BSkyB Completes Acquisition of HSBC and Matsushita Shareholdings in British Interactive Broadcasting Holdings Limited -"BiB"-.

Business Editors

LONDON--(BUSINESS WIRE)--May 9, 2001

British Sky Broadcasting Group plc (NYSE: BSY), the UK based pay-television broadcasting group, today completed the acquisition of HSBC's and Matsushita's shareholdings in British Interactive Broadcasting Holdings Limited ("BiB").

- BSkyB completes acquisition of HSBC and Matsushita shareholdings in BiB and
takes full day-to-day management control

- BSkyB's stake in BiB is now 80.1%

- Consolidation of all interactive and online activities within 'Sky
Interactive' division to manage BSkyB's interactive services across
all platforms

- Interactive services to be integrated more closely with BSkyB and third party
content; greater profit-driven focus on services, entertainment and information


- Following a strategic and efficiency review by BSkyB management, BSkyB to
take an exceptional restructuring charge of (pound)40 million and reduce Sky
Interactive's ongoing cost base

Tony Ball, Chief Executive of British Sky Broadcasting Group plc, said

"With this deal Sky has taken control of its interactive future. We will now consolidate all our assets in one division, Sky Interactive, which will allow us to make cost savings, generate extra revenues and integrate more interactive content with television programming.

Interactive services give Sky the means to enhance and differentiate the experience on its digital platform thereby increasing customer satisfaction and maintaining strong retention levels."

Background

Further to the announcement made on July 17, 2000, regulatory clearance has now been obtained and BSkyB has completed the acquisition of the HSBC and Matsushita shareholdings in BiB. This takes BSkyB's stake in BiB to 80.1%.

Formation of Sky Interactive

Under BSkyB's control, BiB will form the centrepiece of a new division within BSkyB to be called 'Sky Interactive', headed by Jon Florsheim and based at BSkyB's headquarters in Osterley. This division will bring together the BiB businesses (the television-based games and retail portals) with BSkyB's interactive properties including; the 'Active' services - Sky News Active, Sky Sports Active and Sky Movies Active; the internet services - Sky.com, SkySports.com; Surrey Sports (BSkyB's wholly-owned bookmaker) and Sky Text.

Future interactive strategy

Sky Interactive will develop interactive services so that in future both the consumer proposition and its profitability will be enhanced.

- New interactive services, such as competitions, voting, games

and betting, are being introduced that relate to the programme

content ('contextual services') rather than compete with the

programme content. They will have far greater integration with

the programming than services have had previously.

- A new 'services' portal will be added with a greater number of

major high street banks and utilities represented. From June

2001, Sky customers will be able to access their Sky account

information via the television.

- New pricing structures, such as fixed price telephone calls,

will be introduced to reduce the cost of going online and to

facilitate micro-payment-based business models.

- The emphasis in retail will be on a small number of 'best of

breed' big name retailers competing to provide mass market

services in key categories, together with the provision of

simpler and faster access to the platform for a much larger

number of smaller retailers.

- Overall, Sky Interactive will work to introduce a large

portfolio of simple, easy-to-use services on each of its

platforms, all of which will, in aggregate, contribute

approximately (pound)50 of interactive ARPU towards BSkyB's

(pound)400 total ARPU target in 2005.

BSkyB's experience as a pioneer of interactive television has shown that those interactive services that are contextual and user-friendly, such as Sky Sports Active, are already widely used. Most recently, Sky Sports Quiz was accessible by pressing the red button directly from the Sky Sports channels as well as from the interactive services menu. This service has received over 500,000 premium rate calls.

Marketing Contributions Limited ("MC co")

As a result of this transaction, BSkyB will gain a 80.1% equity interest in MC co, the BiB wholly-owned entity that has part-subsidised each Sky digital set top box and which recovers a proportion of this investment from third party broadcasters and any company seeking to provide interactive services via the set top box. As the number of third parties seeking to access the digital satellite platform increases, MC co is expected to generate an increasingly valuable revenue stream.

Update on recent developments

A number of new interactive applications have launched on the digital satellite platform since the beginning of calendar 2001, including:

- the launch of picture-in-picture access to e-mail accounts via

Sky Text;

- the launch of Sky Sports Quiz on Sky Sports channels on April

10, which has since received over 500,000 entries;

- the launch of Sky News Active voting which generated 250,000

paid-for calls in the first 30 days, with the Budget day alone

generating 30,000 calls;

- the launch of the UK Phone Book information service;

- the launch of Tetris on March 22. This game has already

received over 1.5 million paid-for plays;

- Egg, the online bank, launching its online credit card and

savings account management service on Sky Interactive on April

18;

- on March 20, Scottish Power becoming the first utility to

launch on the platform, providing a customer registration and

retail capability, with full bill paying access expected this

summer;

- a number of interactive advertising campaigns including those

for Ariel-Liqui tabs and Pampers;

- the development of the Sky Movies Active service. The service

will launch later this month; and

- this summer ASDA will launch a full-service grocery store on

digital satellite, initially serving customers within the M25.

Overall Usage

At March 31, 2001, Sky Interactive was accessible to all digital satellite homes. Over 66% of digital satellite homes have used interactive services and approximately 1.7 million digital satellite homes use the interactive service each week. On average, each user session lasted around 20 minutes.

Usage by service

The most popular interactive service, measured by the number of connections to Sky Interactive's server, is e-mail, accounting for over half of all usage. To date, Sky Interactive has registered 1.4 million e-mail accounts. The second most popular service is playing games. There were 12 games offered by Sky Interactive as at March 31, with 7 free to viewers and 5 at premium telephony rates. Two new premium rate games, Tetris and Sky Movie Quiz, were launched in the quarter and a third premium rate game, Sky Sports Quiz, launched in April. In March over one million games sessions resulted in 1.3 million minutes at premium call rates.

Trials of contextual quizzes run by Sky channels have also proved popular. For example, the recent Sky Oscars Quiz generated over 145,000 plays at 75 pence per minute. Shopping and banking generate approximately equal levels of usage. At March 31, 2001, Sky Interactive had 35 retail partners plus a further 39 brands available through the 'Open Extra' service. To date, 6 leading financial institutions - HSBC, Abbey National, Halifax, Norwich Union, Cornhill and Egg - provide financial services via Sky Interactive. One of Sky Interactive's future priorities will be to expand the number and range of services that are provided so that, for example, more high street banks and a wide range of utilities are available.

Sky Interactive generates revenue from betting both as the platform operator (via, for example, Blue Square) and via its ownership of Surrey Sports which provides interactive television betting via BetTV. At March 31, 2001, Surrey Sports had approximately 60,000 registered customers, split evenly between the telephone, the internet and interactive television. As expected, most of the interactive television customers did not previously bet on a regular basis. The interactive television betting service continues to register new customers at the rate of about 1,000 a week.

Exceptional provision

Following this acquisition, BSkyB will be making an exceptional provision of (pound)23 million in the current financial year to cover the costs of reorganisation within Sky Interactive. The provision will include BiB's costs associated with the migration of a number of interactive services to WML internet technology, termination of certain contracts and a reduction in headcount. In addition, in the quarter ended June 30, 2001 and prior to completion, BiB has incurred costs of (pound)17 million in respect of its commitment to close its central London headquarters and Vauxhall site, and the write down of the current platform.

The planned restructuring is expected to result in annualised cost savings of approximately (pound)20 million.

Regulation

The undertakings accepted by the Minister for Consumers and Corporate Affairs require that, where BSkyB supplies its premium movies and sports channels to third party distributors, it will provide a version of those channels without the interactive elements (a so-called 'clean feed'). BSkyB already provides a similar 'clean feed' under conditions set by the European Commission on the formation of the original BiB joint venture. All of the conditions originally imposed by the European Commission on the BiB joint venture have now fallen away.

Accounting treatment

The results of BiB will be consolidated within the financial results of BSkyB with effect from the date of completion. The quarter ending June 30, 2001 will therefore be the first in which BiB's results are consolidated in BSkyB's operating results.

In the quarter ending June 30, 2001, BiB's revenues will be included within BSkyB's interactive revenue line and BiB's operating costs will be included within BSkyB's operating cost line. In particular, BiB's subsidy costs, of approximately (pound)65 per set top box, will be included within BSkyB's marketing cost line. These results will be stated after consolidation adjustments for intercompany transactions between BiB and BSkyB. A pro forma profit and loss statement for BiB for the nine months to March 31, 2001, showing the adjustments which would be made if BSkyB had consolidated BiB from July 1, 2000, is included as Appendix 1.

Goodwill arising on the acquisition of an estimated (pound)300 million will be amortised over 7 years from completion.

Appendix 1

Pro Forma Results for BiB for nine months to March 31, 2001

A pro forma profit and loss statement for BiB for the nine months to March 31, 2001, showing the adjustments which would be made if BSkyB had consolidated BiB from July 1, 2000, is detailed below.

                 BiB results   Transition   Consolidation  As reported
                                provision     adjustments       within
                                                                 BSkyB
                    (pound)m     (pound)m        (pound)m     (pound)m
Revenues                55.5            -        (34.8)(1)        20.7
Operating costs       (103.5)           -         38.8 (3)       (64.7)

Operating profit /
 (loss) before
  set top box
   subsidies           (48.0)           -             4.0        (44.0)
Set top box subsidies (110.4)      35.8(2)              -        (74.6)

Operating profit /
 (loss) after
  set top box
   subsidies          (158.4)        35.8             4.0       (118.6)

      Notes

      (1) This represents the consolidation adjustment for the BiB
        subsidy recovery which BiB receives from BSkyB.

      (2) This represents the amount of the transition provision that
        would have been utilised if BiB had been accounted for as a
        subsidiary since July 1, 2000.

      (3) These represent consolidation adjustments for the intercompany
        services which BSkyB provides to BiB. These consist of access
        control charges from BSkyB (i.e. Sky Subscriber Services
        Limited ("SSSL")), subscriber management services provided by
        BSkyB (i.e. SSSL) and transponder capacity provided by BSkyB.

The results of BiB will be consolidated into BSkyB's results from the date of completion.

From completion, BiB's set top box subsidy costs, of approximately (pound)65 subsidy per set top box, will be included within BSkyB's marketing cost line for the first time.