BSkyB sees profit hit if no deal with Virgin Media
Monday, February 26th, 2007

Pay TV firm BSkyB said today its annual operating profit would take a hit of up to Ł20 million ($39 million) if it failed to reach a deal for its basic channels to be shown on rival Virgin Media. James Murdoch’s BSkyB and Virgin Media, the new company born of the merger of NTL, Telewest and Virgin’s mobile phone division, have been locked in negotiations to secure a new deal, with both sides increasingly accusing the other of foul play. Relations between the two companies hit a new low last week with Virgin accusing its rival of suppressing competition over the carriage deal which expires on 28 February.

BSkyB said today that there was now a real possibility that agreement would not be reached. ”The company estimates that the financial impact on Sky, were an agreement not to be concluded in relation to the remainder of the year to 30 June 2007, would be a reduction of 15 million pounds to 20 million pounds million of operating profit,” BSkyB said in a statement.

The two companies are rivals in Britain’s highly competitive pay-TV, broadband and phone markets, where content can often be a crucial factor for potential customers. BSkyB’s Chief Financial Officer Jeremy Darroch said Sky had increased investment in its basic channels which include Sky One, Sky News and Sky Sports News, by 68 percent over the last five years and were simply after a fair price. ”We are disappointed that Virgin Media appear to have walked away from negotiations,” Darroch said. “With three days still to go before the deadline, we hope that Virgin Media will focus on getting a deal done rather than on their PR offensive.” Sky’s sports and movie channels will not be affected.

Virgin Media, which has accused BSkyB of asking for more than double the existing arrangement, said on Friday it believed Sky had deliberately engineered the situation to coerce Virgin’s customers to switch to its service. Virgin is investing in its on-demand service and has said that Sky’s channels, which show such programmes as “Lost” and “24″, were becoming less popular in Virgin Media homes.

(Source: Reuters)