Sky bundling has cables in a twist

BSkyB claims it is protecting smaller channels and consumer choice by obliging us to subscribe to whole `bundles' of channels, even though we might want only Sky Sport. It's a rip-off, say frustrated cable operators, who have started creating their own pick'n'choose starter packages. Meg Carter foresees trouble.

Tempers are fraying in the cable TV business where cable operators are trying to break their traditional reliance on BSkyB for programming and a number of smaller channels are crying foul! It's led to one dispute ending up in court last week and another will shortly follow. But it's worth the expense, cable companies claim, because at issue is a principle: freedom of consumer choice.

If a football fan in Leeds only wants to subscribe to a premium sports channel on cable, why shouldn't he, cable companies plead. The reason's simple. Sky, provider of the only premium sports TV service, dictates that along with Sky Sports, you have to buy Sky's premium movie services and its Multi Channels basic package of 30 other channels, too. The lot will set you back 29.99 a month.

As if to add insult to injury, Sky charges cable companies the same price for its premium sports and movie channel package that it charges its own dish subscribers at retail. The knock-on effect is that cable customers end up paying more for these channels, cable operators complain.

"We make very little money on premium channels, but if we don't sell them the price we pay for the basic package is more than if we don't," explains Robert Burcham, chief executive of ComTel, Britain's third largest cable operator. And like other operators, ComTel is required by Sky to make all these channels available in at least 80 per cent of its cabled homes.

Bully boy tactics, or Sky simply taking full advantage of its programming dominance? There's little doubt what the cable companies think. Just last month their trade body, the Cable Communications Association, made a submission to the Independent Television Commission's review of cable and satellite pay-TV "bundling". The CCA urged the ITC to stop large providers of channels dictating how cable companies sell them.

As there's no option to buy smaller packages or single channels, many consumers are priced out of the market, or sold channels they don't want, says CCA chief executive Bob Frost. "It's like selling size seven shoes to someone who's a size 10." And this, he claims, has slowed the growth of UK cable TV.

Sky is quick to counter any suggestion it has an unfair advantage. It told the ITC that the present set-up ensures greater viewer choice as smaller channels will go under if sold alone. And it might have a point. For as well as attempting to unbundle Sky's packages, a number of cable companies are also seeking greater flexibility in deals with smaller channels - a move that risks driving some out of business. "The whole nature of pay-TV depends on adequate distribution," says Mark Cullen, assistant managing director of Mirror TV. "Without this, business plans look very fragile."

Mirror TV is currently in dispute with CableTel which, it alleges, broke a contract to distribute cable channel Live TV to all homes for 10 years, the only exception being for short-term "special" promotions. CableTel recently launched a cut-price promotion offering a basic six-channel-plus- telephone package for 7.99 a month which excluded Live. With 30 per cent of CableTel subscribers now taking this package, Live alleges its contract was breached. A judgement on the court case, which finished last week, is expected within a fortnight.

"The cable industry is convinced - and rightly so - that it needs lower- priced starter packages of channels to boost trial," Cullen says. The real problem, he adds, is with cable operators' contracts with Sky.

Julian Aston, managing director of local cable TV service Channel One, agrees. Ten-year contracts were designed to attract companies such as DM&GT into the market to provide original, cable-exclusive programming, he explains. "It takes long-term investment. But companies like ours, with only one or two channels, find it extremely difficult if we can't get 100 per cent carriage." Channel One will challenge Cable&Wireless over an alleged breach of its 10-year contract in court next week.

Not all smaller channels, however, are opposed to cable operators' re- packaging attempts. "Greater flexibility is necessary to make cable more attractive to subscribers," says David Fitzgerald, managing director of Irish channel Tara. If a channel is of sufficient quality it will be robust enough to survive, he believes.

With the ITC not expected to conclude its pay-TV review until spring, you might expect the industry to enjoy a relatively quiet Christmas and New Year. Wrong. Cable operators are continuing to unbundle packages and even drop channels.

ComTel has developed three new pick'n'choose packages and has dropped Sky Soap and Sky Travel. Telewest is in talks with sister company Flextech about launching a new basic TV package to rival Sky's. And most of the large cable companies recently warned BSkyB they want to drop Sky News in favour of the new BBC News 24.

Meanwhile, Sky last month (November) openly challenged cable companies' cheap call promises by launching SkyDial, a cut price phone service for dish homes. And today (December 1) sees the launch of Sky Box Office, the UK's first pay-per-view movie service - available months ahead of a planned cable TV rival.

Suddenly, it feels like it's going to be a long winter.