OFT blocks exclusive Disney deal with BSkyB

Cable complaints: Regulator insists on end to special distribution arrangement
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The Office of Fair Trading has shot down an exclusive distribution arrangement between Disney and BSkyB, the cable and satellite channel.

Acting on complaints from cable operators, the OFT has insisted that the Disney Channel, currently only available to cable subscribers who also take BSkyB's two premium movie channels, must be offered on a "non- exclusive" basis.

In letters to the operators, the OFT said the terms of the existing Disney/BSkyB agreement "had been altered" to pre-empt the bundling of channels offered to cable companies. Satellite subscribers, however, will continue to receive the Disney Channel only if they subscribe to the two Sky Movie services.

An OFT spokesman added that BSkyB would be writing to the cable companies to detail the new arrangements.

As a result of the OFT action, cable companies will now be able to deal directly with Disney over the terms of supply, rather than through BSkyB, 40 per cent owned by Rupert Murdoch's News Corporation.

But cable operators were circumspect yesterday about the effects of the OFT's intervention, pointing out that Disney could now charge even more for the Disney Channel than the operators currently pay for the "bundle" on offer from BSkyB. The result could be that cable operators in fact choose to retain the current arrangements.

"It's great that the OFT has acted on this issue," said one cable executive. "But how do we know what Disney is going to charge us?"

Disney executives were scheduled to meet cable operators next week to discuss the new terms of supply. The company would be free to negotiate a higher price than that offered to BSkyB for its exclusive supply.

The OFT intervention may affect other terms of BSkyB's contractual arrangements with Disney, which were the result of a high-profile and protracted negotiation giving the UK satellite broadcaster exclusive rights.

Neither Disney nor BSkyB were available for comment last night.

The Disney Channel is viewed by the pay-TV industry as potentially one of the sector's most profitable additions since the launch of satellite services. It features a mix of cartoons, films and other programmes deemed suitable for the "family viewing" market.

Moreover, Disney has huge brand recognition, with its stable of globally known characters such as Mickey Mouse, Donald Duck and, more recently, Aladdin and Pocahontas.

BSkyB has been accused in the past of abusing its dominant position in the pay-TV market in the UK. Cable operators complain that the company's deep pockets, long-term supply arrangements with Hollywood and its control of "conditional access" technology used to encrypt video signals for pay- TV combined to make BSkyB invulnerable to competition.

Cable industry executives also complain that programme suppliers often ignore cable channels altogether, preferring to deal directly with the dominant player. This has been the case, they argue, with sports programming, where BSkyB dominates professional football through its exclusive deal with the Premier League.

BSkyB's position in the pay-TV market has been the subject of several OFT rulings. Last March, the company agreed to offer its channels to the cable industry on an a la carte basis, and received approval for a revised rate card in August.

Under its terms, cable companies can buy Sky channels at a discounted rate to the price charged satellite subscribers, for onward transmission to their own customers.

Subsequently, agreements between BSkyB and Telewest and Nynex CableComms, the two largest UK cable operators, were deemed to be "significantly anti- competitive", and the OFT demanded that changes be made. It has yet to approve the revised contracts.