Flextech to inject pounds 20m into BBC deal

The BBC's long-awaited deal with Flextech to provide its first fully fledged pay-TV service is expected to be signed this week. It also emerged yesterday that Flextech, a media company which is 51 per cent owned by struggling American cable giant TCI, is putting up pounds 20m in return for a 50 per cent stake in the venture that will run for 30 years.

The BBC and Flextech plan to brief City investors on the deal, which includes eight new pay-television channels, next Monday. The two sides are optimistic that the new channels will be up and running on schedule this summer.

The channels will have access to the BBC's entire programme library, unlike UK Gold, which only has access to BBC programmes more than three years old. Programmes will be offered on digital cable, digital terrestrial and digital satellite. The venture represents the biggest foray yet by the BBC under the stewardship of John Birt into the "digital future". The BBC may also look for slots on analogue satellite.

Three quarters of free cash flow from the joint venture will be repaid to Flextech, the pay-TV packager, until the project breaks even.

Under the deal Flextech and TCI will secure a standby credit of around pounds 100m to back the venture. One of the key aspects of the deal is that the BBC does not have to put up any money.

The deal has been the subject of lengthy and often controversial negotiations between Bob Phillis, chief executive of BBC Worldwide - the commercial arm of the BBC, Roger Luard, chief executive of Flextech, and Adam Singer, president of TCI's international arm.

Under the deal Flextech will consolidate its ownership of two channels, UK Gold and UK Living. These are co-owned by the BBC, Flextech, Pearson and Cox Communications.

Flextech will buy out Pearson and Cox, who will both be left with shares in Flextech. Greg Dyke at Pearson's TV arm will end up with a 7 per cent stake in Flextech. However, there will be a share agreement which will secure TCI's control of Flextech.

Initially the venture will produce five new channels: BBC Showcase, an entertainment channel; BBC Horizon, documentaries; BBC Style, lifestyle; BBC Learning, for schools, and BBC Arena, for the arts. Three further channels are scheduled: BBC Sport, BBC Catch-Up, for repeats of popular programmes within days of their original transmission, and BBC One, a TV version of Radio One.

One of the thorniest subjects of the lengthy negotiations will have been over programme licensing agreements (PLAs). The BBC has a PLA with UK Gold which must be modified to allow the new joint-venture channels to proceed. UK Gold will have been concerned to see that the new channels do not diminish UK Gold's access to the BBC's library.

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