BSkyB plans to go slow on digital launch

BSkyB may delay the planned introduction of digital satellite to protect its lucrative earnings from analogue pay-TV, company insiders have confirmed.

The satellite broadcaster, owned 40 per cent by Rupert Murdoch's News Corporation, has already hatched plans to introduce a new digital service with as many as 200 channels, and said earlier this month it would launch this service from the autumn of 1997.

But it is intent on keeping its options open, and will await the response of competitors to the Government's plans to licence a digital terrestrial television service from 1998.

"Sky has put its marker down by talking up the idea of digital satellite," said one leading City analyst. "But they would be crazy to move any earlier than necessary, given how profitable their current analogue service is."

Analysts predict that BSkyB will hold off launching its new service until digital terrestrial television looks like it will actually work.

There are doubts in the media sector that the high costs of developing the proposed service will be met by commercial broadcasters.

BSkyB has already moved to limit the ongoing costs of launching digital satellite services by striking long-term contracts for the supply of programming and exploring ways of subsidising the introduction of digital set-top boxes to the marketplace, as well as agreeing an innovative deal with Astra, the satellite company, to lower the rental payments for the 14 transponders required for digital services after 1997.

All three strategies are aimed at lowering the costs and risks of the digital launch. But the approach also gives the company "the flexibility to choose when it introduces the new service," David Chance, managing director of BSkyB, has confirmed.

The programming contracts with Hollywood studios, for example, are based on the principle of revenue-sharing.

Once the new digital services are operational, Sky will offer films on a pay-per-view basis, using as many as 60 channels to broadcast a wide selection of titles.

But it will not have to make upfront payments for the pay-per-view rights. For its current analogue service, programming is one of the company's key costs, totalling more than pounds 400m in 1995/6.

The satellite deal with Astra will also reduce annual costs. By co-funding the launch of a new digital satellite in the second orbital position, BSkyB's rental costs on digital transponders will be cut by as much as 40 per cent.

BSkyB has also launched talks with as many as a dozen retailers, set- top box manufacturers and retailers, aimed at reducing the cost of digital receiving equipment to about pounds 200.

British Telecom is believed to have taken part, as have at least two banks - Barclays Bank and the Co-operative Bank. Reducing the cost of set-top boxes could attract viewers to the new digital services once they are available.

Even after the launch of digital, BSkyB intends to "dual-illuminate" in both analogue and digital, in order to continue to service its five million subscribers.

It will announce today that it has leased additional analogue capacity on Astra 1A and 1B, which may be used to add new programming this autumn.