Rupert Murdoch's BSkyB has pulled some of its channels from Sir Richard Branson's Virgin Media cable TV network after the two sides failed to resolve a bitter dispute last night.

Channels including Sky One and Sky News disappeared from screens shortly after midnight, when the contract allowing Virgin Media to screen the channels expired. Virgin Media has rejected BSkyB's proposed fee increases for the right to screen the channels.
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The impasse means that fans of hit shows such as Lost, which is broadcast on Sky, among Virgin Media's 3.3m TV subscribers have been cast adrift in the middle of the latest series.

Talks between Virgin Media head Steve Burch and BSkyB chief James Murdoch came to a standstill during a telephone conversation yesterday.

Sky has rejected Virgin Media's offer of arbitration and Virgin Media has rejected Sky's latest offer, confirming it would not table a new offer of its own. Virgin Media said Sky's sport and movie channels were unaffected and would continue to be available.

Sir Richard said: "We're sorry that Sky have pulled their basic channels from our service.

"Consumers have my wholehearted assurance that Virgin Media will not allow this dispute to prevent us from giving them the freshest and most exciting TV service in the UK."

Mr Burch said: "We're disappointed but not surprised by this outcome: nothing Sky have said or done in the course of the negotiation indicates they had the slightest interest in doing a commercially viable deal.

"Their action here is consistent with their plans to withdraw their free channels from Freeview and, in our view, reflects their desire to limit consumer choice."

A statement on Sky's website yesterday blamed Virgin for the dispute. It read: "We are absolutely committed to continuing talks and we've even gone so far as to offer a way for Sky to retail channels directly to cable customers that would cost Virgin Media nothing."

Virgin Media said Sky wanted to almost double the fees for these channels "despite the fact that the popularity of their basic channels has declined by 20pc in the last three years".

BSkyB has disputed Virgin Media's depiction of the costs and argued that it is entitled to a return on its 68pc increase in programme spending over the past five years.

Jeremy Darroch, chief financial officer of BSkyB, told Jeff Randall on BBC Radio Five Live on Sunday night: "The level of increase we are asking for is around 1p per Virgin customer per day", against Virgin Media's £20 a month per customer.

Telegraph.co.uk

Richard Branson, who is Virgin Media's largest shareholder, said on Friday he did not expect to lose too many customers after the cable TV platform lost BSkyB's basic channels.

"We haven't lost very many yet," Branson told Bloomberg Television in an interview.

Virgin Media and BSkyB failed on Thursday to agree a new carriage deal that would have keep Sky's basic channels -- which offer hit shows such as "Lost" and "24" -- airing on Virgin Media.

"Sky obviously took a gamble. They started the popular programme "24" the week before knowing we were likely to get to this stage, gave our people their fix of the first episode and then we couldn't reach agreement so it was a dangerous move from our end," Branson said.

"But, most of the viewers seem to be staying loyal and I think we won't lose very many," he added.

Virgin Media has more than 3.3 million TV customers affected by the move while BSkyB has said it will take a hit of up to 20 million pounds in operating profits for the remainder of the year to end June.

The two sides, who are rivals in the highly competitive television, broadband and phone markets, had been locked in negotiations for several weeks but could not agree on terms.

"Sky are obviously worried, they think we may bring some real competition. They stopped us buying ITV by getting in there quickly and buying 18 percent of ITV and they have tried to double the price of the programming that we pay," Branson said.

"Rather than paying through the nose for their programming we have decided to go and get our programming and that is what we will do," he added.

Virgin Media is the new UK company with a U.S. listing that launched last month in the wake of the merger of cable TV companies NTL, Telewest and Virgin's mobile phone division.

Reuters