BSkyB and Flextech discuss pay-TV deal

Rupert Murdoch's BSkyB has held talks with Flextech, the cable and satellite programmer, over a potential merger of the two companies' pay-TV channels.

The talks, part of a much wider range of discussions now sweeping the pay-TV industry in the UK, are aimed at encouraging a wholesale consolidation of the subscription market, which accounts for a growing share of the total TV business in the UK. Between them, the two companies dominate pay-TV, with full or partial control of channels such as Playboy, Bravo, Sky Movies, Sky Sports and UK Gold.

Neither company would comment yesterday, but it is understood that they might consider combining their extensive pay-TV holdings to save costs and to create a dominant supplier of programmes in the fast-growing UK subscription market. Other companies - including Cox Communications, Pearson and Viacom, the US entertainment giant - are also reviewing their investments in pay-TV, and could be interested in a further consolidation of the industry.

Flextech, which is half-owned by the US cable giant TCI, controls or manages 13 channels, including Playboy, Bravo and UK Living, Family Channel, TLC and UK Gold. It has recently moved to buy out its partners in several channels, including UK Gold, UK Living and the Family Channel.

TCI's chief executive, John Malone, is a sometime partner with Mr Murdoch, and a closer relationship in the UK would make sense, analysts said last night. The two are among a handful of global media barons.

The two UK companies could be expected to co-operate in Europe as well, where BSkyB recently reached an agreement with Continental pay-TV giants Bertelsmann and Canal Plus to launch a panEuropean pay-TV alliance in preparation for the introduction of digital television services.

The launch of digital television will increase demand for programming, including English-language products such as movies and big sporting events. A combination of Sky and Flextech programming would be a powerful player in the emerging market.

Separately, Viacom, the US-based owner of the Paramount film studio and Blockbuster Video, is also reviewing its UK pay investments. The company, which runs the SciFi Channel, Paramount and Nickelodeon, this week announced a multi-million dollar investment in MTV, its music video channel, to regionalise its programming across Europe. It is understood to have been disappointed in the viewing figures of some of its pay-TV channels in the UK, and is believed to be open to a deal of some kind with other industry players, including Flextech.

Any consolidation of the pay-TV market could attract the attention of the Office of Fair Trading, which is already investigating the terms under which BSkyB's multi-channel package is made available to the cable industry. The pay-TV market, which is still in its infancy in the UK, includes many loss-making channels. Flextech itself is still losing money, owing to rapid expansion and continuing investment. But BSkyB has moved dramatically into the black, becoming the country's most profitable broadcaster.

Flextech's chief executive, Roger Luard, is on the record as saying that Flextech's dominant position in the supply of pay-TV programming gives it a huge advantage in the emerging subscription market.

"There are high barriers to entry and this is a growing market," he said this week, as he unveiled the company's figures for 1995.

He added that programming, regardless of the distribution method, was the main driver of pay-TV globally. Mr Luard, one of the industry's leading proponents of consolidation, has already indicated he is seeking to buy out his partners in many channels, including the stakes held by Cox Communications in UK Gold and UK Living. But a deal with BSkyB or Viacom would represent a far greater consolidation.