Sky, Virgin Media in channel sale and distribution deal

From Colin Mann in London

Following months of speculation, British Sky Broadcasting and Virgin Media have confirmed the acquisition by Sky of Virgin Media Television (VMtv) in a deal worth up to£160 million in cash. The companies have, in parallel, agreed to enter into a number of agreements providing for the carriage of certain Sky standard and high-definition (HD) channels.

The agreements cover the following:

– Sky will acquire VMtv for a total consideration of up to £160 million in cash, with £105 million paid on completion and the remainder paid following the regulatory process. The acquisition will expand Sky’s portfolio of basic pay TV channels and eliminate the carriage fees it currently pays for distributing VMtv channels on its TV services.

– Sky will assume responsibility for selling advertising for the newly acquired VMtv channels from January 2011.

– New carriage agreements will secure wholesale distribution of Sky’s basic channel line-up, including Sky1 and Sky Arts, and the newly acquired VMtv channels, on Virgin Media’s cable TV service.

– For an incremental wholesale fee, Virgin Media will, for the first time, have the option of carrying any of Sky’s basic HD channels, Sky Sports HD 1 and Sky Sports HD 2, and all Sky Movies HD channels.

– Virgin Media will make available through its on-demand TV service a range of content from Sky’s basic and premium channels, including the newly acquired VMtv channels. Virgin Media will also have access to red button interactive sports coverage and the opportunity to deliver selected standard definition programming over the Internet.

The acquisition of VMtv involves Sky acquiring LIVING, LIVINGit, Challenge, Challenge Jackpot, Bravo, Bravo 2 and Virgin1. Sky will not license the Virgin brand and will announce the new channel brand for Virgin1 in due course.Completion of the agreements is conditional on obtaining merger control clearance in the Republic of Ireland. The deal does not include the UKTV channels, which Virgin Media co-owns with BBC Worldwide.

Jeremy Darroch, CEO, BSkyB described VMtv as an attractive investment opportunity which complemented Sky's existing content business and delivered strategic and financial benefits. “We are pleased that, through commercial negotiation, we have been able to ensure wide distribution of our channels to a growing pay TV universe, ” he added.

Neil Berkett, CEO, Virgin Media, said the sale of its channels business had generated substantial value. “Together with the new commercial agreements we’ve announced today, it will allow us to focus more closely on our strategy of exploiting Virgin Media’s super-fast connectivity to offer our customers a range of the very best content through a highly versatile next generation entertainment application,” he said

Channels including Sky1, Sky News and Sky Sports News became available to Virgin Media customers again in November 2008 after the cable TV company and BSkyB reached a deal to end their 20-month row over distribution

Sky will no longer have to pay £30 million a year to distribute Virgin’s channels via its satellite TV service. Buying Virgin1 provides Sky with a coveted channel slot on the Freeview digital terrestrial TV service, with the service to be rebranded accordingly.

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