BBC takes plunge into pay-TV with Flextech

City believes Birt could be sitting on a gold mine

The BBC is today expected to take its first substantive step into the world of commercial television with the announcement of a joint venture with Roger Luard's Flextech to provide five new pay-television channels.

The statement is expected to confirm that Flextech is putting up pounds 22m of equity while its parent company, TCI of the US, will guarantee loan facilities of up to pounds 118m.

Sources stressed last night that the deal, which has been under negotiation for many months, might still fall victim to a last-minute hitch.

However, it was hoped that a formal announcement would be made to the Stock Exchange this morning.

Under the terms of the deal, Pearson, which will be making its own trading statement today, will take a small stake in Flextech.

Most analysts see the venture as a spectacularly good deal for the BBC, which for a token investment of pounds 1,000 gets a stake of 50 per cent stake and is paid "a market rate" for all the programming broadcast.

According to the BBC's own business plan, the venture could be worth as much as pounds 500m in cash flow to the corporation over the next 10 years.

John Birt, director general of the BBC, sees the venture as a key part of his strategy for extending the BBC's franchise into the commercial realm.

Unlike the corporation's existing pay-television channel, UK Gold, the BBC will be in direct editorial control of the five channels which will be produced from Television Centre.

The deal also transforms Flextech into a serious number two player after Sky in the provision of programming for pay television.

The partnership is likely to concentrate on cable and digital terrestrial as its means of delivery after encountering a number of difficulties in negotiations with BSkyB for broadcast via satellite.

With cable set to supersede satellite as a means of distribution by the turn of the century, the partnership does not believe boycotting Sky will inhibit its growth.

Initially the venture will confine itself to five digital channels supplied through cable - Horizon, a science and technology channel; Arena, an arts channel; Style, a lifestyle channel; Learning, an education channel; and BBC Showcase, which will concentrate on entertainment and drama.

A further three channels - BBC Sports Entertainment, One TV (a popular music channel), and Catchup TV (repeats) - are also under discussion.

All channels will be made up of past and present programming from the BBC.

Minority partners in UK Gold, the BBC's existing pay- TV channel, will be bought out as part of the transaction.

Both Pearson and Cox, a US-based cable company, are to be issued with shares in Flextech valuing the whole of UK Gold at approximately pounds 200m.