Discussions have been taking place this week between Mark Booth, BSkyB's chief executive, and Roger Luard, his counterpart at Flextech. Sources close to the discussions think a deal could be signed within the next few weeks. BSkyB and Flextech both refused to comment.
A deal with Flextech would give BSkyB access to a number of channels based on BBC programmes. Flextech has an exclusive 30-year joint venture to package programmes from the BBC as commercial television channels for broadcast via cable and satellite.
The venture, known as UKTV, currently supplies UK Gold, a channel based on old BBC comedies and soap operas, to BSkyB's existing satellite service. Another three channels - UK Arena, UK Horizons and UK Style - are currently available via cable.
Under the terms of the deal, however, BSkyB would make all four channels available to subscribers to its digital service. Viewers would also have access to Flextech's other channels, including Bravo and Living, which are already available via BSkyB's existing service.
UKTV is also planning to launch another four channels, including a music package and a sports entertainment offering, all of which would be made available to BSkyB digital subscribers.
The deal will provide a boost to both BSkyB and Flextech. BSkyB needs to offer a good range of programmes when it launches its 200-channel digital service in June. Although it already plans to offer premium sports and movie channels, its current offering is short on basic channels which do not require extra payment. Meanwhile, Flextech needs access to as many digital television viewers as it can reach.
The move is likely to give BSkyB the necessary credibility to attract other programme packagers from other suppliers.
Flextech has already agreed to supply a package of four channels including UK Gold and UK Horizons to British Digital Broadcasting, the joint venture between Granada and Carlton which is planning to launch in the autumn.
Previous discussions between BSkyB and Flextech are thought to have foundered on the issue of price. In the meantime, Flextech has been exploring other options to get access to British viewers. These included exploring launching its own package of programmes, which would be marketed separately. The company also suggested a deal which would see it mount a reverse takeover of BDB, thereby giving it an equity stake in the broadcaster and providing BDB with a stock market listing.
However, the deal would make those moves unnecessary. It is also likely to be enthusiastically received by shareholders in both companies. Flextech shares ended the day up 21p at 525p, while BSkyB shares put on 3p to 393p. Both companies' share prices have been under pressure recently as investors fretted about the prospects for digital television.
Meanwhile Castle Transmission International (CTI), the company which handles television transmission for the BBC and a number of radio and mobile phone groups, yesterday said it planned to invest pounds 100m in broadcasting capacity after it was confirmed as the supplier of the BBC's Digital Terrestrial Television service.