BBC, BSkyB battle over fees

Web will save $26 million by using Astra as alternative

LONDON — It’s the battle of the giants — and they couldn’t be more polarized. Mighty Blighty pubcaster the BBC is taking on Rupert Murdoch’s dominant satcaster BSkyB over carriage fees.

BBC director general Greg Dyke fired the opening salvo in the war last month by audaciously announcing that he would not renew the £85 million ($141 million) five-year carriage agreement when it ends May 30.

Under this deal, BSkyB beams out encrypted versions of flagship channels BBC1 and BBC2 plus digital channels BBC News 24, BBC3, BBC4, CBeebies, CBBC and BBC Parliament.

Instead, he is saving $26 million a year by moving the 22 regional versions of BBC1 and BBC2 plus eight digital channels onto the Astra 2D satellite where they will go out unscrambled.

The news stunned BSkyB initially and put the satcaster on the defensive — after all, it was the last thing it expected from its new best friend.

The pair are unlikely bedfellows in digital terrestrial platform Freeview, which is, as the name suggests, free to subscribers who shell out a once-only $155 for a set-top box.

There’s also talk of the BBC launching a cheaper paybox digital satellite platform, FreeSat, which would rival BSkyB’s offering.

But while the BBC’s decision to desert BSkyB will hurt the satcaster financially and strain their relationship, the pay TV provider has remained strangely tight-lipped.

Why? BSkyB needs to keep in regulators’ good books. There’s a lot at stake and any moaning might attract unwelcome attention from super regulator Ofcom, which may want to investigate its stranglehold over the conditional access pay TV market.

Also, the proposed Communications Bill going through Parliament now will allow investors from outside Europe to buy a U.K. terrestrial channel for the first time. And Murdoch has long wanted a toehold in that market.

Dyke’s decision was applauded by commercial broadcasters ITV and Channel 4. Both have a public service remit and under the new Communications Bill public service broadcasters are obliged to put their services on digital satellite. The change will destroy their bargaining power — and force them to pay heavily for the privilege.

ITV has already complained to telecom regulator Oftel about paying BSkyB $28 million a year for carriage, but the watchdog ruled the charge was reasonable given that BSkyB had invested $1.56 billion in its network and technology.

“BSkyB was openly contemptuous of the public broadcasters’ case,” says Richard Tait, former head of news service ITN. “It argued that if they felt so aggrieved they could always transmit their signals unencrypted and bypass Sky’s charges. It never expected any of them to take that advice.”

Back in November, Tony Ball chief executive of BSkyB labeled the BBC’s demands for cheaper distribution “absurd” given the company’s huge investment in digital.

“This country has got the best growth and the strongest position in digital television anywhere in Europe,” he said. “Why do we have that? The infrastructure was built because we invested billions to put it there. The public service broadcasters can’t get their heads around that, they want some special dispensation.”

BSkyB is clearly shocked by Dyke’s decision, but is already retaliating in ways it hopes won’t upset regulators. It is threatening to move the BBC’s channels to the graveyard slots on the satcaster’s all-important electronic program guide, which could damage viewing figures.

ITV, which initially refused to be carried on Sky because of the carriage fee, lost around 25% of its audience in Sky homes when it was not on the guide because viewers couldn’t be bothered to switch back to analog services to tune into the channel.

The BBC has threatened to take its case to broadcast watchdog the Independent Television Commission, which has already indicated that it will side with the pubcaster. It insists that the BBC must have access with “due prominence” on the guide.

ITC director of strategy, economics and finance Robin Foster believes this means the top two slots. He says viewers’ “interests are paramount,” adding, “it is our belief that viewers have come to expect to find BBC1 and BBC2 at channels 101 and 102 on the EPG [electronic programme guide].”

BSkyB is also threatening to up the cost of listing BBC channels on the guide from $44,000 to $117,000 per year. And because the Beeb plans to increase the number of channels it lists, the cost will be around $3.6 million, eating into the savings it will make by moving off BSkyB in the first place.

Execs from both sides are haggling over the charges now.

BSkyB has yet another weapon in its arsenal. The BBC will have to pay BSkyB to develop software that will allow viewers to switch between different regional variations of BBC1 and BBC2. But Sky could refuse to make the technical changes.

“Sky looks as though it is not legally obliged to change the software, which could leave the BBC channels scattered all over the guide,” says Anthony de Larrinaga, an analyst at SG Securities.

BSkyB could also charge a high price for the technical work, but if BBC can’t agree a figure then the pair will end up appealing to Oftel, which could take a sympathetic view of the satcaster’s situation once again.

“The BBC has been playing scenarios trying to predict where Sky will seek its revenge,” says Tait. “The scene is set for major confrontation this summer between the two — it is unlikely to be the last.”

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