations are staggered separately – which limits the overlap of negotiations between different studios and rights purchasers – could, in practice, be used to limit the degree of direct competition between studios.

"If this were the case then it is possible that competition between the six movie studios may be more limited than Ofcom believes. The negotiations process adopted by the studios may itself represent a feature of the market that prevents, restricts or distorts competition," BT told the commission's deputy chairman, City lawyer Laura Carstensen, who is heading the inquiry.

For the UK competition watchdog to take on Hollywood's top studios would elevate the nature and scale of the inquiry considerably.

Universal told Ms Carstensen that exclusivity in the first pay-TV window allows it to optimise returns on its intellectual property and Paramount claimed the limited staggering of contracts in the UK does not prevent new companies entering the market.

"The sequential windows system reflects a proper exploitation of IT rights," said Paramount executives. "It is not anti-competitive for Paramount to maximise revenues for its copyright material."

BT accuses Sky of warehousing video-on-demand rights by buying the films but not using them. It also claims Sky's contractual arrangements with the US studios are designed to limit competition from other pay-TV operators, forcing rivals to accept poorer quality films or show television material instead.

It says Sky's prices for movie packages are already above competitive levels but warns: "It is possible that in the event of an increase in the price of movie rights from major Hollywood studios in the first pay-TV subscription window, Sky would continue to purchase these rights.

"It may be in a position simply to absorb such an increase. This may be more profitable for Sky than switching to rights content which is perceived to be a poor substitute."