Bloomberg News

Virgin Media Stops Airing BSkyB Basic TV Channels (Update3)

March 01, 2007

Virgin Media Inc., the U.K.'s biggest cable operator, stopped airing British Sky Broadcasting Group Plc (BSY)'s basic channels at midnight after the two companies failed to extend a pay-television distribution agreement.

Both companies blamed the other for rejecting their offers. BSkyB demanded Virgin Media pay double the fees for channels with declining viewership, Virgin Media said. BSkyB made repeated efforts to reach a deal but Virgin Media turned down the offers, BSkyB said in a separate statement today.

Virgin Media stopped airing Sky One, Sky Two, Sky Three, Sky Sports News and Sky News at midnight, leaving 3.3 million Virgin Media clients without access to the BSkyB channels, Hook, England-based Virgin Media said. The move escalates the dispute and the competition between Virgin Media's biggest shareholder Richard Branson and BSkyB's Rupert and James Murdoch.

``There's more to this than the carriage agreement. Both companies are becoming more aggressive in their offerings,'' said Ian Fogg, a London-based telecommunications analyst at Jupiter Research.

Both Virgin Media and BSkyB have stepped up their efforts and have begun bundling pay-TV channels, video-on-demand, high-speed Internet and telephone services.

As part of that effort, Virgin Media, then known as NTL Inc., last year bought wireless operator Virgin Mobile Holdings Plc and cable operator Telewest Global Inc. BSkyB bought broadband provider Easynet Group Plc.

Shares of Isleworth, England-based BSkyB fell 7 pence, or 1.3 percent, to 550 pence in London. Virgin Media shares, which trade on the Nasdaq Stock Market in New York, rose 24 cents, or 0.9 percent, to $26.45 at 11:46 a.m.

`Sky Snooze'

Virgin Media replaced Sky One with video-on-demand service Virgin Central, which offers shows including ``The Sopranos'' and ``Nip/Tuck.'' On Virgin Media's network Sky Two, Sky Three and Sky Sports News aren't airing anything currently though the company plans to ``build on a series of major programming acquisitions.'' Sky News is airing BBC News, Virgin Media said.

In some U.K. households, where the channel guide used to be identified with the name Sky News, Virgin Media replaced it with ``Sky Snooze.'' When customers click on ``Sky Snooze,'' they're greeted with a message that says the channel is no longer available.

Virgin Media said BSkyB withdrew the channels while BSkyB said Virgin Media pulled out the channels.

Bigger Picture

Competition in the U.K. entertainment sector is increasing as London-based BT Group Plc (BT/A), Cagliari, Italy-based Tiscali SpA and France Telecom SA's Orange unit begin offering television services.

``What's the opportunity with all of these new entrants,'' Fogg asked. ``The Virgin Media and BSkyB dispute is part of a ``bigger competitive picture.''

The distribution dispute between Virgin Media and BSkyB follows a separate clash between them that began last year.

In November, when Virgin Media was in talks to buy broadcaster ITV Plc (ITV), BSkyB bought a 17.9 percent stake in ITV. The purchase blocked a potential bid by Virgin Media and prompted Branson to say that Murdoch's stake amounted a ``threat to democracy'' because of Murdoch's influence over U.K. media.

This week, U.K. Trade and Industry Secretary Alistair Darling asked the country's telecommunications regulator to investigate BSkyB's stake in ITV and to assess whether BSkyB's holding in ITV raises ``public interest concerns.''

The regulator, Ofcom, today said it would abide by the request and will investigate BSkyB's stake in ITV.

To contact the reporter on this story: Alex Armitage in London at aarmitage@bloomberg.net

To contact the editor responsible for this story: Zimri Smith at zsmith@bloomberg.net


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