ITV in talks with Sky over third channel

ITV is in talks with BSkyB over launching its promised new ITV3 channel. The new station could end as a joint venture between the two competing broadcasters as Sky has an existing partnership with Granada, the senior ITV company, which ties up much of the programming needed. The new ITV3 could be launched later this year and it is possible that it could be a pay channel. Shares in the new ITV plc company, a merger of Carlton and Granada, begin trading on Monday.

The existing agreement between Granada and Sky, under a joint venture formed in 1998 called GSkyB, owns the rights to much of the material that would be appropriate for ITV3 - also known as ITV Gold. That agreement produced the Granada Plus channel that is available on Sky. This station uses Granada material that is more than seven years old. However, these are many of the programmes that ITV would like to put on ITV3.

It is understood that Sky either wants ITV to buy it out of Granada Plus, at a price that would reflect a breaking of the GSkyB contract, or make the new ITV3 channel a joint venture. "As usual Sky is playing hard-ball," one industry source said. The ITV3 channel is a key part of the new multi-channel strategy put forward by Charles Allen, Granada's chairman and ITV's chief executive-designate, towards the end of last year. That strategy also includes greater emphasis on the existing ITV2 and ITV News channels, and it outlined plans for a new ITV Kids station, plus one or more "time-delayed" channels, which would play the ITV1 schedule but at a different time.

The aim is to tackle the fragmentation of audience, now that more than half the country has multi-channel television, by giving ITV a bigger footprint in these households. The BBC has already launched a raft of channels, including the youth-oriented BBC3 and Cbeebies, a children's channel.

Analysts said it would be seen as perverse if ITV3 was a free-to-air channel but had newer shows than Granada Plus, which is only available to pay-television subscribers. It is thought that Sky would like to see the ITV3 channel as a pay proposition. That would keep the channel off Freeview, though it could be available to former ITV Digital subscribers.

ITV shares will start trading on Monday with still no chairman in place. Following the resignation of Greg Dyke as director-general of the BBC this week, there is speculation that he might be offered the vacant chairman's job.