Talks between Cable & Wireless Communications and BSkyB about launching a joint pay-per-view service may have suffered a setback after Sky was told to drop its equity stake in British Digital Broadcasting (BDB), one of the consortia bidding for the digital terrestrial television licences.
Cable and satellite operators have been making overtures to the Hollywood studios - Disney, Universal, MGM, Warner, Paramount and Sony - for some time, lately with some urgency. Before BSkyB was ordered to pull out of BDB over competition worries the satellite operator had been making impressive headway in negotiations with CWC about a joint pay-per-view service. An announcement had been expected within weeks.
However, one source said yesterday that if Sky were to pull out of British Digital Broadcasting, CWC may decide to throw its lot in with the other cable companies in securing studio rights, rather than sleeping with the enemy, Sky.
Despite advanced talks with Sky, CWC has been careful not to close any doors in tying up content for digital cable. Hence the fact that CWC has joined Telewest in a consortium called On Demand Management, which is trying to tie up film deals on behalf of the cable industry.
An agreement on these talks is also due soon, but not until CWC has committed itself either to Sky or the cable industry. The company's spokesman indicated yesterday that a decision on which party to back was still some way off.
"We are keen to keep all our options open. We're still looking at where our content is coming from," he said.
So far, pay-per-view events - where consumers pay to view a specific film or sporting fixture - have been limited to four boxing events negotiated by Sky. But the advent of digital television will open the way for a range of pay-per-view opportunities, especially in the film industry.
The proliferation of channels promised by the switch from analogue to digital technology will enable individual movies to be shown at roughly 15-minute intervals on different channels - what's known as near-video- on-demand.
As Neil Blackley, media analyst at Merrill Lynch, explains: "To show movies on a near-video-on-demand basis, you probably need 100 channels showing 20 movies around eight months after theatrical release." According to Mr Blackley's own forecasts, based on similar services operating in the States, the average cable or satellite subscriber makes two pay-per- view film purchases a month, at around pounds 3 a time.
And the stakes are high, with revenues from movie services expected to approach pounds 1bn within a decade, according to the industry magazine, Broadcast. As a spokesman for Cable & Wireless Communications says: "There's pounds 1.3bn spent on video rental each year in the UK. We'd like a slice of that, please."
Pay-per-view plans are ambitious, but, at this stage, largely under wraps. A third of up to 200 channels offered by digital satellite would be dedicated to pay-per-view, which would include not only sporting events and movies, but also niche channels for which consumers would be prepared to pay extra.
For example, a Manchester United channel, featuring some exclusive matches, would be a possibility. The electronic programme guide, which enables you to find your way round the hundreds of different channels, would also allow viewers to structure their own viewing schedule by mixing and matching different pay-per-view sports and movies events.
Pay-per-view prospects on digital terrestrial depend on the outcome of the Independent Television Commission's deliberations. Digital Television Network, the group backed by the cable company NTL, has pledged to offer six pay-per-view sport and movie channels. However, BDB did not make any promises on pay-per-view in its application.
According to some analysts, pay-per-view movie services provide the cable companies with their big break. Although digital technology will allow Sky to provide many more channels than it can currently, transmitting by satellite still limits the number. Cable, by contrast, has virtually limitless capacity, and could, according to one cable operator "do 500 different channels in 500 different areas" if it chose to. Pay-per-view is expected to be the linchpin of CWC's digital service, and the company may use up to 80 channels to show the top 20 movies on release at any one time at half-hourly intervals.
Cable companies are going for broke on the film rights, in part because sport is pretty well sewn up by Sky. Rupert Murdoch's operator has an option on pay-per-view Premier League matches following Sky's pounds 670m deal last June. The rights would be well worth having, with UBS estimating that Premier League pay-per-view matches will be worth nearly pounds 450m by 2002.
With those kind of sums at stake, cable and satellite operators may be forgiven for saying there's all to play for before digital television gets under way in earnest.
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