Jeremy Warner's Outlook: BSkyB to gamble on winning subscribers by making football rights available on Freeview

Sleight of hand in PartyGaming sale; NeuTec role model for the sciences
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As we report on page 36, BSkyB is negotiating to make its sports channels, and particularly its lucrative Premiership football rights, available on Freeview. This might sound like a contradiction in terms, for Freeview is deliberately established to offer free-to-air multi-channel TV. To make it into a pay TV platform as well might seem to betray its purpose.

Yet there is already a precedent in the form of Top Up TV, which for £7.99 a month allows access to an array of exclusive channels. It is also possible to access paid-for adult material through Freeview. But what's in it for Sky, which has its own satellite platform and is also distributed through cable?

The success of Freeview is making it progressively harder for Sky to add customers. The two don't compete directly of course - the one being mainly pay TV, the other being largely free to air. But whereas there was once only one effective way of accessing multi-channel TV - through the paid-for platform of Sky - now there is Freeview as well. For many, Freeview is a perfectly acceptable alternative. In the first quarter of this year, Freeview signed up 800,000 subscribers; Sky managed only 40,000. As things stand, Freeview is crowding Sky out of further significant growth.

By offering Premiership football over the Freeview platform, Sky gains access to a further potential market. There would in any case have eventually been regulatory pressure for Sky to make its sports rights available to Freeview viewers, since the rights were sold for the purpose of digital terrestrial as well as satellite. Sky will soon face similar pressures from rival broadband operators.

Yet the primary reason is a commercial one. There's an opportunity to expand the footprint here, made all the more pertinent by the fact that Setanta, the other purchaser of Premiership rights, is also intent on making the product available across all platforms.

The danger for Sky is that once subscribers realise it is possible to have just the football channels without having to buy into the rest of the Sky, multi-channel proposition, they'll desert, eventually making Sky a mere wholesaler of TV rights. This wouldn't do at all. Yet provided Sky remains in control of the pricing, so that the satellite offering is always made to look more attractive, there's no reason this should occur.

Even so, this is a dramatic development for Sky, and demonstrates just how fast it is having to transmogrify to stay ahead in the new media age.

Sleight of hand in PartyGaming sale

Anyone for shares in PartyGaming? You can have as many as you like thanks to those amenable founders of the online poker site, who have determined to offload another great dollop of shares on unwitting investors less than a year after floating on the stock market.

This sudden abundance of availability should come as little surprise to anyone. Two of the founders - Anurag Dikshit and Vikrant Bhargava - resigned from the board a few weeks back in apparent preparation for a further sale of shares. The other two - the splendidly named Ruth Parasol, a former pornographer, and her husband, Russ DeLeon - were never on the board in the first place, so were under no such constraints.

What will come as a surprise is the precise timing of the shares sale, since the prospectus said all four were subject to a lock-in until the end of June. This could be lifted with the agreement of the company's brokers, Dresdner Kleinwort Wasserstein, who - bless them - have decided to do just that. It's only three weeks until the lock-in comes to an end, so the difference might not seem to make much odds. This, in any case, was the company's explanation yesterday.

In a teeny-weeny AIM stock, this cavalier attitude to the letter of the prospectus might be thought pretty much par for the course, yet believe it or not, PartyGaming is a member of Britain's premier league of quoted companies. With everything of any real substance apparently being bought up by foreigners, it seems that almost anyone can qualify for the FTSE 100 these days.

Somewhat predictably, Dresdner failed to shift the intended 350 million shares yesterday, eventually settling instead for just 200 million. They were lucky to get even that quantity away. PartyGaming is one of the most volatile shares on the stock market. Since the IPO, the shares have gone up and down like a fiddler's elbow. Last night they closed just a smidgen above the flotation price of 116p.

Most of the company's revenues come from the United States, where online card playing is classed an illegal activity. The effect is a bewildering flow of rumour and counter rumour on whether on not the company is about to become the subject of a crackdown that would pole-axe its revenues.

As it happens, this state of legal confusion suits PartyGaming just fine. The company's astonishing, 50 per cent plus return on sales wouldn't be remotely sustainable in any unambiguously legal business, since with other barriers to entry low to non-existent, the market would very quickly become flooded with new entrants.

Paradoxically, then, the possibility that online gaming is eventually made a legal, regulated activity in the US is a rather larger threat to the PartyGaming business model than the sabre rattling of abolitionist Senators. As long as online gaming remains in a state of legal limbo - in effect, a tolerated, illegal activity - PartyGaming is safe.

Yet either way, this doesn't seem a remotely stable form of investment. Any company that relies so heavily on such an uncertain status quo must eventually come badly unstuck. This is no doubt why the founders are so keen to bale out. Following yesterday's sales, there is now to be a new lock-in lasting to the end of the year. The founders are also committed to holding on to more than 50 per cent of the stock until at least 2010. In view of what's just happened, these reassurances aren't worth the paper they are written on.

NeuTec role model for the sciences

The stock market seems to have been undervaluing biotechs in the hitherto unfashionable backwater of antibody research. All of a sudden, they are everyone's must-have research capability, with first AstraZeneca paying top dollar for Cambridge Antibody Technology Group, and now Novartis paying a premium of more than 100 per cent for NeuTec, a delightfully academic biotech founded by a couple of Manchester University professors.

NeuTec's most promising product to date is Mycograb, an antibody-based treatment for a particularly virulent form of thrush. NeuTec has managed to get this product all the way to Phase 3 trials without having to fall back on Big Pharma for support. Furthermore, the company has a Phase 2 drug for "superbug" infections, again thus far developed without any outside assistance.

Why all the excitement about antibody-based products? One of the holy grails of pharmaceutical research is to develop medications without side effects. Persuading the body to heal itself offers one of the best hopes of finding these cures. AstraZeneca goes so far as to forecast that one in four of its products will be "biologically" based by 2010. Some other big pharmaceutical companies are more ambitious still.

The two Manchester University professors who founded NeuTec - a husband and wife team, as it happens - are between them more than £30m richer as a result of yesterday's takeover. The Chancellor, Gordon Brown, wants to encourage young Britons into the sciences. There can be few better role models than this.

Biotech research can be something of a lottery. Many try, few succeed. So it is a bit of a shame to see another British biotech snapped up the moment it starts to look really promising. Yet perhaps unfortunately, this is very much the nature of the game. These businesses are basically just incubators. Few can command the financial and managerial resource necessary to take their products through hugely expensive clinical trials and market them successfully thereafter. For that they need the backing of more substantive enterprises.

j.warner@independent.co.uk

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