BSkyB is falling

Digital TV loss leads to $1.3 bil stock dive

LONDON — British Sky Broadcasting stock plunged £770 million ($1.3 billion) in value Wednesday on news that Rupert Murdoch’s giant satcaster is out of the race to launch digital terrestrial TV in the U.K.

The Independent Television Commission reportedly told BSkyB that it must give up its stake in the digital consortium British Digital Broadcasting, which also is backed by Carlton and Granada. The consortium had applied for a digital terrestrial license.

The bad news for the satcaster comes a day after BSkyB chief executive Sam Chisholm announced he would give up his job in December on medical grounds (Daily Variety, June 18). Deputy managing director David Chance, also reportedly in poor health, will switch to a consultancy role next year, and Mark Booth will move from Murdoch’s JSkyB in Japan to replace the combative Chisholm.

BSkyB’s stunning stock loss —closing 45 pence (74¢) lower at £5.215 ($8.55) — represents a drop of almost 8%.

Analysts said the threatened ITC move could loosen BSkyB’s grip on British households and thwart its terrestrial ambitions.

The ITC clearly wants to use digital terrestrial TV to introduce more competition into British pay TV, and fears that the existing ownership structure of British Digital Broadcasting would simply strengthen BSkyB’s already dominant position in that market.

The past couple of days have seen intense discussions between Carlton, Granada and BSkyB about how to respond, according to insiders.

Carlton and Granada must decide how willing they are to take on the extra risk of bankrolling British Digital without BSkyB as an equity partner.

At the same time, BSkyB must choose whether to continue with the original plan to supply its most attractive sports and film channels to the venture despite giving up its stake.

The ITC’s intervention is clearly a blow for BSkyB’s digital strategy. Yet one BSkyB insider claims that the new situation could work to the satcaster’s benefit.

“There’s a good argument to say that the ITC’s intervention improves our position,” the exec said. “BDB will still need our programming, but now we don’t have to risk an investment in the bloody business.”

The fact that the ITC has asked BDB to restructure its bid, instead of just awarding the license to the rival applicant Digital Television Network, indicates that the Digital Television proposal has also been judged inadequate.

According to a report in the Financial Times, the ITC is worried that DTN, which is backed by the U.S. cable group Cabletel, is proposing to carry an unsustainable level of debt finance.

The ITC was originally due to announce the winner of the Digital Terrestrial Television licenses in May, but the process has been delayed by the problems with both bids. An announcement is now expected by the end of this month, with the winner unlikely to start broadcasting before September 1998.

Meanwhile, BSkyB is pushing ahead with plans to launch its own digital satellite platform next spring, several months before digital terrestrial broadcasting is due to begin.

Six blocks of frequencies, or “multiplexes,” have been carved out for digital terrestrial TV. Three of these have been automatically allocated to the existing terrestrial webs, while BDB and DTN are competing for the right to operate the other three. The ITC may decide to award all three to one group, or split them between the two bidders.

Each multiplex can carry six to eight conventional channels, plus interactive services. One advantage of digital terrestrial broadcasting is that viewers will be able to receive these channels with an ordinary aerial. They will need to buy only a set-top box to decode the signal.

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