BSkyB has warned investors that its operating profits would be cut by £15 million to £20 million this financial year if it is unable to reach an agreement with Virgin Media for the cable operator to carry its entertainment and news channels.

However, shares in the satellite broadcaster, which is 39.1 per cent owned by News Corporation, parent company of The Times, eased by just ½p to 564p as the City chose to believe that Sky would make up for the shortfall by gaining new subscribers.

The potential profits shortfall for the year to June 30 would amount to nearly 8 per cent on an annualised basis. Sky was expected to generate between £720 million and £800 million of operating profits this year before yesterday’s disclosure.

Both sides insisted that they were open to restarting negotiations in the carriage dispute, which threatens to see channels such as Sky One, Sky News and Sky Sports News removed from the cable network this week if no revision to the £60 million-a-year deal can be agreed.

However, there seemed to be little tangible sign of progress, with Virgin Media releasing data from Barb, the audience measurement body, to show that the viewing of Sky’s entertainment and news channels had fallen from a 5.4 per cent share of cable homes in 2003 to 4.4 per cent in 2006.

Jeremy Darroch, Sky’s chief financial officer, responded by saying: “With three days still to go before the deadline, we hope that Virgin Media will focus on getting a deal done rather than on their PR offensive.”

Neither side said there were any active negotiations going on. On Sunday Sky resumed airing promotions aimed exclusively at cable viewers and designed to encourage them to pressure Virgin Media to ensure that the channels stay on its network. It is a sign of how far relations between the two have deteriorated.

Virgin Media insiders claim that Sky wanted to double the price paid by the cable company for its channels — a figure rejected by the satellite broadcaster, which says it has made a series of offers, each one at a more generous price.

For Sky News, the impact of a failure to agree a deal with Virgin could be particularly severe, given that Sky also wants to withdraw Sky News, Sky Three and Sky Sports News from the existing Freeview standard, as part of its strategy to encourage viewers to migrate to a new, better-quality digital terrestrial format.

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