The two companies have held preliminary meetings to explore how Kingfisher might provide a film and TV package to the 23 million homes linked to BT's UK network.
By using a company such as Kingfisher to supply programming, BT may be able to sidestep broadcasting rules that could restrict its expansion into entertainment. Existing regulation is unclear, and cable TV companies are threatening to drag BT through the courts to delay encroachment on their business.
A Kingfisher source said options were being explored with BT, though there was no 'focused strategy' yet. He added: 'We are a retailer with a sophisticated supply chain and skills on the wholesale side of the entertainment business. We are the gateway to the customer.
'Our people have been keeping an eye on this area for a couple of years. One option is to become involved with BT in the world of video on demand, entertainment on demand, and shopping on demand.'
However, analysts doubt whether Kingfisher, headed by Geoffrey Mulcahy, will be prepared to make the sort of investment needed. One said: 'The Woolworths chain could supply video films, but that is not the same as providing a complete viewing package.'
BT is also believed to have talked to Hollywood studios and media companies, including Pearson and London Weekend Television, about supplying material.
Last week BT moved a step closer to a video on demand service when Oftel, the telecommunications watchdog, said it would not need a local delivery broadcasting licence. But while this meant BT could use its existing telephone lines to convey programmes, it did not necessarily mean the company could set up an entertainments operation.
Cable franchise operators argue that the Broadcasting Act stops BT setting up in competition, in order to help their fledgling companies get off the ground. Oftel said that video on demand was not on the horizon when the laws were structured, and the issue would probably have to be tested in court.
BT is expected to decide in the next few weeks whether to go ahead with the service, by which customers will be able to dial up the film or TV programme of their choice and have it sent down the telephone line.
The phone can be used simultaneously, but decoders will be needed to call up programmes. Philips, the Dutch electronics company, is developing decoders, but estimates put their cost at dollars 1,000 ( pounds 662).
Cable operators stepped up their attack on BT last week, claiming it had a hidden agenda to destabilise investors' confidence in the cable industry.
Richard Woollam, director of the Cable Industry Association, said: 'We do not believe BT will be allowed to provide video on demand. So why are they saying they may do it? Because BT is losing 15-20,000 telephone customers a month and wants to undermine confidence in the industry. BT used to have cable franchises but sold all but one of them. Now they say they want to get back into the market.'
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