Virgin sells TV channels to Sky as bitter rivals close in on peace deal

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The Independent Online

British Sky Broadcasting has agreed to pay its arch-rival Virgin Media £160m for a clutch of television channels in a deal that will be seen as further evidence of a rapprochement in the bitter row between the two companies over access to content.

The deal announced yesterday will see Sky buy its rival's Virgin Media Television subsidiary, best known for channels such as Bravo, Living and Virgin 1. The latter channel is to be rebranded under its new ownership.

In addition, Virgin will for the first time be able to offer its subscribers access to a number of Sky's high-definition channels, including Sky Sports HD 1 and the Sky Movies HD range. Virgin's existing deals to screen other Sky channels, including Sky 1, Sky News and Sky Arts, will be extended, and it will continue to provide access to the channels it is selling to Sky.

The move reflects Virgin's desire to concentrate on distribution rather than content, although it will retain its UK TV operation, a joint venture with BBC Worldwide that owns channels such as Dave.

Improving its HD channel range – it currently has 10 compared with Sky's 40 – will improve subscription rates, Virgin hopes, while Sky will save more than £30m a year on the fees it pays to transmit the Virgin Media channels it is buying.

Neil Berkett, the Virgin chief executive, said: "It will allow us to focus more closely on our strategy of exploiting Virgin Media's super-fast connectivity to offer our customers a range of the very best content."

As well as the Sky television content, Virgin will be able to transmit some of the channels' programming over the internet and to provide its customers with access to Sky's red button interactive service on Sky Sports. Jeremy Darroch, Mr Berkett's opposite number at Sky, added: "We are pleased that, through commercial negotiation, we have been able to ensure wide distribution of our channels to a growing pay TV universe."

The two companies have fought bitterly in the past over access to each other's channels, so yesterday's deal represents a move towards more peaceful relations.

However, Sky is still in the process of appealing against a ruling by Ofcom, the broadcasting regulator, that it must cut the prices it charges Virgin and others for premium channels such as Sky Sports. Virgin, BT and several smaller operators hope they will be able to compete more effectively with Sky for subscribers thanks to the Ofcom ruling.

Media analysts believe yesterday's deal could be the beginning of a new round of consolidation in the commercial television sector, as operators attempt to cut costs and exploit the opportunities that scale might give their advertising businesses.

In particular, speculation continues to surround Five, the terrestrial broadcaster which has effectively been put up for sale by its current owner, RTL of Germany. ITV, Channel Four and Sky have all been linked with a deal to buy the channel.

Sky's payment to Virgin will be staggered as the two companies await regulatory approval. It expects to hand over £105m within a month or so, once the Irish regulatory authorities clear the transaction, with the balance due once Britain's Office of Fair Trading gives the go-ahead.