SKY will face an investigation by the Competition Commission into the dominance of its pay-TV movie service.
Ofcom has requested the probe after raising concerns over the prices Sky is able to charge for new releases and the lack of consumer choice.
The Competition Commission will have a maximum of two years to investigate the market. Ofcom began its investigation into the pay-TV sector in 2007 after receiving complaints from rivals.
This also led to sweeping changes to the Premier League football market, with prices being slashed, allowing rivals including Virgin Media and BT to launch competing services.
Ofcom said the referral related to two movie markets, the first concerning the rights to movies sold by the major Hollywood studios to broadcast films for the first time on pay-TV.
The second concerns the wholesale supply of pay-TV packages containing movie channels, which are based on those rights.
An Ofcom spokesman said: “We are concerned in particular that the way in which these movies are sold and distributed creates a situation in which Sky has the incentive and ability to distort competition.
“The end result for consumers is less choice, less innovation and higher prices.”
A Sky spokesman 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 news was welcomed by Sky’s rivals BT and Virgin Media. BT said it was “pleased” by the decision.
The Competition Commission could now change the way premium movie rights are bought and sold by restricting aggregation or making the sales process more contestable.
It could also force Sky to provide wholesale access to its premium movie content.
Tony Ballard, partner at media and entertainment law firm Harbottle & Lewis said: “Ofcom has said that under the current regulations one player will be enabled and incentivised to charge higher prices because of its market power. So if the Competition Commission does its stuff it will mean lower prices.”