ThisisBigBrother.com - UK TV Forums - Virgin near deal to sell channels to BSkyB, as Five readied for sale

The UK commercial TV sector is about to enter a period of dramatic consolidation, with Channel Five being readied for sale by its owner RTL and BSkyB on the verge of sealing the deal to buy Virgin Media's TV channels.

BSkyB is understood to be nearing the conclusion of lengthy negotiations to buy Virgin Media Television's successful channels business, which operates Virgin1, Living, Bravo and Challenge, for about £150m-£160m. The deal could be finalised as early as next week.

A source close to the deal said: "We are absolutely steaming ahead, and it should be done, if not by the end of this week, then next week." A BSkyB spokesman declined to comment.

Gerhard Zeiler, chief executive of RTL, and Dawn Airey, chairman and chief executive of Five, are understood to have spent recent months talking to a wide range of potential buyers for loss-making Five, drawing more interest than might have been expected from a number of sources, beyond obvious potential buyers such as ITV and BSkyB.

Those approached are also said to include the US media company Time Warner and Dutch Big Brother producer Endemol.

MediaGuardian.co.uk revealed in March that Zeiler had also met with Channel 4's chairman, Terry Burns, and incoming chief executive, David Abraham, to discuss potential areas of commercial partnership, including a full merger.

Abraham joined Channel 4 earlier this month and, along with Burns, is considering the broadcaster's strategic options. These are understood to include the possibility of some form of commercial tie-up with Five.

However, despite talking to a number of potential buyers, RTL is not thought to have got to the stage of appointing an investment bank to oversee a formal tender process for the sale of Five. Charles Constable, Five's strategy and business affairs executive, is understood to be involved in the process along with Zeiler and Airey.

An RTL spokesman declined to comment. But in the past Zeiler has said he expects Five to be part of any consolidation in the UK TV market.

RTL has cut the book value of Five from almost €600m (£509m) to just over €100m (£85m) in two years. The meeting between Zeiler, Burns and Abraham came in the same month that the company revealed that Five sustained losses of €41m in 2009 as revenues plunged 30%. The broadcaster's operating loss was €10m. However, this would have been worse if not for a £65m cost-cutting push achieved "mainly as a result of significant programme cost savings".

As part of the complex deal to sell Virgin Media TV to Sky, the cable operator is expected to cement a long-term carriage deal.

This will ensure it has continued access both to the VMTV channels such as Living, once sold off, but also to BSkyB's premium sports and movie channels and high-definition services.

The negotiations are understood has been eased by the recent, though still disputed, pay-TV ruling from Ofcom, forcing BSkyB to cut its wholesale prices for Sky Sports 1 and 2 to rival subscription operators including Virgin Media.

During the discussions both companies are said to have acknowledged that they have common ground, as they are staking their businesses on a pay model and broadband supply, and have a common enemy, in the Freeview digital terrestrial TV service.

Virgin1 is expected to disappear and BSkyB may well take advantage of Ofcom's backing for Picnic, its proposed digital terrestrial subscription service, in the regulator's pay-TV ruling.

The deal will also result in VMTV being able to break up its inhouse advertising sales operation, IDS, which handles airtime deals for both the wholly owned channels such as Living and the UKTV joint venture with the BBC, which operates services including Gold and Dave.

It is understood Channel 4 may take over airtime sales for the UKTV channels. A separate deal for Channel 4 to buy Virgin Media's stake in the UKTV channels is said not to be progressing at the moment.

One option for a Channel 4/Five commercial partnership short of full merger is a tie-up between the two broadcaster's advertising airtime sales houses.

Obstacles to a full merger would include Five's onerous deals for US shows such as the CSI franchise. RTL made a €22m writedown last year relating to "revised revenue expectations for acquired US series".

Guardian