Sky logoSky will pay less for indie and even major studio films if the British government forces it to slash movie channel prices, distributors fear. Ofcom, the UK government regulator, is expected to announce in March that it will force satellite broadcaster BSkyB to cut the amount it charges cable rival Virgin Media for its movie channels. BSkyB could have to drop its movie channel prices by up to 39%.

Indie distributors fear that BSkyB will try and make up for the money by low-balling them when it comes to buying movies. “If Sky gets less money from Virgin then it will have less cash to spend on content. It may therefore have an immediate impact on those selling films to Sky on an ad hoc basis,” said one distributor. BSkyB already only pays indies around a third of what it pays a studio for a similar-performing movie, complained another.

brokenTV18Not that Hollywood is going to be immune from BSkyB wanting to pay less. Studio output deals come up for renewal at different times. “I wouldn’t like to be the studio whose deal comes up for renewal first,” said one distributor. It could still be some time before BSkyB puts this extra pressure on indies in price negotiations though. BSkyB will fight tooth and nail if Ofcom does come down hard, which will make life difficult for whoever’s in power. Whichever party wins the May general election will want Murdoch’s influential papers The Sun and the Sunday Times on board – as well as its Sky News channel. Even if the satellite broadcaster launches a legal attack, the regulator will use its powers to introduce price cuts while lawyers make their arguments.

Entertainment Film Distributors (Sex&Drugs&Rock&Roll) is the only indie that has its own BSkyB output deal. That’s partly why Pathé, fresh from the success of Slumdog Millionaire, announced a joint venture with Warner Bros. last March – so that it could come in on Warner’s pay-TV deal.

Meanwhile, BSkyB currently charges Virgin £12.48 for each of its subscribers who want Sky Movies One. Ofcom is set to recommend this trimmed to between £7.58 and £9.61. Virgin is currently selling the Sky Movies package for £16.50. It expects to make the five-channel movie package at least 20% cheaper.

Neither BSkyB nor Virgin would say what percentage of Sky Movies’ subscribers come from cable. The satellite broadcaster boasts 9.5 million subscribers, while Virgin has 3.7 million. According to Screen Digest, BSkyB earned £673 million in subscription fees through its movie channels in 2006.

Ofcom told BSkyB that it must sell more than half of its 17.9% stake in ITV in November 2006. BSkyB still retains its stake while the case winds through the courts. The UK’s Court of Appeal has just rejected its latest appeal. (See Another Blow Dealt To James Murdoch…) The satellite broadcaster may go to the Supreme Court next.