Buying time

Publically BSkyB are making a great effort to keep ITV from following the BBC's example and going free-to-air, since if ITV were to do so this would enable the BBC to launch a Freesat service that would compete head on with Sky's proprietary hardware using cheaper generic hardware. If the BBC were to launch such a service, it would probably force both Channel 4 and Five to broadcast in the 'clear' (without encryption) at some stage, though both channels may have significant problems with rights issues especially relating to imported series.

However what may not be immediately apparent is that BSkyB still has a lot to gain if ITV were to broadcast in the 'clear' and the BBC launches a rival Freesat proposal. Such a decision wouldn't scupper Sky's own cheekily-titled "Freesat from Sky" (apart from perhaps a forced change of name) since that would also have an upgrade path to pay-TV which a BBC Freesat system is very unlikely to have in any form; Sky's business model is based on attracting people to premium services in the long term which already takes into account the existence of Freeview (and 'Freeview' can't be upgraded to Sky without changing or supplementing equipment).

Also bear in mind that a BBC promoted Freesat service would result in plenty of promotions on BBC channels extolling the virtues of satellite television; such promotional activity would also benefit Sky as a side effect and is something that money can't buy (and worth millions in its own right); that alone would significantly compensate for not receiving £17m (or less) a year from ITV. In the minds of most consumers satellite TV=Sky TV, so every mention of satellite television would help Sky to an extent as well.

Bearing all this in mind, it's now easy to see why BSkyB is standing firm on the issue of encryption and if ITV still has problems with intellectual property rights then they will have to continue to pay Sky a fee in order to continue broadcasting on the satellite platform. Therefore BSkyB still has the upper hand at this moment of time unless ITV can dispense with encryption altogether, but ITV has a lot to gain from not being in direct competition with BSkyB pay channels which would be the case for Freesat viewers (another good reason to break away from the BSkyB encryption system).

My guess is that ITV wanted more time to try and resolve the rights issues that would occur with the removal of encryption, as well as bargaining hard with Sky for the best possible deal if the intellectual property issues prove to be insurmountable, hence the two month extension. Although ITV1 in particular shows little that has been imported from other countries apart from films, there are still territorial sporting rights (such as Formula 1) and format rights to be resolved, but it's very likely that ITV will try and avoid a new deal with Sky unless it really has to.