Tokyo, Dec 23: Japan's digital satellite broadcasting market, ripe for a shakeout ahead of competitive launches in 1998, saw a winnowing out process gain speed as Japan Sky Broadcasting Corp (JSkyB) and PerfecTV said they were considering a merger.

Analysts said a popular analogue satellite broadcasting service offered by Japanese national broadcaster NHK since 1989 was proving a formidable competitor for the powerful multi-channel digital TV technology.

A JSkyB spokesman said details of a merger had yet to be decided. However, he said the two firms hoped to reach a decision as early as possible and before the planned launch of JSkyB in April.

"The two firms have reached a basic agreement to start discussions on a possible merger as early as February," the spokesman said.

Sony, which has a stake in both firms, is likely to be the top shareholder.Analysts said the success of the analogue satellite technology had restricted growth of the digital satellite broadcasting market, which has boomed in the United States with five million subscribers over the past five years.

"The analogue satellite broadcasting service looms as the biggest competitor for digital TV operators," said Yasuaki Fujine, an analyst at Smith Barney International.

The analogue service, otherwise known as the BS service as it uses a large broadcasting satellite, has already captured 11 million households in Japan.It will switch to digital in 2000, opening the way for six newcomers, including terrestrial broadcasters, to launch high-quality channels in addition to the current three.JSkyB, partly owned by Rupert Murdoch's News Corp, and PerfecTV aim to offer more than 100-channels for specialised markets using digital compression technology. They are called CS operators as they use smaller communications satellites.

"JSkyB and PerfecTV need to have a substantial lead by teaming up before the digital BS service starts in 2000," Fujine said.

PerfecTV, owned by trading companies Itochu Corp, Sumitomo Corp, Mitsui & Co and Nissho Iwai Corp, has been on the air since autumn 1996. It had picked up a slower-than-expected 500,000 subscribers by the middle of December.Analysts say no CS satellite operators will be able to show profits unless they acquire at least 1.5 million subscribers.

Hughes group's DirecTV launched a 63-channel service on December 1.JSkyB, owned by News Corp, Sony Corp, Fuji TelevisionNetwork and Softbank Corp, will begin broadcasting 100 to 150 channels in April.

Some analysts say if the two companies were to merge, it would deal a severe blow to competitor DirecTV Japan Inc.

"It is possible DirecTV will join the JSkyB-PerfecTV consortium eventually to compete against BS services," said one analyst.

"The CS operators have found that the pie was too small for the three," said Tadashi Nishi, an analyst at Sakura Institute of Research.

He said CS operators would have a hard time acquiring more subscribers unless they succeeded in differentiating their programmes from those offered by BS operators, most of which will be offered free of charge.

Analysts also said the crowded market would make it very difficult for small programming suppliers to make profits.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.