ITV Digital pins its hopes on three-tier service deal

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Carlton and Granada, the shareholders in ITV Digital, have proposed a three-tier deal to the BBC and BSkyB which they hope will secure the future of their troubled digital TV venture.

The plan is for the main players in the digital TV market to offer three types of service, one free, one "mid- priced" at about £20 a month, and one consisting of premium services, the sport and film channels, at £40 a month.

The free services would carry all existing free channels, as well as the new BBC3 youth channel, ITV 2 and some of BSkyB's channels, such as Sky News and Sky One.

The mid-priced service would have the likes of UK Drama, UK Gold, Discovery, Nickelodeon, the music channels and some sports channels, including the crucial ITV Sport, which carries the Champions League, and Sky Sports 1, which broadcasts English Premiership games. Both services would be offered on ITV Digital, which will not be competing head-to-head with BSkyB in premium pricing.

BSkyB will secure a deal to carry ITV Sport on its service, filling a crucial gap, and will be the only service to offer a full range of film channels.

The potential digital alliance, bringing together Carlton, Granada, the BBC and BSkyB, is already being discussed. Although it would have many hurdles to leap – not least pleasing the media and competition regulators – there is a desire to sort something out.

Carlton and Granada are under pressure from their shareholders to strike a deal that would bring ITV Digital closer to breaking even, or close the operation altogether. Charles Allen, Granada's chief executive, has a solution deadline of six months.

Last week BSkyB signalled it was ready to strike a deal. In separate presentations in New York, the chief executive Tony Ball and the company's finance director, Martin Steward, said it was their objective to get some Sky channels broadcast widely on a free-to-air service on British TV.

Analysts have also pointed out that BSkyB may run into trouble meeting its target of seven million subscribers by 2003. It most recent figures, for the end of September, were 5.5 million. Industry sources say they have added only 130,000 net new subscribers in October and November, which are usually strong months.