Sky deal may flag digital broadcasts of Formula One

BSkyB, Rupert Murdoch's satellite broadcaster, is in talks with Bernie Ecclestone, the Formula One rights holder, about launching digital television coverage of top-level auto racing in the UK starting in 1997.

The discussions are the first fruit of BSkyB's high-profile alliance with Kirch Group, which plans to launch a Formula One service in Germany and other European countries next month, as part of a deal negotiated before BSkyB agreed this week to help fund the launch of Kirch's digital television platform in Germany.

If successful, the negotiations would see Formula One broadcasts on BSkyB's planned UK digital service, with up to six channels offering different camera angles - from the pit, the grandstand and the dashboards of leading drivers.

Meanwhile, Kirch yesterday confirmed that it intended to seal the alliance with Mr Murdoch by taking an equity stake in BSkyB. Speculation grew that it could approach BSB Holdings, the rump of former shareholders in British Satellite Broadcasting, which merged with Sky Television in 1990.

BSBH, which holds a 17 per cent stake in BSkyB, groups Pearson, Granada, Pathe and a handful of smaller shareholders.

However, Granada has already made it clear that it does not intend to sell its shareholding, which totals about 11 per cent of BSkyB, and is likely to spurn any approach from Kirch.

Other options believed to be under consideration at Kirch include an equity swap between Rupert Murdoch, BSkyB's 40 per cent owner, and Telepiu, the Italian pay-TV company in which Kirch holds 35 per cent, or even a direct sale by Mr Murdoch of part of his stake.

A new issue of shares, to help fund the roll-out of digital television in the UK, could also give Mr Kirch an opportunity to take a position.

News of Mr Kirch's intentions sent BSkyB's shares 5p higher to close at 473p, valuing the company at just over pounds 8bn. The shares had risen 14p on Tuesday, on news that BSkyB would take an equity stake of up to 49 per cent in Kirch's German digital television company.

The swirling rumours surrounding the Kirch-BSkyB relationship helped fuel talk of further jockeying in the pay-TV market in Europe.

Bertelsmann, now a pay-TV rival, had been blamed by Mr Murdoch for the collapse of an earlier pan-European alliance that also included Havas and Canal Plus, the French digital television market leader. Bertelsmann has vowed to continue to develop its digital plans, in league with CLT, the Luxembourg broadcaster whose television subsidiary was recently merged with Bertelsmann's own television operations.

That leaves Canal Plus without a partner, and industry sources predicted last night that the French group could join the Murdoch-Kirch alliance. "If both alliances press ahead, there is going to be a bloodbath," Anthony de Larrinaga, analyst at Panmure Gordon, said.