The Competition Commission will investigate whether Sky is using a stranglehold on film rights to harm its competitors in the pay-TV market.
The communications regulator Ofcom today formally asked for the probe, expressing concerns that because of the way film rights are sold, Sky has "the incentive and ability to distort competition".
"First-run Hollywood movies are particularly important to competition in the pay-TV sector," said Ofcom.
"This is because they are highly attractive to a large number of consumers, who want subscription access to premium high quality movies as close to their box office release as possible. This content is a key factor for many consumers when signing up to a pay-TV service."
The launch of a Competition Commission investigation represents just the latest stage in a battle between Ofcom and Sky stretching back to March 2007. Earlier this year regulators ordered the satellite broadcaster to offer its sports channels to competitors at restricted prices.
Ofcom said its decision to call for a full investigation of film rights was in part motivated by Sky's plans for subscription video-on-demand services.
"The importance of linear movie channels appears to be gradually declining over time," it said.
"In the longer term we are concerned that as Sky develops its SVoD services, its current market power in relation to linear channels could be transferred across to these new services. Therefore, it is unlikely that, absent intervention, competition will develop and consumers will benefit in terms of choice and innovation."
Virgin Media, Sky's main pay-TV rival, had pressed Ofcom to act.
Sky sharply criticised the regulator today.
"Ofcom is yet again seeking to intervene in a sector in which consumers are being well served," it said.
"There have never been so many ways to access movies with innovation stretching across a wide variety of channels and platforms, including multiple ways to access Sky Movies. Further prolonging this unnecessary investigation will only create uncertainty and serve to undermine incentives to invest and innovate, which is bad news for consumers."
The regulator's detailed decision to refer Sky to the Competition Commission is here. ®