Screens go blank as Murdoch and Branson battle for pay-TV market

When Virgin Media's three million customers woke up yesterday to find Sky News had been taken off air and renamed "Sky Snooze", it was the first sign that the gloves have come off in the battle for television supremacy between Sir Richard Branson and Rupert Murdoch.

Within hours of Mr Murdoch's Sky group announcing it was removing its four "basic" channels from Virgin Media's cable service, Sir Richard's company responded by giving its rival's old slots tongue-in-cheek names.

Channel 602 on Virgin, formerly the home of Sky News, was renamed on the programme guide as "Sky Snooze try BBC" while Sky Sports News became "Old Sky Sports Snooze". The flagship Sky One channel was replaced with Virgin Media's new video-on-demand service.

Sky dismissed the stunt as "rather childish and petty" while Virgin Media made clear it was a gesture in the same irreverent and debunking spirit that Sir Richard has made a trademark of his £3bn business empire.

But behind the corporate PR battle that will today see Sky respond with a nationwide poster campaign seeking to lure away disgruntled Virgin Media subscribers, there is a struggle for dominance of Britain's multi-billion pound pay-TV market.

A Virgin Media spokeswoman said last night: "This is the first time that Sky has faced a serious competitor. They have tried to make sure they have all the premium content and that is no longer the case. Now they are responding accordingly."

The decision by Sky, headed by Mr Murdoch's son James, to withdraw its basic package from Virgin Media at midnight on Wednesday followed the failure to strike a deal over how much the cable operator should pay to screen Sky's four channels, in particular Sky One, which offers popular shows such as Lost, 24 and The Simpsons. Virgin Media is understood to have baulked at being asked to pay about £33m a year for channels that previously cost £24m a year and have lost about 20 per cent of audience share since 2004.

The two companies clashed dramatically in November last year when Sky pre-empted a bid by NTL, which has been rebranded as Virgin Media after Sir Richard bought an 11 per cent share in the American cable company, for ITV. With the blessing of his father, James Murdoch staged a stock-market coup, paying £940m to secure a 17.9 per cent stake in ITV and effectively scupper NTL/Virgin's bid.

The Government this week announced that it had asked the media regulator, Ofcom, to investigate whether the Sky deal was in the public interest, offering Sir Richard a glimmer of hope that Rupert Murdoch may be forced to sell its stake.

While insisting there is "mutual respect" between him and Rupert Murdoch, Sir Richard has made clear his views about the media mogul's role in British public life. Pointing out Mr Murdoch's ownership of four national newspapers and controlling stake in Sky, Sir Richard said: "If you tag on ITV to that as well, basically you've got rid of democracy in this country and we might as well just let Murdoch decide who is going to be our prime minister."

Mr Murdoch's News Corporation and Sky have sought to shrug off such comments, retorting that Virgin Media had no monopoly on the right to bid for a share of ITV. But yesterday's move by Sky, which has 8.4 million subscribers, to present blank screens to its smaller rival's customers represents an intensification of the fierce battle for market share. Sir Richard said: "We're sorry that Sky have pulled their basic channels from our service. Consumers have my wholehearted assurance that Virgin Media will not allow this dispute to prevent us from giving them the freshest and most exciting TV service in the UK."

The two companies were yesterday busy trying to retain subscribers unhappy at the loss of shows, in the case of Virgin Media, and attract new business, in the case of Sky. Virgin Media said it was confident its package, including an on-demand service, remained attractive.

A spokesman for Sky said the company had a "busy day" at its call centre, handling calls for cable subscribers wanting to switch but declined to give any figures. Some have suggested Virgin Media could lose up 150,000 subscribers.

Sky will today attempt to bolster its position with two posters carrying the slogans "Don't Lose Lost" and "Get Jack Back" - references to the fact it is the only channel offering the current series of Lost and 24.

Virgin Media, which saw a last-minute offer of arbitration rejected by Sky after it accused Mr Murdoch's company of seeking to double the fee for its basic channels, said it stood to lose about £45m. Sky said it expected its annual loss to be about £60m.

One analyst said: "Richard Branson is used to being the underdog and this particular encounter is no exception. Sky has been in this market a long time and it will jealously protect its position as number one. Privately, they won't be too upset at depriving a competitor of some of its most attractive shows."

A Sky spokesman said: "Over the past few weeks, Virgin tried to argue that Sky's basic channels didn't matter to its customers. Today they've even tried to ridicule them by giving them childish names. We know that Sky channels attract some of cable TV's biggest and most appreciative audiences and we don't want any of them to miss out."

Battling broadcast empires

What is the row about?

BSkyB and Virgin Media are locked in combat over the latter's attempt to become a broadcasting superpower by offering "quadplay" packages, combining cable television, broadband, and landline and mobile telephones. Richard Branson's recent attempts to acquire ITV were thwarted when Sky purchased a 17.9 per cent stake in the company. At midnight on Wednesday, Sky blocked its basic channels - such as Sky One, featuring Lost, Sky News and Sky Sports News - from airing on Virgin Media, thus weakening its rival's offering.

How do the two companies line up?

Founded in 1990, BSkyB is a pioneer of digital television in Britain and has amassed a clientele of more than eight million. Virgin Media, the recently rebranded outfit built on the old cable business NTL Telewest, has 3.3 million customers. Though Virgin Media is part of a £4bn empire, it is out-muscled by News Corp, the largest BSkyB shareholder.

What does this mean for customers?

Millions of Virgin customers now have less choice. The key Sky sports and movie channels remain accessible.

What happens next?

Virgin Media will try to minimise defections. Sky will say that its rival is offering an inferior service. Meanwhile, BSkyB's stake in ITV is being investigated by the industry watchdog, Ofcom.