British Sky Broadcasting (BSY) announced Friday it's snapping up Virgin Media's (VMED) television business in a £160 million ($233 million) deal.

BSkyB's acquisition of Virgin Media Television (VMtv) locks in and expands the wholesale distribution of Sky's basic channel programs on Virgin Media's pay TV cable service. For British Sky, that protects a healthy source of revenue. During the second half last year, BSkyB's wholesale distribution business accounted for 4% of its £2.9 billion in total revenues -- the third largest contributor to its overall revenue pie.

Sky Expands its Reach in "Growing Pay TV Universe"

"VMtv is an attractive investment opportunity which complements our existing content business and delivers strategic and financial benefits," says Jeremy Darroch, BSkyB CEO, in a statement. "We are pleased that, through commercial negotiation, we have been able to ensure wide distribution of our channels to a growing pay TV universe."

Indeed, it was only in November 2008 when BSkyB was able to return its basic channels to Virgin Media's pay TV platform, which the company cites as a main growth driver to its wholesale distribution business. Some of the basic channels that BSkyB distributes includes its Sky1 and Sky Arts and recently negotiated VMtv channels.

Besides securing its Virgin Media wholesale revenue source, the deal will also aid BSkyB in cutting a portion of its direct costs.

During the second of half last year, the company posted a 9% increase in programming costs, in part due to the renewed carriage agreement for Virgin Media channels. The merger agreement also calls for eliminating the carriage fees BSkyB pays for distributing VMtv channels on its TV services.

Virgin Gains Access to Sky's HD Channels

Virgin Media also gets something out of the deal besides cash. For the first time, it will be allowed to carry some of BSkyB's high-definition channels, such as Sky Sports HD 1 and 2 and all of its HD Sky Movies, for a nominal wholesale fee. The deal also allows it to concentrate on its connectivity business.

"The sale of our channels business has 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," says Neil Berkett, Virgin Media CEO, in a statement.




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