KEY POINTS:
Hopes that Freeview can limit the growth of Sky have come to a crunch with TV3 negotiating a deal with Sky Television to show its high-definition channel.
Talks have the backdrop of a wider platform war between Rupert Murdoch-controlled Sky and Freeview that will decide the future of the New Zealand television industry.
Currently TV3 high-definition - offering new super clear images - is limited to Freeview but the number of high-definition shows is growing rapidly.
TV3 owner MediaWorks confirmed talks. The companies are deciding how much Sky will pay to include the TV3 high-definition channel on its platform once Sky is capable of the new technology around July.
Subscribers to Sky, which is already in 47 per cent of homes, will need a high-definition TV set to enjoy its dramatic effects. TV3 is insisting that its high-definition channel must be shown on the basic Sky package so it reaches the maximum number of viewers.
A premium service would increase subscriber revenue to Sky but it would not boost TV3 audiences or advertising revenue.
A deal makes sense. TV3 faces the costs of moving to digital television while advertising revenue is slowing.
Sky is trying to boost new subscribers to its pay TV platform and more free-to-air channels will help its dominance of the television sector.
MediaWorks spokesman Roger Beaumont said the talks were limited to the high-definition TV3 channel currently on Freeview.
There had been no discussion about whether MediaWorks' first stand-alone channel for Freeview - which has to be up and running by April next year - will be on Sky.
But neither is MediaWorks - owned by Australian private equity firm Ironbridge Capital - ruling it out.
Freeview channels are not restricted from joining Sky or any other platform and never have been.
The Government is subsidising Freeview as a new home free-to-air TV once the analogue signals are switched off and television goes digital. However, growth of Sky with free-to-air channels is likely to slow the growth of Freeview and that will delay the switch off of analogue TV signals.
TV3's talks with Sky have exposed the rift with Television New Zealand.
TVNZ is about to launch a high-definition version of TVOne in time for the Olympics coverage in August, with TV2 to follow soon after.
Like its other new channels TVNZ 6 and TVNZ 7 the state broadcaster is adamant its high-definition channels will be exclusive to Freeview.
TVNZ insists that Freeview has to offer exclusive content if it is going to encourage people to buy a set top box.
But unlike TVNZ, MediaWorks didn't get $78 million of taxpayer subsidies for digital channels and with the high-definition talks is keeping a foot in both camps.
The TV3 talks with Sky are at a sensitive point in the platform war.
Both Sky and Freeview are advertising heavily.
Sky is trying to maintain its dominance in New Zealand, while Freeview portrays itself as a free alternative and promotes its new niche channels.
MediaWorks has been among the biggest critics of Sky's dominance, especially since its purchase of Prime TV.
The purchase has raised alarm bells in the free-to-air sector.
Sky has become an aggressive competitor for rights to Hollywood TV shows and can subsidise its free-to-air channel Prime.
TVNZ recently struggled to hold on to rights to Disney programming after a concerted push by Sky and Prime.
Sky is delaying the decision to put Prime TV on to Freeview, saying it does not make economic sense.
Freeview acknowledges that delay is slowing the uptake of its service.
TV3's revenue is built around hit American shows sourced from Murdoch-controlled Fox television.
SKY v FREEVIEW
* Around 47 per cent of New Zealanders receive their television through subscriptions to Sky TV.
* From mid-year it will start offering high-definition channels through its new MySky 2 personal video recorder.
* Freeview, dominated by TVNZ, MediaWorks and Kordia, is in just a small percentage of homes through its set top box.
* TVNZ says Freeview will only attract new viewers if it has exclusive content.
* TVNZ 6 and TVNZ 7 are screened on Freeview but will not be screened on Sky.
* But MediaWorks is putting a foot in both camps, negotiating for its new Freeview high-definition version of TV3 to screen on Sky TV.
