BBC may charge Sky for content as retransmission fee row escalates

The BBC has raised the stakes in its row with BSkyB over retransmission fees and will consider charging the satellite broadcaster for channels such as BBC1 if the fees are not dropped.

Sky currently charges the BBC, along with other public service broadcasters ITV, Channel 4 and Channel 5, to carry its TV and radio channels on its pay-TV services.

The BBC pays £5m a year, with the four public service broadcasters footing a combined £10m bill.

The issue has been made a priority by the corporation's recently appointed director of strategy and digital, James Purnell, and BBC director general Tony Hall.

It follows a call by the culture minister, Ed Vaizey, for Sky to scrap the charges earlier this year.

The BBC's director of policy and strategy, John Tate said: "Sky should do the decent thing and stop charging licence fee payers to carry BBC services that, in reality, underpin their ability to generate enormous profits. This free ride needs to stop."

A Sky spokesman said: "The BBC directly benefits from the billions of pounds we've invested in our TV platform and the technical services that support the 49 channels they run over the Sky platform. These payments are no different to paying for electricity, studio facilities or any other operational costs."

Halved from £10m two years ago, the BBC is now calling for the retransmission fees to be dropped altogether. However, recent negotiations between executives from Sky and the BBC are believed to have come to nothing.

Corporation insiders have now said if agreement cannot be reached, then it will look to start charging Sky for carrying BBC channels.

Content on public service channels makes up the majority of viewing in pay-TV homes.

A senior BBC source said: "These costs are a hangover from the early days of satellite television and for a long time now they have felt like money flowing in the wrong direction.

"At a time when public service broadcasting is under increasing financial pressure, we have to do everything we can to protect the licence fee or to police how the licence fee is being spent."

The BBC is entering the final stages of implementing the £700m cost-cutting plan, Delivering Quality First, begun by Hall's predecessor, Mark Thompson, following the 2010 licence fee settlement. It has previously said the cuts need not have been so large if it did not have to pay fees to Sky.

Vaizey used a speech in January to call on Sky to scrap the £10m it charges public service broadcasters, saying Sky should make it a "level playing field" because they do not pay to be carried by its pay-TV rival, Virgin Media.

He added that the government would "look at options for intervention" if the broadcasters could not reach a deal by next year.

The amount Sky charges public service broadcasters has come down – in the past it has been as much as £25m a year.

Channel 4 agreed with the BBC that Sky does not recognise the value that the public service channels bring to the Sky platform.

A Channel 4 spokesman said: "We do not believe that the current regulatory system appropriately recognises the benefits that public service channels bring to platform operators.

"Were the system amended to appropriately account for these benefits, there is strong evidence to suggest that PSBs could receive positive carriage fees."

The issue of retransmission fees was raised by the BBC's then director general, Thompson, in his MacTaggart lecture at the Edinburgh TV Festival in 2010.

Thompson pointed out how in the US, News Corporation – Sky's biggest shareholder – successfully got US satellite and cable operators to pay fees to carry its channels such as Fox and Fox News.

ITV has also called on the retransmission fees to be abolished.

A spokesman for ITV said: "We welcomed the minister's statement earlier this year in relation to retransmission fees.

"We do not believe that this regulation is in keeping with the competitive market place we are in today."

A Sky spokesperson said: "The BBC directly benefits from the billions of pounds we've invested in our TV platform and the technical services that support the 49 channels they run over the Sky platform. These payments are no different to paying for electricity, studio facilities or any other operational costs."

BSkyB group commercial director Rob Webster, writing in Media Guardian in 2011, rejected the BBC's claims, saying "distribution is a necessary cost of doing business".

 This article was amended on 23 May 2013 to add a quote from a Sky spokesman

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