If Sky has to unwind its £940m investment in ITV, it could leave the way clear for rival pay-TV operator Virgin Media to launched a renewed takeover of the UK's leading commercial broadcaster. Sky's November 2006 move was widely seen as an attempt by chief executive James Murdoch to block Virgin's proposed £5bn bid for ITV in October 2006.
The Competition Commission objected to Sky's 17.9% ITV shareholding in relation to only one of the two areas of concern flagged up to the government by regulators Ofcom and the Office of Fair Trading.
It cleared Sky over Ofcom's concerns about the effect on the plurality of TV news provision, and also on the issue of advertising.
However, its thinking is that Sky's stake gives it the ability to influence ITV's strategy, particularly relating to investment, whether in content, capacity or new technology.
It has focused on the divergence between Sky's interests as a pay-TV operator and ITV's as a free-to-air broadcaster.
The commission said: "As a pay-TV operator, BSkyB faces competition from the free-to-air TV offer, of which ITV is an important part. BSkyB would therefore have both the ability and incentive to take advantage of opportunities to weaken ITV or prevent it from taking actions that would threaten BSkyB's interests."
On its argument, that there would be no effect on news and advertising provision, it said it did not think that the shareholding was sufficient to give rise to competition concerns in other areas.
"We've looked at such as advertising and TV news provision. As far as the media public interest consideration is concerned, we do not think there is sufficient evidence that the acquisition will have an adverse effect, given the degree of influence that BSkyB has acquired over ITV, and ITN as its news provider, the regulatory requirements for impartiality and a strong culture of editorial independence in TV news," the Competition Commission said.
Media analysts at investment bank Numis described the ruling as harsh and expects Sky to have to sell part of its stake.
"We find this a harsh judgement. We expect that BSkyB will have to sell down its stake in ITV to perhaps 9.9% or 14.9%. BSkyB's holding in ITV was widely interpreted as a blocking stake to prevent NTL (now Virgin Media) acquiring ITV. We believe that under Michael Grade and with a sound strategy in place, ITV is now better able to preserve its independence. We do not believe that there would be a material negative impact upon BSkyB if it has to sell down its stake," Numis said.
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