Satellite Television Merger in Britain Faces Opposition : Communications: While the money-losing companies work to mesh their combined operations, officials raise the question of whether the deal skirted the law.

Newlywed satellite networks Sky Television and British Satellite Broadcasting were planning how to consolidate their programming and business operations Monday as a political outcry against their merger began to swell.

“We have people down at BSB looking at programming, contracts--everything,” said Sky spokeswoman Fiona Waters.

With Rupert Murdoch’s Sky losing $4 million a week and BSB losing nearly four times that, the deal comes as a relief for both companies.

Reaching profitability is expected to be much easier with the new venture. For starters, the companies will be free from the crippling expense of battling each other--both in advertising and in bidding wars for programming such as films and major sporting events.

The streamlining also will include closing BSB’s headquarters and basing the new company in Sky’s London offices. Hundreds of employees are expected to be laid off as the two multichannel networks pare down to one. The two systems’ nine channels will be reduced to five.

Murdoch, under pressure to relieve his massive debt problems, appears to have put a stopper on the biggest single drain in his empire. On the New York Stock Exchange, shares of Murdoch’s News Corp. jumped $2.125 on Monday to close at $9.25.

Under terms of the merger, the consortium of four media companies that own BSB will put up $136.5 million in new working capital, while Murdoch puts up $58.5 million. BSB will also guarantee a $195-million loan.

When the company becomes profitable, the first $780 million in dividends will be split 80-20 in favor of Murdoch. Then, for twice the period that it took to reach the first $780 million, profit will be split 50-50. BSB will then receive 80% of the next $780 million. After that, profit will be shared equally.

The favorable terms for Murdoch are meant to reflect the stronger position held by Sky. While both Sky and BSB were losing fantastic sums, Sky had expectations of making a profit within two years.

Although BSB is available in 750,000 homes, most of those receive the programming service on cable television. Just over 100,000 homes are equipped with BSB receiving dishes.

Sky, which has installed 750,000 dishes, can be seen in 1.7 million homes.

Of the five TV channels that will emerge from the venture, two will be subscription channels. Both Sky and BSB had realized that pay channels would be the best source of income for satellite TV.

Britain’s Financial Times--which is owned by major BSB shareholder Pearson PLC--reported that one of the subscription channels will be a “gold” premium channel, with the top films and major sporting events. The second “silver” subscription channel will carry an assortment of old and new films and will be less expensive. A Sky spokesman declined to comment on the arrangement.

Also included in the new network’s programming package will be a general entertainment channel that will come primarily from Sky. BSB’s and Sky’s sports channels will be combined and Sky’s respected all-news station, Sky News, will remain.

Dropped from the mix will be BSB’s NOW channel, an up-market mix of arts programming and talk shows. Gone also will be BSB’s MTV-style Power Station. The real MTV, transmitted from the same satellite as Sky, can be seen by Sky viewers.

Coupled with the fact that most of the hands-on management will come from Sky, the new British Sky Broadcasting should be much more a reflection of the old Sky than the old BSB.

All of this is troubling for the Independent Broadcasting Authority, which regulates commercial television in Britain and awarded BSB a 15-year franchise for a domestic satellite TV service.

IBA directors were holding “urgent talks” with principals in the merger Monday. “At the moment, everything is under legal consideration,” an IBA spokesman said.

Among IBA concerns is that Murdoch, who owns five national newspapers in Britain, may have skirted the country’s cross-ownership restrictions.

Some critics of the merger, including Lord Thompson of Monifieth, the former IBA chairman, are calling the timing of the deal’s announcement suspicious.

The Friday night merger announcement came one day after passage of Britain’s new Broadcasting Act. While the act prohibits owners of national newspapers from also controlling more than 20% of a television franchise, the restrictions apply only to domestic TV companies. Sky transmits from the Luxembourg-based Astra satellite, so Murdoch is exempt from the regulations.

When the cross-ownership provision was being debated in Parliament, Labor members had sought wording that would make the restrictions apply to Murdoch and Sky as well. Members of Prime Minister Margaret Thatcher’s Conservative Party argued that Murdoch was not being awarded a protected franchise--like BSB--but instead was taking a huge financial risk on his own. Therefore, he deserved more leeway.

The vote, largely along party lines, allowed Murdoch’s company to retain its newspapers and its 100% ownership of Sky.

There have been suggestions that the merger was not announced until it was too late to change Murdoch’s status in the Broadcasting Act. But Sky and BSB officials say the timing was coincidental.

Labor Party officials have declared the new venture “very unhealthy” for the nation and called for an investigation by the Monopolies and Mergers Commission.