Ailing Satellite TV Firm in Britain Seeks to Alter Costly Studio Contracts

British Sky Broadcasting, the satellite TV company formed last year by the merger of Rupert Murdoch’s Sky TV and its rival, British Satellite Broadcasting, is trying to dig itself out of a financial crisis by renegotiating hundreds of millions of dollars in programming contracts with several Hollywood studios.

The efforts come at a difficult time for BSkyB, as the merged company is now called. It is also attempting to put together a loan package of about $585 million (300 million pounds), to keep the venture up and running, banking sources in London said.

Satellite TV has had a bumpy ride in Britain ever since it was introduced 24 months ago, when Murdoch launched Sky TV. BSB, controlled by a consortium of British media companies, followed in April, 1990.

Before they merged last November to avoid a debilitating fight, Sky and BSB aggressively bid against each other for broadcast rights to movies from most of the Hollywood studios.

In some cases, the rival ventures paid $1 million per film, an astronomical sum for the nascent European commercial TV market. The strategy was to lock up as many films as possible in order to deny them to the competition.

Industry sources said that, over the past week, BSkyB officials have called in executives from Walt Disney Co., Warner Bros. and Paramount Pictures and requested substantial cuts in the fees being paid to those studios.

According to one studio executive who requested anonymity, BSkyB said the venture was in danger of collapsing if new terms were not negotiated.

Sources said BSkyB wants to renegotiate studio contracts “going forward,” meaning that payments would not change for any films that have already been broadcast. Future commitments represent a sizable outlay since BSkyB entered into costly long-term “output deals” that guarantee it rights to all of a studio’s releases for the next five to seven years.

BSkyB also is seeking to peg its fees to the number of satellite TV subscribers. At present, BSkyB pays a fixed amount that the company thinks is too high. Pegging BSkyB’s license fees to subscriber levels would lower its payments.

“They went so far beyond the rational level in what they paid for movies that they must now bring those deals back to this atmosphere,” said James M. McNamara, executive vice president at New World Entertainment. “It was inevitable this would happen.”

BSkyB Managing Director Sam Chisholm would not comment on the program contract negotiations or financing problems. The studios also declined to comment.

But the fledgling venture has not signed up new subscribers fast enough and also faces a slowdown in advertising due to a recession in Britain. BSkyB estimates that it is available in 2.2 million homes in Britain and Ireland, or about 10% of the TV households in those countries.

When Sky TV and BSB merged, they contributed total working capital of $195 million (100 million pounds), about 70% of which was provided by BSB and 30% by Sky TV. In addition, BSB’s major shareholders agreed to provide another 100-million-pound bridge loan.

A spokesman for Reed International, one of the original BSB backers that is now an investor in BSkyB, would only say that “we are in discussion with banks on a new project loan, but it is too early to comment on progress.”

Rob Collins, a financial analyst with Kleinwort Benson Securities in London, said BSkyB has already gone through the first 100 million pounds and has exhausted perhaps as much as 40 million pounds of the bridge loan. He estimates that the venture is burning up about 10 million pounds per week.

“Effectively, they’ll run out of money at about the end of March,” warned Collins.

BSkyB’s problems put renewed financial pressure on Murdoch’s News Corp., which earlier this month restructured $7.6 billion in debt. Under the new accord reached with the company’s 146 lenders, News Corp. must repay $800 million by February, 1992, and must reduce debt by an additional $400 million every six months thereafter.

John Lippman reported from Los Angeles and Jeff Kaye from London.