BSkyB in talks with OFT on cable programming deal

BSkyB, the satellite broadcaster, is locked in late-stage negotiations with the Office of Fair Trading over the terms of its supply of pay-television programming to the cable industry.

The talks, aimed at avoiding a monopoly reference, follow a six-month inquiry by the OFT into BSkyB's dominant position in the subscription television market, and could lead to formal undertakings on the terms and conditions of its trading relationship with cable operators.

BSkyB, owned 40 per cent by Rupert Murdoch, is also under scrutiny from the European Commission, which warned in a letter sent late last month that its special contracts with two leading cable operators, Telewest Communications and Nynex CableComms, contravened EC competition law. The contracts, which have already been the subject of negotiations with the OFT, give the two cable operators long-term guaranteed supply of BSkyB programming.

In return, they originally agreed not to compete with BSkyB in the market for pay-per-view film and sport programming, in effect ending efforts by cable companies to launch new services. These clauses were deemed anti- competitive by the OFT, but modifications have yet to be agreed.

In its formal letter, edited copies of which have been circulated to cable operators, Brussels has asked BSkyB to confirm it intends to modify the contracts.

It is also understood that John Bridgeman, the director-general of the OFT, has asked the Restrictive Practices Court to accelerate its investigation into BSkyB's contracts with the Premier League, which give the broadcaster exclusive rights to live matches.

The developments are likely to deepen market concerns about the regulatory risks facing BSkyB, the UK's most profitable broadcaster. Analysts said late last week, however, that minimum undertakings agreed with the OFT would not necessarily weaken BSkyB's competitive position.

The six-month OFT inquiry, completed within the past few weeks, led regulators to open direct talks with BSkyB, asking the company to consider undertakings on its "bundling" of channels for sale to cable and on the way the programming is priced. It is understood that the Independent Television Commission, the television watchdog, has also been told of the OFT's initial findings and its suggested remedies.

If the talks fail, the OFT is almost certain to advise the Department of Trade and Industry to refer the matter to the Monopolies and Mergers Commission.

Media analysts said over the weekend that an MMC reference could suit BSkyB, because of the length of time it would take to complete. The company is working on plans to introduce digital satellite, perhaps by the end of 1997, and expects eventually to phase out its existing analogue pay service.

The OFT inquiry followed months of complaints from several cable operators, which argued that they could not package their programming in response to market conditions because of Sky's terms of supply. The key areas of dispute have been bundling - by which operators are obliged to take a range of Sky channels to receive the best discount - and price.