ITN facing contracts challenge from BSkyB

BSkyB, the satellite broadcaster owned 40 per cent by Rupert Murdoch's News Corporation, is campaigning for the contract to supply news services to ITV companies across Britain, replacing Independent Television News.

The campaign is sure to raise concerns about concentration in the market for broadcast news, particularly in light of Mr Murdoch's ownership of five national newspaper titles. The highly profitable company has built up a dominant position in the sports market, securing rights to the Premier League and, most recently, to golf's Ryder Cup. Insiders boast that BSkyB could do the same with broadcast news.

BSkyB is prepared to supply the ITV service for about pounds 30m a year, compared to the pounds 55m currently paid to ITN.

BSkyB has approached the Independent Television Commission informally, and plans to seek status as a "designated" news provider under the rules governing Channel 3 licences.

The status of ITN, which is part way through a 10-year contract as the ITV news supplier, is reviewed periodically by the ITC.

As part of the current review, the ITC has confirmed that all ITV companies have been asked for their views of the ITN service, and that a second or even a third designated news provider could be named under current regulations.

ITN, which is owned by several ITV licence holders and by Reuters, the international news agency, is believed to be prepared to lower its price, in response to any competing bid from BSkyB, which operates a 24-hour news service, Sky News.

According to recent reports, BSkyB has also offered to supply news to Channel 4, ITN's second biggest customer. Channel 4 is free to select any source of broadcast news, and is currently negotiating a new long- term contract with ITN.

BSkyB's ambitions could affect the sale of ITN shares held by Granada and Carlton, holders of two ITV licences each. After Granada bought LWT and Carlton bought Central, they ended up with the ITN shares formally held by their takeover targets. As a result, each now owns 36 per cent of ITN, in breach of ITC rules, and must lower their holdings to 20 per cent each by the end of the year.

The prospectus for the sale is believed to include references to ITN's contract with Channel 3 companies, and any suggestion the arrangement is in doubt might mean a lower price for the shares.

The moves comes amid growing dissatisfaction at some ITV companies about the price and quality of ITN's service. It is thought, however, that they may be talking up Sky's chances in order to secure a better deal from ITN.

BSkyB faces two main obstacles in its bid to win the Channel 3 contracts. On the regulatory front, it would have to convince the ITC it was capable of providing quality news and that it was a European company. With the recent sale of Pearson's 9.7 per cent stake in BSkyB, which elicited considerable interest in the US, the ITC is keen to determine whether BSkyB is, in fact, EC-owned. In addition, no one shareholder can own more than 20 per cent of a designated news provider.

BSkyB could develop a joint bid with partners, including Reuters, which already supplies the bulk of Sky News's international coverage.

The second obstacle relates to Reuters' non-competition clause with ITN, in which it has a stake. Any bid by BSkyB, with or without Reuters as partner, might be viewed by ITN as a breach of the agreement, given the close relationship between Reuters and Sky News. BSkyB is convinced, however, that the Office of Fair Trading would overturn the clause.

BSkyB in big league, page 16