Sky still in running for BBC deal

BSkyB, the satellite broadcaster, held further negotiations with the BBC last week about jointly developing at least six pay-TV channels for broadcast in the UK.

Suggestions late last week that Flextech, the rival suitor for the BBC deal, had seen off the competition were dubbed "inaccurate and premature" by sources close to the talks.

The proposed channels, including natural history, drama and sport, would be introduced on analogue pay-TV networks within the next year, and "migrate" to a digital platform once a proposed 200-channel digital satellite system is launched by Rupert Murdoch's BSkyB, probably by the end of 1997.

The prospect of generating additional revenue from subscription services has huge attractions for the BBC, which is struggling to supplement its income from the licence fee. For their part, BSkyB and Flextech, 51 per cent owned by John Malone's TCI International, are both eager to use the BBC brand to expand their existing pay-TV offerings.

Sources close to Flextech said the company remained convinced it had a insuperable edge over BSkyB.

An existing exclusive contract between the BBC and UK Gold, the cable and satellite channel owned in part by Flextech, would be impossible to break, the sources said, suggesting that no other broadcaster could make use of the BBC's programming library for a competing subscription service.

Flextech is in talks with UK Gold's other shareholders, Pearson Television and Cox Communications of Atlanta, about buying their stakes, probably in exchange for shares in Flextech itself.

That would give the US-controlled company even more leverage over the crucial programming deal between UK Gold and the BBC.

But the BBC's own lawyers disputed the contention, arguing that both the length and terms of the contract made it possible for the BBC to choose another partner for its new pay-TV channels.

Flextech is also understood to be emphasising its link to Mr Malone, who has held telephone conversations with Sir Christopher Bland, chairman of the BBC's Board of Governors, in recent weeks.

BSkyB is reliably understood to be trumpeting its advanced subscription management system, which handles payments for BSkyB's four million direct- to-home subscribers.

Eight of Flextech's 13 channels are already part of BSkyB's multi-package, and Sky negotiators have asked the BBC why it should go through a "middleman" like Flextech.

In addition, BSkyB is thought to be questioning Flextech's contention that it has secured adequate transponder capacity to transmit the BBC channels.