UPDATE: The pay-TV giant could be forced to separate its consumer movie channels and the way it sells those channels to rivals. Ofcom, the communications regulator, has referred Sky’s dominance of the movie pay-TV business to Brussels. The Competition Commission will spend up to 2 years investigating Sky. Separating its consumer movie channels from its wholesale business would be worst case scenario though. What’s at stake are fears that Sky could dominate the coming subscription video-demand movie business the same way it has dominated movie channels for the past decade. Ofcom is concerned that the way Sky sells and distributes movies distorts the market in its favour. “The end result for consumers is less choice, less innovation and higher prices,” says Ofcom.

Virgin Media says: “We’ve long argued that current arrangements for the supply and acquisition of premium movies do not serve consumers well. We’re pleased that these issues are now going to be the subject of further detailed examination by the Competition Commission.”

But Sky slammed Ofcom for yet again seeking to intervene in a sector in which customers are well served. “Further prolonging this unnecessary investigation will only create uncertainty and serve to undermine incentives to invest and innovate, which is bad news for consumers,” BSkyB tells me.

Jonathan Davis, strategy adviser to a number of European public bodies, reminds me that Brussels told incumbent telco BT to separate its consumer business from its network business, opening up the UK telephone market. “The Competition Commission also ensured that no single TV company can tie-up pay-TV rights for more than 2/3 of soccer matches,” says Davis.

Earlier this year, Ofcom ordered Sky to slash what it charges rivals Virgin Media and BT Vision for sports channels. As a result, BT has spent heavily on a splashy advertising campaign bragging about how its Sky Sports channels are cheaper than BSkyB.

The irony is that last time Brussels investigated the pay-TV movie business in the late 90s, it was Sky who felt aggrieved. Pay-TV operators such as Sky and Canal Plus complained about having to deal with UIP, the combined overseas distribution arm of Universal, Paramount and MGM. The EC agreed this was a cartel and forced UIP to shut down its combined operation selling movies to television companies.