As filed with the Securities and Exchange Commission on June 20, 2000.

Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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Sky Global Networks, Inc.
(Exact name of registrant as specified in its charter)

Delaware 4841 51-0387357
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)

1211 Avenue of the Americas
New York, New York 10036
(212) 852-7299
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

-------------

Arthur M. Siskind, Esq.
Senior Executive Vice President and Group General Counsel
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
(212) 852-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

-------------

Copies to:

Jeffrey W. Rubin, Esq. Vincent J. Pisano, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP Susan J. Sutherland, Esq.
551 Fifth Avenue Skadden, Arps, Slate, Meagher & Flom LLP
New York, New York 10176 Four Times Square
(212) 661-6500 New York, New York 10036
(212) 735-3000

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis under Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]

CALCULATION OF REGISTRATION FEE

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Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price (1) Registration Fee
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Class A Common Stock, par value $.01
per share.......................... $100,000,000 $26,400

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(1) Estimated solely for purposes of determining the registration fee under
Rule 457(o) under the Securities Act of 1933, as amended.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting under said Section 8(a), may determine.

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- -------------------------------------------------------------------------------

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The two
prospectuses are identical in all respects except for the front cover page, the
page entitled "The Offering" in the "Prospectus Summary" section, the section
entitled "Underwriting" and the back cover page. Pages included in the
International Prospectus and not in the U.S. Prospectus are marked "Alternate
Pages for International Prospectus."

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 20, 2000

PROSPECTUS

[LOGO]

Shares
Sky Global Networks, Inc.
Class A Common Stock

-----------

This is Sky Global Networks, Inc.'s initial public offering of its Class A
common stock. The U.S. underwriters are offering shares in the U.S. and
Canada and the international managers are offering shares outside the
U.S. and Canada. Following the offering, we will have two classes of authorized
common stock: Class A common stock and Class B common stock. The rights of
holders of Class A common stock and Class B common stock will be substantially
identical, except with respect to voting. Each share of Class A common stock
will have one vote and each share of Class B common stock will have ten votes
on all matters submitted to a vote of our stockholders. After the offering, The
News Corporation Limited will beneficially own stock representing approximately
% of our equity and % of our voting power. Accordingly, News Corporation
will be able to control the vote on substantially all matters submitted to a
vote of stockholders.

We expect the initial public offering price to be between $ and $
per share. Currently, no public market exists for the shares. After pricing the
offering, we expect that the shares will trade on the New York Stock Exchange
under the symbol "SGN".

Investing in the Class A common stock involves risks that are described in
the "Risk Factors" section beginning on page 10 of this prospectus.

-----------

Per Share Total
--------- -----

Public offering price................................ $ $
Underwriting discount................................ $ $
Proceeds, before expenses, to Sky Global Networks,
Inc. ............................................... $ $

The U.S. underwriters may also purchase up to an additional shares of
Class A common stock from Sky Global Networks, Inc. at the public offering
price, less the underwriting discount, within 30 days from the date of this
prospectus to cover over-allotments. The international managers may similarly
purchase up to an additional shares of Class A common stock from Sky
Global Networks, Inc.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

The shares of Class A common stock will be ready for delivery on or about
, 2000.

-----------

Joint Book-Running Managers

Goldman, Sachs & Co. Merrill Lynch & Co.

-----------

The date of this prospectus is , 2000.

[INSIDE FRONT COVER]

For investors outside the United States: No action has been or will be
taken in any jurisdiction by us or by any underwriter that would permit a
public offering of the Class A common stock or possession or distribution of
this prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this prospectus
comes are required by us and the underwriters to inform themselves about and to
observe any restrictions as to the offering of the Class A common stock and the
distribution of this prospectus.

Persons participating in the offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Class A common stock.
Such transactions may include stabilization, the purchase of the Class A common
stock to cover syndicate short positions and the imposition of penalty bids.
For a description of these activities, see "Underwriting."

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TABLE OF CONTENTS

Page
----

Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Forward-Looking Statements............................................... 17
Exchange Rate Information................................................ 17
Background of Sky Global................................................. 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Combined Financial Data......................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 41
Management............................................................... 73
Principal Stockholder and Stock Ownership................................ 77
Relationships Between Sky Global and News Corporation.................... 78
Description of Capital Stock............................................. 82
Shares Eligible for Future Sale.......................................... 84
U.S. Tax Considerations for Non-U.S. Holders............................. 85
Underwriting............................................................. 87
Legal Matters............................................................ 90
Experts.................................................................. 91
Where You Can Find More Information...................................... 92
Index to Financial Statements............................................ F-1

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

---------------

The News Corporation Limited is subject to the information requirements
of the Securities Exchange Act of 1934, and files reports and other information
with the Securities and Exchange Commission. The following companies in which
we have ownership interests are subject to the reporting and information
requirements of the Exchange Act and accordingly will continue to file reports
and other information with the Commission:

. British Sky Broadcasting Group plc;

. NDS Group plc;

. TV Guide, Inc.;

. Net Sat Servicos Ltda.; and

. Innova, S. de R.L. de C.V.

These reports and other information may be inspected and copied at the
locations set forth under "Where You Can Find More Information." In addition,
British Sky Broadcasting Group plc's ordinary shares and American Depositary
Shares, or "ADSs," are listed on the London Stock Exchange and the New York
Stock Exchange, respectively, under the symbol "BSY"; NDS' ADSs are traded on
both the Nasdaq National Market and on EASDAQ under the symbol "NNDS"; and TV
Guide's Class A common stock is traded on the Nasdaq National Market under the
symbol "TVGIA". TV Guide is a party to a merger agreement with Gemstar
International Group Limited that contemplates that TV Guide will become a
wholly-owned subsidiary of Gemstar. Gemstar's ordinary shares are traded on the
Nasdaq National Market under the symbol "GMST".

Certain information contained in this prospectus is derived from
information furnished to us by the companies in which we own equity interests,
or, where applicable, from filings with the Securities and Exchange Commission.

---------------

Unless otherwise indicated, all market data in this prospectus concerning
the number of television households, pay-TV subscribers, direct-to-home
subscribers, cable subscribers, wireless cable ("MMDS") subscribers and
terrestrial pay-TV subscribers in the markets where our satellite distribution
businesses operate represent the December 31, 1999 estimates of Kagan World
Media, Inc., which are based on its Latin American and Asia Pacific Cable/Pay
TV 2000 reports dated April 1999 and July 1999, respectively, and of Kagan
World Media, Ltd., which are based on its European Cable/Pay TV Databook dated
October 1999. While we believe that these estimates are reasonable, we cannot
assure you that they are accurate. Since the publication of the reports, the
market data for each of the markets in which Sky Global's platforms operate
have changed. Accordingly, in certain instances, it may not be appropriate to
compare current subscriber information against the estimated December 31, 1999
information.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this
prospectus. You should read carefully the entire prospectus, including the
combined financial statements and related notes, before making an investment
decision. Unless otherwise indicated, we assume in this prospectus that the
underwriters' options to purchase additional shares in the offering will not be
exercised.

Sky Global Networks, Inc.

Sky Global Networks, Inc. is the world's leading distributor of pay-TV,
offering entertainment and services via satellite to nearly 85 million
households through its various owned and affiliated distribution platforms. The
geographic footprint of these platforms covers Europe, India, Greater China,
other regions in Asia, the Middle East and Latin America. Our entertainment and
service offerings are delivered via satellite either directly to subscribers or
to cable operators or other third-party distributors for retransmission to
their subscribers. Our platforms provide subscribers high quality local and
international programming, featuring popular sports such as soccer, recent
movie releases and original programming.

Recent advances in digital technology enable our platforms to offer their
subscribers an increasing range of interactive services through their
televisions. Using their television remote controls, direct-to-home, or "DTH,"
subscribers to some of our platforms currently have access to a variety of
interactive services, such as home shopping through selected vendors, online
banking, enhanced television, e-mail, travel reservations, games, impulse pay-
per-view and subscriber account management. In addition, we anticipate that in
the future our platforms will offer broadband Internet access through
televisions, personal computers, mobile telephones and personal digital
assistants. We believe these Internet and enhanced television services will
accelerate subscriber growth, enhance subscriber loyalty and increase revenue
per subscriber.

Our platforms have all developed strong brand recognition and significant
market shares in their respective markets. Our regional brands, including Sky
in the U.K. and Latin America and STAR in Asia, are associated with high
quality entertainment, superior customer service and leading technologies. We
anticipate that our platforms will build on the strength of these brands to
continue to develop new service offerings and business initiatives.

We are also involved in the development of technologically advanced set-
top boxes and related hardware and software that will enable us to become a
one-stop source of entertainment, information and interactive services,
including access to the Internet. Through our subsidiary, NDS Group plc, we
provide conditional access security systems and develop the technical solutions
necessary to offer viewers applications such as enhanced television, targeted
advertising and personal video recording. In addition, our affiliate, TV Guide,
Inc., provides us with access to one of the world's leading interactive program
guides.

We believe we are uniquely positioned as a result of our existing
satellite distribution infrastructure, strong brands, market positions, high
quality programming, advanced technologies and large and geographically diverse
subscriber bases to continue to increase the number of subscribers, the
products and services offered to subscribers and the revenues generated by each
subscriber.

Our business consists of our interests in the following satellite
platforms and related technology businesses. We refer to these platforms in
this prospectus as "our platforms." In this prospectus, we also refer to the
brands and subscribers of these platforms as "our brands" and "our
subscribers." Our approximate ownership interests in these businesses are set
forth in the parentheticals below.

Europe:

. British Sky Broadcasting (BSkyB) (38%): one of the leading U.K. pay-TV
platforms, providing a broad array of programming directly to its own
DTH subscribers and indirectly to subscribers of cable, digital
terrestrial and other delivery platforms.

-- Premiere World: operated by KirchPayTV (BSkyB owns 24%), the
leading German language pay-TV service in Germany and Austria.

. Stream (42%): a leading Italian pay-TV service, operated through a
partnership with Telecom Italia. We have agreed, subject to regulatory
approval, to acquire an additional 8% of Stream.

Asia:

. STAR (100%): the leading pan-Asian television content and service
provider, focused on India and China and operating in 51 other
countries. STAR currently broadcasts its programming in seven
languages on its 27 channels.

. SKY PerfecTV! (10%): the leading multi-channel digital satellite
television broadcasting platform in Japan.

Latin America:

. Sky Brazil (36%): the leading DTH pay-TV service in Brazil, in
partnership with Globo Communicacoes e Participacoes S.A., or
"Globopar," and Liberty Media International, or "LMI."

. Sky Mexico (30%): the leading DTH pay-TV service in Mexico, in
partnership with Grupo Televisa, S.A., or "Televisa," and LMI.

. Sky Multi-Country Partners (30%): a joint venture with Globopar,
Televisa and LMI, which, together with local partners, is operating
DTH pay-TV services in Colombia and Chile and intends to launch a DTH
pay-TV service in Argentina.

Related Technology Businesses:

. NDS (80%): a provider of distribution technology and conditional
access systems to digital pay-TV broadcasters, including BSkyB, STAR,
Stream, our Latin American platforms and DirecTV. Conditional access
systems scramble programming content to prevent unauthorized viewing
and therefore are a necessary component of every pay-TV system. NDS
also provides broadcast control software and related services to pay-
TV and data broadcasters.

. TV Guide (44%): the leading print, electronic and interactive program
listings company. TV Guide has agreed, subject to regulatory approval,
to merge with Gemstar International Group Limited, a leading developer
of proprietary technologies and systems that simplify and enhance the
viewing and recording of video and television programming. Following
the merger, we will hold an approximate 21% interest in Gemstar, which
will be renamed TV Guide International, Inc.

Strategy

Our goal is to be the leading provider of high quality entertainment
programming and digital interactive multimedia services to customers throughout
the world. To achieve this goal, we are focused on the following strategies:

. offer customers the best local and international programming content
available;

. realize economies of scale across our platforms by using their global
reach and large subscriber bases to lower operating and investment
costs;

. build on the Sky and STAR brands and our relationship with News
Corporation and its subsidiaries, including Fox Entertainment Group,
Inc.;

. invest in the development of enabling technologies to expand the range
of services offered by our platforms; and

. offer interactive television services and Internet-based services to
increase our subscriber bases, promote customer loyalty and increase
per subscriber revenue.

Formation of Sky Global

Under a restructuring to be effected prior to the completion of the
offering, News Corporation and its subsidiaries will transfer their interests
in BSkyB, NDS, STAR, Stream, Net Sat (which operates Sky Brazil), Innova (which
operates Sky Mexico), Sky Multi-Country Partners and Japan Digital Broadcasting
Services, Inc. (which operates SKY PerfecTV!) to Sky Global, which currently
holds the TV Guide interest.

In the restructuring, News Corporation will combine substantially all of
its satellite distribution platforms and related technology businesses into Sky
Global. The consolidation of these related businesses into a stand-alone entity
is intended to enhance the market opportunities available to these businesses.
Sky Global will:

. benefit from a dedicated and experienced management team to provide
unified decision-making and strategic direction;

. provide a vehicle through which to negotiate strategic alliances with
technology and other new media companies;

. facilitate access to capital markets and provide a publicly traded
security for use as consideration in possible future acquisitions; and

. enhance our ability to develop and acquire programming content to be
used across our distribution platforms.

Risk Factors

See "Risk Factors" for a discussion of risks that should be considered in
connection with an investment in the shares of Class A common stock.

Organization of Sky Global

The following chart reflects our organization on an operational basis,
our platforms' principal areas of operations and our ownership interests in
these operations.

-------------------------
Sky Global Networks, Inc.
-------------------------
|
-----------------------------------------
| |
---------------------- ------------------
Satellite Distribution Related Technology
---------------------- ------------------
| | |
| 80%| |44%(1)
| ------- --------
| NDS TV Guide
| ------- --------
|
--------------------------------------------------
| | |
------ ---- -------------
Europe Asia Latin America
------ ---- -------------
| | |
---------- --------------- -----------------------
38% | |42%(2) 100%| |10% 36%| 30%| | 30%
- --------- ------- --------------- --------- ---------- ---------- ----------
BSkyB Stream STAR SKY Sky Brazil Sky Mexico Sky Multi-
(U.K. and (Italy) (India, Greater PerfecTV! ---------- ---------- Country
Ireland) ------- China and other (Japan) Partners
- --------- Asian markets) --------- ----------
| --------------- |
| | |
| --------------- ------------------------
24% | 45%(3)| |50% 100%| 68%| |100%(4)
- ------------ ------------- ------ ------------ --------- -------------
KirchPayTV Phoenix ESPN Sky Colombia Sky Chile Sky Argentina
(Germany joint venture STAR ------------ --------- -------------
and Austria) ------------- Sports
- ------------ ------
|
|
|
40% |
- -------------
Teleclub AG
(Switzerland)
- -------------

________________
(1) We will own approximately 21% of TV Guide International upon completion of
the TV Guide merger with Gemstar.
(2) We have agreed, subject to regulatory approval, to acquire an additional 8%
of Stream.
(3) STAR will own 38% of the Phoenix joint venture upon completion of its
initial public offering.
(4) The Sky Argentina DTH pay-TV service is expected to launch later this year.

The Offering

Of the shares of Class A common stock being offered by us,
shares are being offered for sale initially in the United States and
Canada by the U.S. underwriters and shares are concurrently being
offered for sale initially outside the United States and Canada by the
international managers.

Class A common stock offered by us(/1/):
U.S. offering............................ shares
International offering................... shares
Total................................ shares
Common Stock outstanding after the offering:
Class A common stock(/1/)................ shares
Class B common stock(/2/)................ shares
Total................................ shares
Over-allotment options...................... shares
Voting rights:
Class A common stock..................... One vote per share.
Class B common stock..................... Ten votes per share.
Dividend policy............................. We do not currently intend to pay
dividends in the foreseeable future.
Use of proceeds............................. We currently intend to use the net
proceeds from the offering to repay
indebtedness to a subsidiary of News
Corporation, to support the growth
of our platforms and for general
corporate purposes.
Listing..................................... We will apply to list the Class A
common stock on the New York Stock
Exchange under the symbol "SGN".

- --------
(1) Does not include up to an aggregate shares of Class A common stock
subject to over-allotment options granted by us to the underwriters (
shares of Class A common stock to the U.S. underwriters and shares of
Class A common stock to the international managers).
(2) All of the shares of Class B common stock are beneficially owned by News
Corporation and are convertible automatically upon transfer to persons who
are not affiliates of News Corporation or at any time at News Corporation's
option into shares of Class A common stock on a share-for-share basis.

Summary Combined Financial Data

The summary historical combined financial data presented below for the
years ended June 30, 1997, 1998 and 1999 and for the nine months ended March
31, 1999 and 2000 have been derived from, and are qualified by reference to,
our combined financial statements included elsewhere in this prospectus. The
summary historical combined financial data presented below for the years ended
June 30, 1995 and 1996 have been derived from our unaudited combined financial
statements, which are not included in this prospectus. The summary pro forma as
adjusted combined financial data presented below have been derived from the
unaudited pro forma combined financial statements included elsewhere in this
prospectus. The pro forma as adjusted combined financial data give effect to
the restructuring, the offering and the application of the net proceeds and
other transactions described in the unaudited pro forma combined financial
statements, as if such transactions, for purposes of the pro forma as adjusted
combined statement of operations data, occurred on the first day of the periods
presented and, for purposes of the pro forma as adjusted combined balance sheet
data, occurred on March 31, 2000. The summary combined financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements and
the related notes and the other financial information included elsewhere in
this prospectus.

The historical and pro forma combined financial information may not be
indicative of our future performance and does not necessarily reflect what our
financial position and results of operations would have been had we operated as
a separate, stand-alone entity during the periods presented.

Nine months
Year ended June 30, ended March 31,
---------------------------------------------- -------------------------
Pro Forma Pro Forma
As Adjusted As Adjusted
1995 1996 1997 1998 1999 1999 1999 2000 2000
----- ----- ----- ----- ----- ----------- ----- ----- -----------
(unaudited) (unaudited)
(Dollars in Millions, except per share data)

Statement of Operations
Data:
Revenues:
Satellite
Distribution......... $ 71 $ 103 $ 84 $ 86 $ 111 $ $ 82 $ 107 $
Distribution
Technology and
Conditional Access... 29 115 148 152 222 128 188
Magazine Publishing... 628 636 650 617 460 460 --
----- ----- ----- ----- ----- ----- ----- ----- -----
728 854 882 855 793 670 295
Operating income
(loss)................. 22 (61) (45) (89) (156) (68) (75)
Equity in earnings
(losses) of
affiliates............. 64 88 116 (41) (185) (126) (368)
Intercompany interest
expense, net........... (249) (266) (285) (276) (212) (151) (108)
Minority interests...... 23 -- 1 1 6 3 7
Other income (/1/) ..... 632 -- -- 3 551 551 322
(Provision) benefit for
income taxes........... (121) 10 (12) 13 18 10 40
Income (loss) from
continuing operations.. 371 (229) (225) (389) 22 219 (182)
Net income (loss)....... $ 371 $(233) $(226) $(386) $ 19 $ $ 214 $(174) $
Pro forma earnings
(loss) per share:
Basic and diluted
earnings (loss) from
continuing operations
per share..............
----- ----- ----- ----- ----- ----- ----- ----- -----
Basic and diluted
earnings (loss) per
share..................
----- ----- ----- ----- ----- ----- ----- ----- -----
Basic and diluted
weighted average number
of common equivalent
shares outstanding (in
millions)..............
----- ----- ----- ----- ----- ----- ----- ----- -----

June 30, March 31, 2000
------------------------------------ ------------------
Pro Forma
1995 1996 1997 1998 1999 Actual As Adjusted
------ ------ ------ ------ ------ ------ -----------
(unaudited)
(Dollars in Millions)

Balance Sheet Data:
Cash and cash
equivalents............ $ 17 $ 19 $ 26 $ 34 $ 31 $ 92 $
Total assets............ 4,067 4,235 4,432 4,456 3,297 3,481
Obligation associated
with News America
Incorporated's
exchangeable preferred
securities and
warrants............... -- -- -- -- -- --
Due to News Corporation
and subsidiaries....... 2,581 3,702 2,667 2,876 2,528 2,794
Shareholders' equity
(deficit).............. (280) (924) 270 35 9 67

- --------
(1) Other income of $632 million for the year ended June 30, 1995 consists of a
gain of (Pounds)400 million recognized as a result of BSkyB's initial
public offering. See Notes 3 and 17 of our audited combined financial
statements for information on gains resulting from the sale of NAP during
fiscal 1999 and ATL during the nine months ended March 31, 2000.

RISK FACTORS

Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in this prospectus, in
connection with an investment in the shares of Class A common stock.

The success of the interactive services and other new products that our
platforms and related technology businesses plan to offer is dependent on
consumer demand.

We intend to invest in the development of interactive services and
Internet related businesses to be delivered through our platforms. The success
of these interactive services and Internet related businesses will depend on
consumer demand and perceived value for the new services and on our
subscribers' willingness to access these services through our technology. In
addition, new products and services developed by our related technology
businesses or otherwise developed or offered by our platforms may not be
accepted by the market. We cannot predict the degree to which consumers will
subscribe to these services or the pace of their acceptance. If the market for
our interactive services and Internet related businesses does not sufficiently
develop, it could have a material adverse impact on our business and operating
results.

Technology used in our businesses could become obsolete.

The satellite television, cable and terrestrial broadcast industries are
in a rapid and continuing state of change as new technologies develop.
Similarly, the markets for conditional access systems, broadcast control
software and interactive television applications are characterized by rapid
technological change, evolving industry standards and frequent product
enhancements. Many digital broadcasters are seeking more sophisticated software
that will afford them greater flexibility in delivering content such as films,
sports events, Internet Web pages and other information to viewers, and will
enable them to offer interactive services, video-on-demand and pay-per-view
events to their subscribers. Our continued success will depend, in part, upon
our ability to develop and market products and services that respond to
technological changes and evolving industry standards in a timely and cost-
effective manner. We cannot assure you that we and our suppliers will be able
to keep pace with competing technological developments.

If we fail to develop and introduce products and services that are
compatible with industry standards, satisfy customer requirements or compete
effectively with products and services offered by our competitors, our
business, operating results and financial condition could be materially and
adversely affected. Furthermore, our technological strategy envisions the
offering of multimedia to our subscribers, including Internet access. If an
alternate means of access or a competitor's technology becomes commonly
accepted as the standard, or if a competitor is able to offer substantially
similar services at a lesser cost or with superior features, our platforms
would be at a significant disadvantage.

Competition could reduce the market share of our businesses and harm their
financial performance.

Competitors to our pay-TV businesses comprise a broad range of companies
engaged in communications, entertainment and services, including satellite,
cable and digital terrestrial television distributors, television networks,
telecommunications providers and home video products companies, as well as
companies developing new technologies and other suppliers of news, information
and entertainment. Competition from these companies has increased over the past
several years and we expect the industry to undergo significant changes,
including continued consolidation in the cable and broadband markets, the
growth of digital cable systems and the expansion of digital broadcasting. In
addition, the expansion of our platforms to include interactive applications
will bring them into competition with new providers. Other providers may
deliver competing interactive services to televisions, personal computers or
wireless devices. We cannot assure you that our businesses will be able to
compete successfully against current and prospective providers of competing
services.

Our NDS subsidiary is also subject to intense competition. NDS competes
to acquire new pay-TV providers as clients, as well as pay-TV providers who are
upgrading their services from analog to digital transmission. Many of NDS'
current and potential competitors have significant financial, product
development and marketing resources. While NDS believes most purchases of
conditional access systems are not based solely on cost, to the extent that
NDS' competitors seek to compete on the basis of price, such competition may
cause NDS to lose market share and may result in reduced profit margins. It may
also hinder NDS' ability to enter into and successfully develop its business in
emerging areas, such as data broadcasting and interactive television services
that enable the viewer to purchase goods and services using their television
and remote control.

Our platforms require substantial capital.

Historically, the operation and expansion of our platforms, including the
installation and upgrade of digital distribution hardware and the marketing and
distribution of the platforms' entertainment and interactive services, have
required substantial capital and, as a result, several of our platforms have
experienced operating losses. We currently estimate that our share of the
capital contributions to our platforms for capital expenditures and operating
losses will continue to be substantial in the future. We expect to finance
these expenditures and operating losses out of the proceeds of the offering,
from internally generated cash flow and from debt and equity financings,
including short-term borrowings from News Corporation.

We do not control the operations of many of our platforms and other businesses.

With the exception of NDS and STAR, we have minority shareholdings in our
platforms and other businesses. Our degree of influence varies with each of
these entities. Our current level of ownership of BSkyB gives us significant
influence in the management of BSkyB, including the right to appoint five
directors to BSkyB's board. By virtue of our owning more than 30% of BSkyB, we
are deemed to be the "controlling shareholder" of BSkyB for the purposes of the
U.K. Listing Rules applicable to companies listed on the London Stock Exchange.
In accordance with these Rules, BSkyB's Articles of Association contain certain
provisions that enable it to act independently of its controlling shareholder.
Our interests in Stream, SKY PerfecTV!, our platforms in Latin America and
BSkyB's interest in KirchPayTV are held in direct or indirect partnership with
unaffiliated third parties. Additionally, we hold a minority interest in TV
Guide. Although these arrangements generally provide us with an ability to
exercise significant negative control, we do not have the ability to
unilaterally control the day-to-day operations of these businesses, or to
unilaterally implement the strategies and financial decisions that we favor.
For example, we may not be able to establish a common technology among our
platforms. Further, we may not have the right to freely transfer our interests
in these businesses or to cause these companies to pay dividends or to make
distributions.

Our platforms depend on programming from third parties.

Our platforms enter into agreements with third parties to obtain
substantially all of their programming services. These agreements expire at
various times and are subject to various cancellation and renewal provisions.
We cannot assure you that our platforms will be able to renew these agreements
or that suitable substitute programming will be obtained if these agreements
are not renewed. In particular, our platforms have valuable sports and movie
programming rights. As these agreements expire, our platforms will likely seek
to renew them. In any renegotiation, however, third parties may outbid our
platforms, or our platforms may obtain new agreements on less favorable terms.
If our platforms fail to retain their rights, the loss of rights could
negatively impact the extent of the sports and movie coverage our platforms
offer and affect their ability to compete successfully. If the renewal costs
for this programming significantly exceed the current contract costs, our
platforms' operating results may be adversely affected.

Our financial performance depends on acquiring and maintaining subscribers.

The ability of our platforms to grow their subscriber bases depends upon
their ability to retain existing customers and to attract new ones. If either
the subscriber turnover rate of our platforms or their cost to acquire new
subscribers were to increase materially, the financial condition and results of
operations of our platforms could be adversely affected. We cannot assure you
that our platforms' subscriber turnover rate or acquisition costs will not
increase at our platforms in the future.

Similarly, a significant portion of NDS' revenues is dependent upon the
number of subscribers its customers have. In particular, fees derived from NDS'
sales of smart cards to its customers and from ongoing support and maintenance
services are paid by its customers based upon the number of their subscribers
and third-party manufacturers which pay royalties for each set-top box
incorporating NDS' technology. Because a majority of the existing large digital
satellite broadcasters have already entered into arrangements relating to
conditional access software and services, and few new large systems are
contemplated, NDS' ability to grow through the acquisition of new digital
satellite system customers is limited. As a result, if the number of
subscribers on NDS' customers' systems does not increase or if the number of
smart cards required by its customers' systems decreases substantially, NDS
will be unlikely to be able to generate or sustain substantial revenue growth
and its operating results will be seriously affected.

We depend on satellites for the operation of our satellite distribution
business. Satellites are subject to risks of failure and other problems beyond
our control.

Our platforms lease from unaffiliated third parties the satellite
transponders used to distribute their services. Satellites are subject to a
number of risks beyond our platforms' control, including:

. manufacturing defects and damage in orbit caused by asteroids, space
debris or electrostatic storms, which may temporarily or permanently
interfere with the proper operation of the satellite, its
transponders or other components;

. premature loss of fuel, battery charge capacity, solar array capacity
or other energy sources, which may result in reduced satellite
capacity or performance or loss of a satellite prior to the provision
of acceptable replacement capacity; and

. localized cases of microwave terrestrial interference, which may
prevent affected subscribers from receiving a high quality signal
from one or more transponders in use.

In addition, our platforms' services are transmitted to the satellites
from uplink facilities, which are also subject to a number of risks beyond our
platforms' control, including:

. acts of nature, such as severe weather storms, earthquakes and
floods, which may interfere with the continuous signal transmission
from these facilities either in part or in whole until the facility
can be repaired; and

. regulation by government agencies that control the authorization to
transmit signals to the satellites, which may result in loss of
transmission upon direction by the government agency until
transmission authorization is obtained.

We cannot assure you that any back-up capacity that our platforms may
have will be adequate or continue to be available in the future. A disruption
of the transmissions of any of our platforms for any reason could have a
material adverse effect on the business of that platform, depending upon the
number of transponders affected and the duration of the disruption. For a more
detailed discussion about the transponders leased by our platforms, see
"Business--Satellites and Uplink Facilities."

Programming signals may be pirated, which could cause our businesses to lose
subscribers and revenue.

Each of our platforms, in common with all pay-TV providers, faces the
risk that its programming signals will be obtained by unauthorized users.
Consequently, many of our programming signals are encrypted to prevent
unauthorized viewing. To deliver their services, most of our platforms provide
their DTH subscribers with a smart card to allow the decryption of scrambled
signals according to the subscriber's service selection. Unauthorized viewing
and use of content may be accomplished by counterfeiting or otherwise thwarting
the security features of the smart card. We cannot assure you that our anti-
piracy efforts will be effective. In addition, although we control the
encryption of our signal when transmitted directly to our subscribers and to
cable headends or other third-party distributors, we do not control the
encryption of the signal when it is retransmitted by cable and other third-
party operators to their subscribers. It is therefore possible that
unauthorized users may gain access to our programming and services. If our
platforms or third-party operators that retransmit our signals cannot promptly
respond to instances of signal theft, our platforms' revenues and ability to
contract for video and audio services provided by programmers could be
adversely affected.

In common with all providers of conditional access systems, NDS faces the
risk that its systems to protect broadcasters and content providers from signal
theft may be compromised. An important component of NDS' conditional access
systems is the smart cards provided by NDS. A significant increase in the
incidence of signal theft could require the accelerated replacement of a
broadcaster's smart cards. In those cases where NDS has accepted specific
responsibilities for maintaining the security of a broadcaster's conditional
access system, this accelerated replacement could impose significant costs on
NDS. To the extent that signal theft may result in the cessation of all or some
portion of the per subscriber fees paid to NDS by a broadcaster while the
security breach is being remedied or in the termination by the broadcaster of
its agreement with NDS if the breach is not satisfactorily remedied, the
resultant loss of revenues could have a material adverse effect on NDS'
business, operating results and financial condition. A significant increase in
the level of signal theft, whether or not resulting from a failure of NDS'
conditional access systems, could also injure the reputation of NDS'
conditional access systems among its current and potential customers, also
adversely impacting NDS' business.

Our operations are subject to regulation that affects how we conduct our
business.

Our operations are subject to broadcasting, telecommunications,
competition and other regulation in the many jurisdictions in which we operate.
Broadcasting regulation includes rules relating to licensing, program quotas,
the distribution of foreign satellite channels directly to viewers' homes,
limitations on satellite dish ownership, ownership of media companies, transfer
of control, maximum audience share, the nature and content of programming and
the supply of digital conditional access and access control services. Our
business or operating results may be materially and adversely affected if it
were determined that our operations violate or are inconsistent with existing
regulatory requirements. In addition, the amendment of existing laws or
regulations, or the adoption of new laws or regulations, could have a material
adverse effect on our business.

BSkyB, Stream and KirchPayTV are subject to competition (antitrust)
regulation, both in the European Community and in their respective home
countries. Under EC competition law, parties to anticompetitive agreements and
parties who engage in anticompetitive behavior are subject to substantial
monetary fines. In addition, any such anticompetitive agreements will be void
in whole or in part, unless they are specifically exempted by the EC
Commission, and anticompetitive conduct may be prohibited. In addition, in
connection with the formation of British Interactive Broadcasting, or "BiB,"
and acquisition of BSkyB's interest in KirchPayTV, BSkyB and KirchPayTV agreed
with the EC Commission to abide by a series of undertakings that dictate the
manner in which the parties conduct their business in the digital television
market.

Currently, laws in China prohibit the distribution of foreign satellite
channels, except to certain hotels, businesses, embassy compounds and selected
institutions. Laws in India currently prohibit the distribution of

foreign satellite channels directly to viewers' homes through Ku-band, a form
of transmission used by STAR. In addition, several of the other markets served
by STAR regulate the type and/or size of satellite dishes that may be owned.
These laws therefore restrict the growth of STAR's DTH business in these
markets.

Our Internet related businesses are expected to grow in the future. To
date, our Internet related businesses have not been materially restricted by
regulation. However, new laws may be adopted covering such issues as user
privacy, pricing controls, copyright and trademark infringement and other
claims based on the nature and content of Internet materials.

A more detailed summary of the material laws and regulations affecting
our business is set forth under "Business--Regulation."

Political and economic risks associated with our international businesses could
harm our financial condition.

Our businesses operate and have customers located throughout the world.
Inherent risks of doing business in international markets include, among other
risks, changes in regulatory requirements, the economic environment, export
restrictions, exchange controls, tariffs and other trade barriers and longer
payment cycles. We may incur substantial expense as a result of the imposition
of new restrictions or changes in the existing legal and regulatory
environments in the regions where we do business.

Fluctuations in foreign exchange rates could harm our financial condition.

A risk inherent in our international operations is the exposure to
fluctuations in currency exchange rates. While substantially all of our
platforms' revenues are earned in local currencies, a significant portion of
the platforms' expenses, including programming acquisition costs and expenses
associated with set-top box agreements and transponder agreements, are
denominated in U.S. dollars. As a result, our platforms are exposed to exchange
rate fluctuations. With the exception of BSkyB and KirchPayTV, our platforms do
not currently engage in hedging transactions in respect of such currency
fluctuations, and such fluctuations may have a material adverse effect on a
platform's business, operating results and financial condition.

The results of our related technology businesses could decline if these
businesses fail to adequately protect their intellectual property rights or
infringe on the intellectual property rights of others.

NDS and TV Guide rely primarily on a combination of patent laws,
trademark laws, copyright laws, trade secrets, confidentiality procedures and
contractual provisions to protect their intellectual property rights.
Notwithstanding these measures, they may not, and the third-party owners of the
intellectual property rights they license may not, be able to detect
unauthorized use of their intellectual property rights. If one or more of their
products or services were to infringe on patents held by others, NDS or TV
Guide may be required to stop developing or marketing the products or services
or obtain licenses to develop and market the services from the holders of the
patents or to redesign the products or services in such a way as to avoid
infringing the patent claims. The above factors could have a material adverse
effect on our business, operating results and financial condition.

NDS' business could be harmed if a defect in NDS' software or technology
interferes with or causes any failure in our customers' systems.

NDS' software and technology are integrated into the products and
services of its customers. Accordingly, a defect, error or performance problem
with NDS' software or technology could interfere with or cause the failure of a
critical component of the digital satellite, digital cable and digital
terrestrial television or Internet service systems of one or more customers for
a period of time. Although NDS has not experienced any such interference or
failure in the past, any future problem could cause severe customer service and
public

relations problems for NDS' customers and could in turn damage NDS'
relationship with its customers. Any claim brought against NDS could be
expensive to defend and require the expenditure of a significant amount of
resources, regardless of whether NDS prevails.

We are controlled by one principal stockholder.

News Corporation will beneficially own approximately % of our total
issued and outstanding common stock after the closing of the offering. Because
News Corporation will beneficially own all outstanding shares of our Class B
common stock having ten votes per share, it will control approximately % of
our voting power after the offering. As a result, News Corporation will be able
to control the vote on substantially all matters submitted to a vote of our
shareholders, including the election of our entire board of directors. In
addition, seven of our directors following the offering will be employed by
News Corporation or other entities in which News Corporation has an interest.
An aggregate of approximately 30% of the ordinary shares of News Corporation
are owned by (1) K. Rupert Murdoch; (2) Cruden Investments Pty. Limited, a
private Australian investment company owned by Mr. Murdoch, members of his
family and various corporations and trusts, the beneficiaries of which include
Mr. Murdoch, members of his family and certain charities; and (3) corporations
which are controlled by trustees of settlements and trusts set up for the
benefit of the Murdoch family, certain charities and other persons. By virtue
of shares of News Corporation owned by Mr. Murdoch and certain corporations,
and Mr. Murdoch's positions as chairman and chief executive of News
Corporation, Mr. Murdoch may be deemed to control the operations of News
Corporation and Sky Global.

We have entered into a series of intercompany service and borrowing
arrangements with News Corporation. These arrangements provide that News
Corporation and its affiliates will be compensated on a fair market value basis
for the services they provide us. Because News Corporation beneficially owns
all of our Class B common stock, these arrangements may not be the result of
arm's-length negotiations. Although we believe that such arrangements are no
less favorable to us overall than those that we could obtain from unaffiliated
third parties, we cannot assure you that this is the case.

Immediately following the closing of the offering and the application of
net proceeds, we will owe approximately $ to News Corporation or its
subsidiaries, or approximately $ if the underwriters exercise in full
their options to purchase additional shares of Class A common stock.

Our stock price may be volatile because our shares of our Class A common stock
have not been publicly traded before the offering.

Prior to the offering, you could not buy or sell shares of our Class A
common stock publicly. Accordingly, we cannot assure you that an active public
market for our shares of Class A common stock will develop or be sustained
after the offering. A number of factors could cause the market price of our
shares of Class A common stock to fluctuate significantly from the price paid
by investors in the offering. These factors include, but are not limited to:

. variations in our quarterly operating results;

. announcements by us or our competitors of significant contracts, new
products or services, acquisitions, joint ventures or significant
capital commitments;

. financial estimates by securities analysts;

. our sales of Class A common stock or other securities in the future;

. changes in the market valuations of the publicly traded securities of
our affiliates and subsidiaries, including BSkyB, NDS and TV Guide,
as well as our obligations with respect to outstanding warrants
relating to BSkyB shares;

. changes in market valuations of pay-TV operators, conditional access
software companies and technology companies generally; and

. fluctuations in stock market prices and volumes.

We do not anticipate paying dividends.

We do not anticipate paying dividends on shares of our common stock in
the foreseeable future. The payment of any future dividends will be determined
by our board of directors in light of the conditions then existing, including
our financial condition and requirements, future prospects, business conditions
and other factors deemed relevant by our board.

The value of your investment will be diluted upon the completion of the
offering.

The initial public offering price of our Class A common stock is
substantially higher than the net tangible book value per share of the
outstanding Class A common stock will be after the offering. Based on the
estimated initial offering price of $ per share, the midpoint of the range
on the cover of this prospectus, purchasers of Class A common stock offered by
this prospectus will experience an immediate and substantial dilution in net
tangible book value of $ per share purchased, or $ if the underwriters
exercise in full their options to purchase additional shares. To the extent
outstanding options to purchase shares of Class A common stock are exercised,
you will incur further dilution.

The sale of substantial amounts of our Class A common stock could adversely
affect its market price.

Sales of substantial amounts of our Class A common stock in the public
market after the completion of the offering, or the perception that such sales
could occur, could adversely affect the price of our Class A common stock and
could impair our ability in the future to raise capital through an offering of
equity securities, which in turn could adversely affect our business or
operating results.

After the completion of the offering, we will have shares of
Class A common stock outstanding. In addition, we will have outstanding
shares of Class B common stock, all of which will be beneficially owned by News
Corporation and convertible into Class A common stock on a share-for-share
basis at the election of the holder or upon transfer to persons who are not
affiliates of News Corporation. Substantially all of the shares of Class A
common stock outstanding following the offering will be freely tradeable,
except for any shares held at any time by any of our affiliates. We and News
Corporation have agreed, subject to certain exceptions, not to sell or transfer
any of our common stock for a period of days from the date of this
prospectus without the prior written consent of Goldman, Sachs & Co. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated. Subject to such
restrictions and applicable law, News Corporation will be free to sell any and
all of the shares of our Class B common stock that it beneficially owns, which
would be automatically converted into shares of Class A common stock upon sale.
We cannot predict what effect, if any, market sales of shares held by News
Corporation or any of our other shareholders or the availability of these
shares for future sale will have on the market price of the Class A common
stock. For a more detailed description of the restrictions on selling shares of
our common stock after the offering, see "Shares Eligible for Future Sale."

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. We use words like
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify these forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and our platforms, including, but not
limited to, the following:

. the timing and results of our technological initiatives, including
the introduction of interactive services and other new products;

. changing technology and our businesses' ability to adapt
successfully;

. competition to our businesses from current providers of competing
pay-TV services and conditional access systems, as well as providers
of interactive applications;

. the ability of our platforms to obtain exclusive rights to movies,
sports events and other programming content;

. our platforms' ability to acquire and maintain subscribers;

. regulatory developments;

. worldwide economic and business conditions;

. our exposure to exchange rate fluctuations; and

. changes in our business strategy or development plans.

In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this prospectus might not occur. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information or future events.

EXCHANGE RATE INFORMATION

Selected amounts in this prospectus are presented in currencies of the
local markets. For the convenience of the reader, the following foreign
currencies have been translated to U.S. dollars at the noon buying rates for
such currencies on June 15, 2000 in the City of New York as certified by the
Federal Reserve Bank of New York for customs purposes. Equivalents are
expressed in foreign currency unit per U.S. dollar, except for British Pounds
Sterling, which are expressed in U.S. dollars per British Pound Sterling.

Currency U.S. Dollar Equivalent
-------- ----------------------

British Pound Sterling ((Pounds))................. 1.51
Italian Lira (L).................................. 2,031.76
Brazilian Real.................................... 1.81
Mexican Peso...................................... 9.85
Japanese Yen ((Yen)).............................. 106.52
German Deutschmark (DM)........................... 2.05
Hong Kong Dollar (HK$)............................ 7.79

BACKGROUND OF SKY GLOBAL

We were incorporated in Delaware in 1998. Under a restructuring to be
effected prior to the completion of the offering, News Corporation and its
subsidiaries will transfer, through a series of transactions, their interests
in BSkyB, NDS, STAR, Stream, Net Sat (which operates Sky Brazil), Innova (which
operates Sky Mexico), Sky Multi-Country Partners and Japan Digital Broadcasting
Services, Inc. (which operates SKY PerfecTV!) to Sky Global, which currently
holds the TV Guide interest. Under a recapitalization to be effected prior to
the completion of the offering, we will authorize two new classes of common
stock, Class A common stock and Class B common stock. Prior to that time, all
of our issued and outstanding common stock will continue to be beneficially
owned by News Corporation. This prospectus assumes that the restructuring and
recapitalization have been effected.

After the offering, News Corporation will beneficially own
shares of Class B common stock, representing in the aggregate % of our
equity and % of our voting power. Accordingly, News Corporation will be able
to control the vote on substantially all matters submitted to a vote of our
stockholders, including the election of our entire board of directors.

Our offices are located at 1211 Avenue of the Americas, New York, New
York 10036 and our telephone number is (212) 852-7299.

USE OF PROCEEDS

The net proceeds to us from the sale of Class A common stock in the
offering, after deducting the underwriting discount and estimated offering
expenses payable by us, are estimated to be approximately $ , assuming an
initial public offering price of $ per share, which represents the mid-
point of the range set forth on the cover of this prospectus. We intend to use
the net proceeds from the offering to repay indebtedness to a subsidiary of
News Corporation, to support the growth of our platforms and for general
corporate purposes.

DIVIDEND POLICY

We do not anticipate paying any dividends in the foreseeable future. We
currently intend to retain any future earnings for use in our business. The
payment of any future dividends will be determined by our board of directors in
light of the conditions then existing, including our financial condition and
requirements, future prospects, restrictions in financing agreements, business
conditions and other factors deemed relevant by our board.

CAPITALIZATION

The following table sets forth (1) our actual capitalization as of March
31, 2000; (2) our pro forma capitalization to give effect to (a) our
restructuring and (b) the transactions described under "Unaudited Pro Forma
Combined Financial Statements"; and (3) our pro forma as adjusted
capitalization, which gives effect to (a) our restructuring, (b) the
transactions described under "Unaudited Pro Forma Combined Financial
Statements" and (c) the issuance of the intercompany notes, the offering and
the application of the net proceeds. This table should be read in conjunction
with the historical and unaudited pro forma combined financial information we
include elsewhere in this prospectus.

At March 31, 2000
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
---------- ------ -----------
(Dollars in Millions)

Debt:
Due to News Corporation and
subsidiaries............................ $ 2,794 $ 106 $
Obligation associated with News America's
exchangeable preferred securities and
warrants................................ -- 2,415
---------- ------ -----
Total debt............................. 2,794 2,521
---------- ------ -----
Shareholders' equity:
Common Stock............................. 66 66
Class A common stock, $.01 par value per
share; shares authorized; no,
and shares issued and
outstanding.............................. --
Class B common stock, $.01 par value per
share; shares authorized; no,
and shares issued and
outstanding.............................. --
Paid-in capital.......................... 2,717 2,717
Accumulated deficit...................... (2,681) (2,524)
Accumulated other comprehensive loss..... (35) (35)
---------- ------ -----
Total shareholders' equity............. 67 224
---------- ------ -----
Total capitalization....................... $ 2,861 $2,745 $
========== ====== =====

DILUTION

On a pro forma as adjusted basis after giving effect to the transactions
described under "Unaudited Pro Forma Combined Financial Statements," our pro
forma net tangible book value as of March 31, 2000, was $ million, or $ per
share of common stock. Pro forma net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding. After giving effect to the sale of shares of Class A common
stock offered by this prospectus at an assumed initial public offering price of
$ per share and receipt of the estimated net proceeds from the sale, our pro
forma as adjusted net tangible book value as of March 31, 2000, would have been
approximately $ million, or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to the new investors. If the initial
public offering price is higher or lower, the dilution to new investors will
be, respectively, greater or less. The following table illustrates this per
share dilution:

Assumed initial public offering price per share.............. $
------
Pro forma net tangible book value per share as of March 31,
2000........................................................ $
Increase per share attributable to new investors............. $
------
Pro forma as adjusted net tangible book value per share after
the offering................................................ $
------
Net tangible book value dilution per share to new investors.. $
======

SELECTED COMBINED FINANCIAL DATA

The selected historical combined financial data presented below for the
years ended June 30, 1997, 1998 and 1999 and for the nine months ended March
31, 1999 and 2000 have been derived from, and are qualified by reference to,
our combined financial statements included elsewhere in this prospectus. The
selected historical combined financial data presented below for the years ended
June 30, 1995 and 1996 have been derived from our unaudited combined financial
statements, which are not included in this prospectus. The selected pro forma
as adjusted combined financial data presented below have been derived from the
unaudited pro forma combined financial statements included elsewhere in this
prospectus. The pro forma as adjusted combined financial data give effect to
the restructuring, the offering and the application of the net proceeds and
other transactions described in the unaudited pro forma combined financial
statements, as if such transactions, for purposes of the pro forma as adjusted
combined statement of operations, occurred on the first day of the periods
presented and, for purposes of the pro forma as adjusted combined balance
sheet, occurred on March 31, 2000. The selected combined financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements and
the related notes thereto and the other financial information included
elsewhere in this prospectus.

Statement of Operations
Data:
Revenues:
Satellite
Distribution.......... $ 71 $ 103 $ 84 $ 86 $ 111 $ $ 82 $ 107 $
Distribution Technology
and Conditional
Access................ 29 115 148 152 222 128 188
Magazine Publishing.... 628 636 650 617 460 460 --
----- ----- ----- ----- ----- ----- ----- ----- ----
728 854 882 855 793 670 295
Operating income
(loss)................. 22 (61) (45) (89) (156) (68) (75)
Equity in earnings
(losses) of
affiliates............. 64 88 116 (41) (185) (126) (368)
Intercompany interest
expense, net........... (249) (266) (285) (276) (212) (151) (108)
Minority interests...... 23 -- 1 1 6 3 7
Other income(/1/)....... 632 -- -- 3 551 551 322
(Provision) benefit for
income taxes........... (121) 10 (12) 13 18 10 40
Income (loss) from
continuing operations.. 371 (229) (225) (389) 22 219 (182)
Net income (loss)....... $ 371 $(233) $(226) $(386) $ 19 $ $ 214 $(174) $
Pro forma earnings
(loss) per share:
Basic and diluted
earnings (loss) from
continuing operations
per share..............
----- ----- ----- ----- ----- ----- ----- ----- ----
Basic and diluted
earnings (loss) per
share..................
----- ----- ----- ----- ----- ----- ----- ----- ----
Basic and diluted
weighted average number
of common equivalent
shares outstanding
(in millions)..........
----- ----- ----- ----- ----- ----- ----- ----- ----

Balance Sheet Data:
Cash and cash
equivalents............ $ 17 $ 19 $ 26 $ 34 $ 31 $ 92 $
Total assets............ 4,067 4,235 4,432 4,456 3,297 3,481
Obligation associated
with News America's
exchangeable preferred
securities and
warrants............... -- -- -- -- -- --
Due to News Corporation
and subsidiaries....... 2,581 3,702 2,667 2,876 2,528 2,794
Shareholders' equity
(deficit) ............. (280) (924) 270 35 9 67

- --------
(1) Other income of $632 million for the year ended June 30, 1995 consists of
a gain of (Pounds)400 million recognized as a result of BSkyB's initial
public offering. See Notes 3 and 17 of our audited combined financial
statements for information on gains resulting from the sale of NAP during
fiscal 1999 and ATL during the nine months ended March 31, 2000.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Sky Global has three operating segments: (1) Satellite Distribution,
which includes owning, operating and distributing satellite television services
principally in the Asia Pacific region; (2) Distribution Technology and
Conditional Access, which includes providing conditional access software and
systems used by pay-TV broadcasters and content providers in Europe, the United
States, Latin America and the Asia Pacific region; and (3) until March 1, 1999
when our subsidiary, News America Publications, Inc., or "NAP," was sold,
Magazine Publishing, which includes magazine publishing and distribution in the
United States.

The Satellite Distribution segment includes the results of our wholly-
owned subsidiaries, STAR and Indian Sky Broadcasting ("ISkyB"). Because we own
a minority interest in each of the other platforms, our share of the results of
these other platforms is reflected in "Equity in earnings (losses) of
affiliates."

The combined financial information included in this prospectus is not
necessarily indicative of the consolidated results of operations, financial
position and cash flows of Sky Global had the restructuring occurred as of the
beginning of the three year period ended June 30, 1999, and had Sky Global
operated as a separate, stand-alone entity during this three year period. The
combined financial information included in this prospectus does not reflect the
changes that will occur in the funding and operations of Sky Global as a result
of the restructuring, the recapitalization and the offering.

Sources of Revenues

Satellite Distribution. STAR derives revenues primarily from the sale of
air time to advertisers, affiliate fees charged to cable operators and
subscriber fees charged to DTH satellite subscribers that receive Sky Global's
various satellite-delivered television services. To a lesser extent, revenues
are also derived from the licensing of programming from its Chinese-language
film library. Revenues are obtained from customers primarily in the Asia
Pacific and Middle East regions.

Distribution Technology and Conditional Access. NDS derives revenues from
(1) the sale of smart cards to broadcasters for distribution to and use by
their subscribers, (2) subscriber fees charged to broadcasters for the
maintenance and support of their conditional access systems, (3) integration,
development and support services to digital broadcasters, including software
development and enhancements, (4) license and royalty fees for the use of NDS
technology and security products and (5) from the sale of broadcast products.
Revenues are principally obtained from customers in Europe, the United States,
Latin America and the Asia Pacific region.

Magazine Publishing. The Magazine Publishing segment derived revenues
from advertising space and circulation sales. Revenues were obtained from
customers in the United States.

Components of Expenses

Satellite Distribution. STAR's operating expenses include direct costs
for programming, broadcast operations and engineering, network services, uplink
services, leasing of transponders and subscriber management operations.
Selling, general and administrative expenses include advertising, promotion,
legal and business affairs, general management and other administrative costs.

Distribution Technology and Conditional Access. NDS' operating expenses
include the physical and processing costs of smart cards, personnel costs
incurred in the adaptation and implementation of technology, the provision of
related services and license fees and royalties payable to owners of the
technology used by NDS. The physical costs of smart cards include the costs of
the integrated circuits, the plastic smart cards and

the micromodule which houses the chip, all of which are manufactured by third
party suppliers. Selling, general and administrative expenses include sales and
marketing, research and development and general and administrative costs.

Magazine Publishing. NAP's operating expenses included editorial staff
compensation, production (consisting of paper, composition, print and binding
costs), subscriber acquisition and distribution and fulfillment costs. Selling,
general and administrative expenses included advertising and promotion, staff
compensation, information technology, and general and administrative costs.

Combined Results of Operations--Summary Table

Combined revenues and operating income (loss) for fiscal 1997, 1998 and
1999 and the nine months ended March 31, 1999 and 2000 were as follows:

Revenues
---------------------------------------
Year ended June Nine months ended
30, March 31,
------------------- ------------------
1997 1998 1999 1999 2000
----- ----- ----- -------- --------
(unaudited)
(Dollars in Millions)

Satellite Distribution.......... $ 84 $ 86 $ 111 $ 82 $ 107
Distribution Technology and
Conditional Access............. 148 152 222 128 188
Magazine Publishing............. 650 617 460 460 --
----- ----- ----- -------- --------
Total revenues.................. $ 882 $ 855 $ 793 $ 670 $ 295
===== ===== ===== ======== ========

Operating income (loss)
---------------------------------------
Year ended June Nine months ended
30, March 31,
------------------- ------------------
1997 1998 1999 1999 2000
----- ----- ----- -------- --------
(unaudited)
(Dollars in Millions)

Satellite Distribution.......... $(117) $(138) $(141) $ (96) $ (82)
Distribution Technology and
Conditional Access............. 13 11 37 14 7
Magazine Publishing............. 84 51 35 35 --
----- ----- ----- -------- --------
(20) (76) (69) (47) (75)
Other operating charges......... (25) (13) (87) (21) --
----- ----- ----- -------- --------
Total operating income (loss)... $ (45) $ (89) $(156) $ (68) $ (75)
===== ===== ===== ======== ========

Results of Operations--Fiscal 1999 versus Fiscal 1998

The following table sets forth our combined operating results, by
segment, for fiscal 1999 compared to fiscal 1998:

Year ended
June 30,
------------
1998 1999 Change
----- ----- ------
(Dollars in
Millions)

Revenues:
Satellite Distribution................................. $ 86 $ 111 $ 25
Distribution Technology and Conditional Access......... 152 222 70
Magazine Publishing.................................... 617 460 (157)
----- ----- -----
Total revenues....................................... 855 793 (62)

Operating Income (Loss):
Satellite Distribution................................. (138) (141) (3)
Distribution Technology and Conditional Access......... 11 37 26
Magazine Publishing.................................... 51 35 (16)
----- ----- -----
(76) (69) 7
Other operating charges................................ (13) (87) (74)
----- ----- -----
Total operating income (loss)........................ (89) (156) (67)

Equity in earnings (losses) of affiliates................ (41) (185) (144)
Intercompany interest expense, net....................... (276) (212) 64
Minority interests....................................... 1 6 5
Other income............................................. 3 551 548
----- ----- -----
Income (loss) from continuing operations before income
tax..................................................... (402) 4 406
(Provision) benefit for income taxes..................... 13 18 5
Discontinued operations, net of tax...................... 3 (3) (6)
----- ----- -----
Net income (loss)........................................ $(386) $ 19 $ 405
===== ===== =====

Satellite Distribution. For fiscal 1999, total segment revenues increased
approximately 29% to $111 million. In order to analyze the results of the
ongoing operations of the Satellite Distribution segment, operating performance
is separated in this analysis into (1) STAR's core operations, which represent
the ongoing operations of STAR, and (2) ISkyB's operations, which represent the
start-up operating losses of STAR's Indian DTH satellite distribution platform
initiative prior to its termination in fiscal 1999.

Revenues from STAR's core operations increased 31% to $111 million
primarily due to a 32% increase in advertising revenue to $62 million and a 23%
increase in subscription revenue to $38 million. These increases were
principally due to the increased popularity of STAR Plus in India as a result
of expanded movie offerings as well as the effects of STAR encrypting its
channels which resulted in distribution revenues from cable operators and DTH
customers across Asia and the Middle East. Also contributing to the increase
were the effects of the inclusion of a full year's revenue in fiscal 1999 of
STAR News in India, which launched in February 1998, and the first time
consolidation of Channel [V] revenues, following the acquisition of a
controlling interest in December 1998.

Expenses for STAR's core operations increased approximately 14% to $218
million primarily due to an increase in programming costs as a result of the
expanded movie offerings, the effects of a full year of expenses of STAR News
and the first-time consolidation of Channel [V] expenses. Partially offsetting
these increased costs were reduced transponder costs at STAR resulting from the
migration of transponder capacity from the AsiaSat 1 and AsiaSat 2 satellites
to the more powerful AsiaSat 3 satellite, reducing the total number of
transponders leased by STAR from 16 to ten. This migration was made possible by
digitally compressing STAR's channels and uplinking their signals to AsiaSat 3.
Selling, general and administrative costs increased 5% to $86 million
principally due to costs associated with STAR News and the first time
consolidation of Channel [V].

For fiscal 1999, total segment operating losses increased approximately
2% to $141 million. STAR's core operating losses increased 2% to $108 million
primarily as a result of the factors described above. Operating losses at ISkyB
were $33 million, primarily due to the majority of operating costs, namely
transponder and technical costs associated with the dormant broadcast
operations, being fixed in nature. Revenues at ISkyB for both years were
nominal.

Distribution Technology and Conditional Access. For fiscal 1999, revenues
increased approximately 46% to $222 million primarily due to the growth in the
subscriber bases of the DTH and cable platforms worldwide serviced by NDS, as
well as fees earned on transitioning NDS' customers from analog to digital
broadcasting.

Revenues from the sale of smart cards increased by 89% to approximately
$164 million in fiscal 1999 primarily reflecting the increase in analog and
digital subscribers for customers in the U.S. and the U.K. In addition,
revenues increased due to a scheduled smart card replacement in the U.K. As of
June 30, 1999, NDS' customers had approximately 13 million subscribers, a 41%
increase over June 30, 1998. This increase was partially offset by a lower
average fee per subscriber that NDS received from NDS' customers in fiscal
1999, which partially reflected the effects of renegotiated contracts with
major DTH satellite television providers. In part, these contract changes were
the result of effective security services provided by NDS, which made it
possible for the NDS' customers to delay their planned smart card replacement.

Revenues from integration, development and support decreased 34% to $23
million in 1999. This reduction reflects the substantial completion in fiscal
1998 of large contracts with a number of digital DTH satellite television
providers. In fiscal 1999, NDS focused on smaller digital satellite and cable
systems which derive a greater percentage of revenues from license fees and
ongoing royalties than from integration and development. At June 30, 1999,
these contracts were in the early stages of implementation.

License fees and royalties increased 46% to approximately $35 million in
1999, primarily due to the growth in the subscriber bases of the DTH and cable
platforms worldwide serviced by NDS, as well as from a number of new contracts
entered into for the licensing of its systems and software.

Operating income for fiscal 1999 increased 236% to approximately $37
million. The growth in smart card revenues, license fees and royalties coupled
with design improvements and raw material cost reductions driven by an increase
in volume discounts were the significant factors improving operating income.
The growth in operating income was partially offset by a 58% increase in
research and development expenses to $59 million, reflecting NDS' continued
investment in supporting existing technologies and developing new business
opportunities. Gross margins increased to 57% from 54%.

Magazine Publishing. For fiscal 1999, revenues decreased approximately
25% to $460 million reflecting only eight months of operations, as NAP was sold
on March 1, 1999. Similarly, operating income decreased 31%. Increases in cover
prices and television program advertising revenues offset the effects of
circulation declines, which was primarily attributable to the effects of
increased competition from television listings included in local newspapers,
electronic program guides and other sources.

Other operating charges. Other operating charges consisted of the
following:

Year ended June 30,
-------------------
1998 1999 Change
--------- --------- ------
(Dollars in Millions)

Indovision platform phase-out................. $ 13 $ 54 $41
Hong Kong business restructure................ -- 11 11
ISkyB termination............................. -- 22 22
--------- --------- ---
Other operating charges...................... $ 13 $ 87 $74
========= ========= ===

Indovision platform phase-out--In fiscal 1997, STAR entered the
Indonesian DTH market through a platform operated as Indovision. Shortly
thereafter, given the then severe economic downturn and volatility of the
Indonesian market, STAR downsized its operations in Indonesia and ultimately
decided in December 1998 to cease all DTH activities there. In connection with
the decision to terminate the operations in fiscal 1999, STAR provided for the
long-term transponder obligations of approximately $48 million, as it was
determined that the capacity could not be deployed elsewhere in the business.

Hong Kong business restructure--The Hong Kong business restructure
related to costs associated with the rationalization of STAR's broadcast
operations and engineering facilities in Hong Kong in fiscal 1999. During
fiscal 1999, STAR eliminated excess staff levels, related office expenses and
recorded a loss on a transponder that is no longer used.

ISkyB termination--Indian Sky Broadcasting, STAR's DTH distribution
platform initiative in India, was terminated during fiscal 1999 due to
regulatory restrictions. The amount included in other operating charges
reflects the costs associated with the termination of a satellite lease and the
writedown of fixed assets.

Equity in earnings (losses) of affiliates. Equity in earnings (losses) of
affiliates increased 351% from a loss of $41 million to a loss of $185 million,
due primarily to a decrease in earnings at BSkyB, increased losses at Sky
Brazil, the effects of the first time inclusion of start-up losses at Stream,
and the inclusion of TV Guide as an equity affiliate for four months in fiscal
1999. These were partially offset by decreased losses at Sky Mexico, ESPN STAR
Sports and the Phoenix joint venture. Equity in earnings (losses) of affiliates
were as follows:

Year ended June 30,
---------------------
1998 1999 Change
--------- ---------- ------
(Dollars in Millions)

TV Guide................................... $ -- $ (5) $ (5)
BSkyB...................................... 113 (10) (123)
Stream..................................... -- (7) (7)
DTH Latin America:
Sky Brazil............................... (56) (83) (27)
Sky Mexico............................... (45) (35) 10
Sky Multi-Country Partners............... (9) (22) (13)
STAR Affiliates:
ESPN STAR Sports......................... (36) (25) 11
Phoenix joint venture.................... (8) (5) 3
Other...................................... -- 7 7
--------- ---------- -----
Equity in earnings (losses) of affiliates.. $ (41) $ (185) $(144)
========= ========== =====

Equity losses of TV Guide were $5 million in fiscal 1999. TV Guide was
included as an equity affiliate for four months following the sale of NAP to TV
Guide in March 1999. Included in this loss is the amortization of intangibles
resulting from the transaction.

Equity earnings of BSkyB of $113 million in fiscal 1998 were reduced to a
loss of $10 million in fiscal 1999, primarily reflecting BSkyB's significant
costs of launching and promoting the Sky digital satellite service. During
fiscal 1999, BSkyB continued to build the infrastructure for satellite-
delivered television, secured programming rights and implemented a marketing
strategy for digital service. In addition, BSkyB's share of net losses of one
of its equity associates, BiB, increased due to marketing contributions
provided to BiB's customers to acquire digital set-top boxes. In fiscal 1999,
BSkyB's revenues increased 8% to $2.5 billion primarily due to a 15% increase
in the average number of cable subscribers in the U.K., as cable operators
continue to build-out their networks, as well as the launch of ONdigital, the
digital terrestrial television service, both of which carry BSkyB services.
Total DTH revenues increased by 1% reflecting an increase in average revenue
per subscriber and pay-per-view revenues, offset by a 3% decrease in average
DTH subscribers resulting from the lower DTH analog equipment sales in
anticipation of the digital launch, as well as the effects

of non-renewal by subscribers of a sports upgrade promotion. The remaining
revenue increase resulted primarily from sales of digital satellite set-top
boxes made prior to the free set-top box offer and an increase in advertising
revenue. The increase in advertising revenue was principally due to an increase
in television homes and an increase in commercial spots. Programming costs,
which constituted approximately 55% of fiscal 1999 operating expenses,
increased by approximately 14%, principally the result of an increase in new
movie deals as well as increased costs relating to the Premier League soccer
agreement. The remaining increase in costs was due to increased marketing in
connection with the launch of digital service as well as higher costs for
subscriber management, dual analog and digital signal transmission and
administration costs related to the growth in the business and infrastructure
required to support a larger subscriber base. At June 30, 1999, BSkyB had 3.5
million DTH subscribers, of which 753,000 received digital service.

Equity losses of Sky Brazil increased approximately 48% to a loss of $83
million in fiscal 1999 primarily due to the effect of the devaluation of the
Real, the Brazilian local currency, in January 1999. Growth in paying
subscribers and an increase in average revenue per subscriber resulted in an
increase in subscription revenues of 111% to $142 million. Had these revenues
been expressed in Reais, the increase would have been 167%. This growth was
partially achieved by the migration of subscribers from lower-priced C-band
service to higher priced Ku-band service. Partially offsetting these increased
revenues were higher costs associated with the growth in the subscriber base,
namely programming, sales and marketing and distribution costs. During the
year, subscribers increased 45% to approximately 361,000 at June 30, 1999.

Equity losses of Sky Mexico decreased approximately 22% to $35 million in
fiscal 1999 primarily due to a 117% increase in revenues resulting from a
significant increase in subscribers. These revenue increases were partially
offset by increased programming costs and other direct operating costs
resulting from the growth in the subscriber base. Increases in depreciation
resulting from a greater number of set-top boxes in service and increased
interest expense due to higher debt balances were principally offset by the
effects of favorable foreign exchange fluctuations. During the year,
subscribers increased 86% to approximately 348,000 at June 30, 1999.

Equity losses of Sky Multi-Country Partners increased approximately 144%
to $22 million due to the first time inclusion of start-up losses of Sky Chile
and Sky Colombia, both of which were launched in fiscal 1999. At June 30, 1999,
Sky Chile had approximately 14,000 subscribers and Sky Colombia had
approximately 34,000 subscribers.

Equity losses of ESPN STAR Sports decreased 31% to $25 million in fiscal
1999 primarily due to increased contributions generated from the telecast of
The World Cup Cricket Tournament held in May and June 1999.

Intercompany interest expense, net. Intercompany interest expense
decreased by $64 million, reflecting the reduction in intercompany loan
payables following the sale of NAP.

Other income. In connection with the sale of NAP to TV Guide, in exchange
for a 43.6% equity interest in TV Guide and net cash of $671 million, we
recognized an aggregate $551 million gain during fiscal 1999.

(Provision) benefit for income taxes. Sky Global recognized an income tax
benefit of $18 million for fiscal 1999 compared to a benefit of $13 million for
fiscal 1998. The benefit recognized in fiscal 1999 relates to the receipt of
tax-free dividends from BSkyB in excess of its equity earnings. The income tax
benefit recognized in 1998 related to the recognition of losses at NAP, which
was partially offset by an income tax provision for BSkyB's earnings in excess
of a tax-free dividend received.

1999. Revenues were $146 million in fiscal 1999 compared to $144 million in
fiscal 1998 reflecting the change in the type of sales from large broadcasting
systems to smaller systems and more stand-alone products, as well as the
inclusion of a greater proportion of products from sources outside NDS. As a
result of the change in type of sales, a net loss to $3 million was incurred in
fiscal 1999, as compared to net income of $3 million in fiscal 1998.

Results of Operations--Fiscal 1998 versus Fiscal 1997

The following table sets forth our combined operating results, by
segment, for fiscal 1998 compared to fiscal 1997:

Year ended
June 30,
------------
1997 1998 Change
----- ----- ------
(Dollars in
Millions)

Revenues:
Satellite Distribution................................. $ 84 $ 86 $ 2
Distribution Technology and Conditional Access......... 148 152 4
Magazine Publishing.................................... 650 617 (33)
----- ----- -----
Total revenues....................................... 882 855 (27)

Operating Income (Loss):
Satellite Distribution................................. (117) (138) (21)
Distribution Technology and Conditional Access......... 13 11 (2)
Magazine Publishing.................................... 84 51 (33)
----- ----- -----
(20) (76) (56)
Other operating charges................................ (25) (13) 12
----- ----- -----
Total operating income (loss)........................ (45) (89) (44)
Equity in earnings (losses) of affiliates................ 116 (41) (157)
Intercompany interest expense, net....................... (285) (276) 9
Minority interest........................................ 1 1 --
Other income............................................. -- 3 3
----- ----- -----
Income (loss) from continuing operations before income
tax..................................................... (213) (402) (189)
(Provision) benefit for income taxes..................... (12) 13 25
Discontinued operations, net of tax...................... (1) 3 4
----- ----- -----
Net income (loss)........................................ $(226) $(386) $(160)
===== ===== =====

Satellite Distribution. For fiscal 1998, revenues increased 2% to $86
million. In order to analyze the results of the ongoing operations of the
Satellite Distribution segment, operating performance is separated into (1)
STAR's core operations, which represent the ongoing operations of STAR, and (2)
ISkyB's operations, which represent the start-up operating losses of STAR's
Indian DTH satellite distribution platform initiative prior to its termination
in fiscal 1999.

Revenues from STAR's core operations increased 1% to $85 million
primarily due to a 42% increase in subscription revenue to $31 million, offset
by a 66% decrease in license fee income to $7 million. In addition, there was
an absence of revenues from sports channels services, which were consolidated
for four months in fiscal 1997 and accounted for under the equity method in
fiscal 1998, subsequent to their merger with ESPN Asia forming ESPN STAR
Sports. The increase in subscription revenues reflected in part the increased
subscriber base and increased rates charged to cable operators in Taiwan. In
addition, in the Middle East, revenue for the DTH service, STAR Select, was
included for a full year. License fee income decreased due to the reduced
demand for the STAR film library from other Asian broadcasters.

Expenses for STAR's core operations increased approximately 7% to $192
million primarily due to the February 1998 launch of STAR News in India and the
costs associated with increased Hindi programming on STAR Plus. These increased
costs were partially offset by lower selling and administrative costs
associated with the reallocation of resources into regional offices, which
resulted in lower overhead costs, namely rent and personnel costs.

Segment operating losses for fiscal 1998 increased 18% to $138 million.
The increase in STAR's core operating losses of approximately 10% to $106
million was primarily due to the factors discussed above. The losses incurred
by ISkyB operations increased 52% to $32 million primarily due to the build out
of the infrastructure and related costs of the broadcast facilities, as well as
the effects of a full year of operations in fiscal 1998.

Distribution Technology and Conditional Access. For fiscal 1998, revenues
increased 3% to $152 million. This increase was primarily a result of an
increase in revenue from systems consulting, design and integration services
and license and royalty fees, which were offset by a decrease in the sale of
smart cards.

Revenues from the sale of smart cards decreased 21% to $87 million
reflecting a decrease in the growth of analog subscribers in the U.K. in
anticipation of the launch of digital services and the absence of scheduled
smart card replacements in fiscal 1998. Additionally, in fiscal 1997, a large
volume of smart cards had been sold to a DTH provider in anticipation of a
significant increase in marketing and subscriber acquisition activities.
Revenues were also reduced by a change of terms in a significant customer's
supply agreement, whereby the customer assumed responsibility for the
replacement of its smart cards in exchange for, in part, a reduction in the
monthly per subscriber fee. As of June 30, 1998, NDS' customers had
approximately 9.2 million subscribers, as compared with 7.0 million at June 30,
1997, an increase of 31%.

Revenues from integration, development and support increased
approximately 71% to $35 million. In fiscal 1998, a number of large digital
satellite projects were undertaken and were substantially completed during the
year.

License fees and royalties increased 42% to $24 million, a function of
the increase in the number of subscribers of NDS' broadcasting customers and
the completion of several of NDS' systems and software contracts. In fiscal
1998, several of NDS' broadcasting customers launched their services and began
paying monthly license fees.

Operating income decreased 15% to $11 million. This decrease is
principally due to expenditures in sales and marketing activities and, in
particular, an increase in NDS' presence in the U.S. and the Asia Pacific
region. This was primarily because most large digital satellite systems had
launched their services, causing NDS to implement a strategy to penetrate the
market for cable, digital terrestrial and smaller off-the-shelf conditional
access systems deployed by operators with less than 1 million subscribers.
Gross margins increased to 54% from 44% as a greater portion of revenues were
earned from license fees and royalties that have no associated cost of sales.
Furthermore, NDS continued to invest heavily in its research and development
activities to support existing customers' technologies and to develop new
business opportunities.

Magazine Publishing. For fiscal 1998, revenue from magazine publishing
decreased 5% to $617 million. This decrease was principally due to a decline in
TV Guide Magazine's circulation, which was primarily attributable to the
effects of increased competition from television listings included in local
newspapers, electronic program guides and other sources. Advertising revenues
were comparable to the prior year.

Operating income decreased 39% to $51 million primarily due to the
decrease in revenue discussed above, which was partially offset by lower direct
costs associated with lower circulation. Increased operating expenses of
approximately 1%, which were principally related to higher production and
distribution expenses caused by a shift in product mix, were partially offset
by a decrease in selling and administrative expenses of approximately 3% due to
lower compensation and other administrative expenses.

Other operating charges. Other operating charges consisted of the
following:

Year ended June 30,
--------------------
1997 1998 Change
--------- --------- ------
(Dollars in Millions)

Indovision platform phase-out................ $ 14 $ 13 $ (1)
Hong Kong business restructure............... 11 -- (11)
--------- --------- ----
Other operating charges...................... $ 25 $ 13 $(12)
========= ========= ====

Hong Kong business restructure--The Hong Kong business restructure
related to costs associated with the rationalization of STAR's broadcast
operations and engineering facilities in Hong Kong in fiscal 1997. During
fiscal 1997, STAR eliminated redundancies in the technical infrastructure,
including provisions for unused transponders and a subscriber management
system.

Equity in earnings (losses) of affiliates. Equity in earnings (losses) of
affiliates decreased 135% to a loss of $41 million, principally due to a
decrease in earnings at BSkyB, increased losses at Sky Brazil and increased
losses at Sky Mexico. Equity in earnings (losses) of affiliates were as
follows:

Year ended June 30,
--------------------
1997 1998 Change
--------- --------- ------
(Dollars in Millions)

BSkyB....................................... $ 200 $ 113 $ (87)
DTH Latin America:
Sky Brazil................................ (14) (56) (42)
Sky Mexico................................ (11) (45) (34)
Sky Multi-Country Partners................ -- (9) (9)
STAR Affiliates:
ESPN STAR Sports.......................... (35) (36) (1)
Phoenix joint venture..................... (9) (8) 1
Other....................................... (15) -- 15
--------- --------- -----
Equity in earnings (losses) of affiliates... $ 116 $ (41) $(157)
========= ========= =====

Equity earnings of BSkyB decreased 44% to $113 million in fiscal 1998,
due to increased programming costs related to the Premier League soccer
agreement, which commenced in August 1997, of approximately $151 million and
the absence of the recognition of a deferred tax benefit recorded in the prior
year associated with the greater certainty of the amount of losses available to
reduce future taxable income. In addition, marketing costs increased
approximately $109 million, primarily due to free Christmas promotions that
attracted 153,000 new subscribers. These increased costs were partially offset
by an increase in DTH subscriber revenue of approximately 12%, an increase in
cable subscriber and digital terrestrial television revenue of 19% and an
increase in advertising revenue of 30%. DTH subscriber revenue increased due to
an increase in average revenue per subscriber of approximately 8% and an
increase in average subscribers of approximately 4%. Cable and digital
terrestrial television revenue increased primarily due to a 19% increase in
average subscribers reflecting the build out of the cable systems in the U.K.
Advertising revenue growth was principally related to the increase in homes
penetrated in the U.K. from 25% to 29%, as well as increased commercial spots
resulting from the extension of certain BSkyB transmission hours.

Equity losses of Sky Brazil increased 300% to $56 million. Subscriber
revenue increased 72% to approximately $67 million as a result of the increase
in the subscriber base. During the year, subscribers increased 83% to 249,000
at June 30, 1998. More than offsetting these revenue gains was an 89% increase
in programming costs resulting from the growth in the subscriber base, an
increase in subsidies paid to manufacturers of set-top boxes, increased general
and administration costs and increased marketing costs. In addition, net
interest expense increased approximately $36 million due to the absence of
investment income from cash received in connection with the issuance of $200
million in Senior Secured Notes in August 1996. Partially offsetting these
higher expenses was an increase in income tax benefits recognized of $50
million, which resulted from fiscal 1998 tax losses.

Equity losses of Sky Mexico increased 309% to $45 million principally due
to the inclusion of operating losses for only four months in fiscal 1997.
Revenue increases of 372% to $53 million in fiscal 1998 resulting from the
increased subscriber base were more than offset by increased programming costs,
increased satellite and infrastructure costs, increased subscriber handling and
marketing and subscriber acquisition costs associated with the build out of the
platform. During the year, subscribers increased 228% to 187,000 at June 30,
1998.

Equity losses of Sky Multi-Country Partners were $9 million in fiscal
1998. Sky Multi-Country Partners did not exist in the prior fiscal year.

Equity losses of other equity affiliates in fiscal 1997 included losses
at Sky Latin America Partners, which reflected the initial costs that were
incurred. Sky Latin America Partners provided services to Sky Multi-Country
Partners' underlying investments.

Intercompany interest expense, net. Intercompany interest expense
decreased 3% to $276 million, reflecting lower average outstanding balances in
fiscal 1998.

Other income. Other income for fiscal 1998 represented a gain of
approximately $3 million on the sale of a 10% ownership in Sky Brazil to a
third party.

Provision (benefit) for income taxes. We recognized an income tax benefit
of $13 million for fiscal 1998, compared to an income tax expense of $12
million for fiscal 1997. This decrease in income taxes was principally due to
higher taxable earnings at BSkyB in fiscal 1997 as compared to fiscal 1998.

Discontinued operations, net of tax. Discontinued operations consist of
the activities of NDS' digital hardware business, which was sold to Ordinto
Investments, a subsidiary of News Corporation, on July 1, 1999. Revenues
increased to $144 million in fiscal 1998 from $127 million in fiscal 1997. Net
income increased by $4 million over the prior year. The increase in net income
was due to higher revenues and reduced component prices, combined with changes
in the sales product mix in favor of higher margin products.

Results of Operations--Nine months ended March 31, 2000 versus Nine months
ended March 31, 1999

The following table sets forth our combined operating results, by
segment, for the nine months ended March 31, 2000 compared to the nine months
ended March 31, 1999:

Nine months
ended March 31,
-----------------
1999 2000 Change
------- -------- ------
(unaudited)
(Dollars in Millions)

Revenues:
Satellite Distribution............................ $ 82 $ 107 $ 25
Distribution Technology and Conditional Access.... 128 188 60
Magazine Publishing............................... 460 -- (460)
------- -------- -----
Total revenues.................................. 670 295 (375)
Operating Income (Loss):
Satellite Distribution............................ (96) (82) 14
Distribution Technology and Conditional Access.... 14 7 (7)
Magazine Publishing............................... 35 -- (35)
------- -------- -----
(47) (75) (28)
Other operating charges........................... (21) -- 21
------- -------- -----
Total operating income (loss)................... (68) (75) (7)

Equity in earnings (losses) of affiliates........... (126) (368) (242)
Intercompany interest expense, net.................. (151) (108) 43
Minority interest................................... 3 7 4
Other income........................................ 551 322 (229)
------- -------- -----
Income (loss) from continuing operations before
income tax......................................... 209 (222) (431)
(Provision) benefit for income taxes................ 10 40 30
Discontinued operations, net of tax................. (5) 8 13
------- -------- -----
Net income (loss)................................... $ 214 $(174) $(388)
======= ======== =====

Satellite Distribution. For the nine months ended March 31, 2000,
revenues increased 30% to $107 million. In order to analyze the results of the
ongoing operations of the Satellite Distribution segment, operating performance
is separated into (1) STAR's core operations, which represent the ongoing
operations of STAR, and (2) ISkyB's operations, which represent the start-up
operating losses of STAR's Indian DTH satellite distribution platform
initiative prior to its termination in fiscal 1999.

STAR's core operations' revenue increased 32% to $107 million primarily
due to a 32% increase in advertising sales to $58 million and an increase of
34% in subscription revenues to $39 million. In addition, Channel [V] revenues
were consolidated for the full nine months in fiscal 2000, following the
acquisition of a controlling interest in December 1998. The increase in
advertising revenue was primarily due to the continued popularity and
viewership growth for STAR Plus and STAR News Channel, which included a live
telecast of the Indian Parliamentary elections in October 1999. The increase in
subscription revenue was primarily due to higher affiliate fees for STAR World,
STAR Plus and STAR Movies, resulting in part from the effects of the encryption
of STAR's channels and the related increased set-top box distribution in India.

STAR's core expenses increased 20% to $184 million due in part to the
consolidation of Channel [V] expenses for the full nine months in fiscal 2000.
In addition, there were increased costs associated with STAR Movies and higher
costs relating to STAR News. The increase in STAR Movies costs primarily
related to the increased cost of films purchased. Also contributing to the
higher expenses was an increase in general and administration costs of 6% to
$77 million principally related to the growth of the business.

Total segment operating loss for the nine months ended March 31, 2000
decreased 15% to a loss of $82 million as a result of the absence of losses
from ISkyB, which was terminated in fiscal 1999 due to regulatory restrictions.
Operating losses for STAR's core operations increased 7% to a loss of $77
million primarily due to the factors described above.

Distribution Technology and Conditional Access. For the nine months ended
March 31, 2000, revenues increased 47% to $188 million, primarily due to the
worldwide growth in the subscriber bases of DTH platforms that NDS services.

Revenues from smart card sales increased approximately 53% to $128
million primarily due to the supply of 3.3 million smart cards as part of a
card changeover program. At March 31, 2000, the total number of authorized
smart cards exceeded 16.8 million, an increase of 39% over March 31, 1999. In
addition, due to a change in the terms of the contract with a customer, revenue
from this contract was reclassified as integration, development and support
revenue.

Revenues from integration, development and support increased 52% to $28
million primarily due to the reclassification of revenues of $8 million
resulting from a change in the terms of the contract discussed above. In
addition, a number of integration projects with manufacturers of set-top boxes
were undertaken, with the objective of developing set-top boxes with universal
compatibility among each of the platforms that use NDS technology.

License fees and royalties decreased 10% to $25 million. This decrease
resulted from lower license fees more than offsetting increased royalty income
generated from the higher demand for set-top boxes on all NDS-supported
platforms. The decrease in license fees was due to the higher number of
projects that were completed.

For the nine months ended March 31, 2000, NDS earned revenues of more
than $4 million from new technologies, principally consisting of interactive
and data broadcasting technologies, both of which are new revenue streams for
NDS.

Operating income for the nine months ended March 31, 2000 decreased 50%
to $7 million. Offsetting the increase in revenues described above was an
increase in research and development costs of 25% to $54 million, an increase
in selling, general and administrative expenses of 126% to $51 million
principally related to the increase in personnel and a $20 million non-cash
compensation charge relating to the employee stock option plan recorded at the
date of NDS' initial public offering in November 1999. Gross margins declined
from 60% to 59% primarily resulting from a change in the mix of revenue.

Magazine Publishing. There were no combined operating results for this
segment for the nine months ended March 31, 2000, due to the sale of NAP in
March 1999. For the nine months ended March 31, 1999, revenues were $460
million and operating income was $35 million.

Other operating charges. Other operating charges consisted of the
following:

Nine months
ended March 31,
---------------
1999 2000 Change
---- -------- ------
(unaudited)
(Dollars in Millions)

Indovision platform phase-out.................. $ 16 $ -- $ (16)
Hong Kong business restructure................. 5 -- (5)
------- -------- ------
Other operating charges........................ $ 21 $ -- $ (21)
======= ======== ======

Indovision platform phase-out--In connection with the decision to
terminate the operations in fiscal 1999, STAR provided for the long-term
transponder obligations as it was determined that the capacity could not be
deployed elsewhere in the business.

Equity in earnings (losses) of affiliates. Equity in earnings (losses) of
affiliates increased 192% to $368 million. The increase was primarily due to an
increase in losses at BSkyB, losses at Stream, which was acquired in June 1999,
and increased losses at TV Guide, which had been combined prior to its sale in
March 1999. These losses were partially offset by reduced losses at Sky Brazil
and Sky Mexico as well as lower losses at ESPN STAR Sports and the Phoenix
joint venture. Equity in earnings (losses) of affiliates were as follows:

Nine months
ended
March 31,
----------------
1999 2000 Change
------- ------- --------
(unaudited)
(Dollars in Millions)

TV Guide....................................... $ (2) $ (31) $ (29)
BSkyB.......................................... 17 (156) (173)
Stream......................................... -- (111) (111)
DTH Latin America:
Sky Brazil.................................... (77) (23) 54
Sky Mexico.................................... (27) (19) 8
Sky Multi-Country Partners.................... (17) (21) (4)
STAR Affiliates:
ESPN STAR Sports.............................. (23) (16) 7
Phoenix joint venture......................... (5) -- 5
Other.......................................... 8 9 1
------- ------- -------
Equity in earnings (losses) of affiliates...... $ (126) $ (368) $ (242)
======= ======= =======

Equity losses of TV Guide increased to $31 million primarily due to nine
months of amortization of intangibles in fiscal 2000 resulting from the sale of
NAP to TV Guide versus only four months in fiscal 1999. In addition, fiscal
2000 includes the costs associated with the launch of the TVG Network in August
1999. Decreases in circulation, resulting from the effects of increased
competition from television listings included in local newspapers, were
principally offset by lower production and related costs.

Equity earnings of BSkyB of $17 million for the nine months ended March
31, 1999 decreased to a loss of $156 million primarily due to the continued
transition from analog to digital DTH service and costs

associated with servicing an increasing subscriber base. Revenues increased to
$2.2 billion due to a 15% increase in DTH subscriber revenue, reflecting a 9%
increase in average DTH subscribers and a 5% increase in average revenue per
subscriber. These increased revenues were offset by increased operating
expenses, primarily due to a 65% increase in marketing expenses resulting from
the free set-top box offer and increased advertising spent on the digital
launch and brand awareness program. In addition, programming costs increased
19% due to increased sports rights costs, including the Premier League soccer
agreement and UEFA Cup rights. Subscriber related costs increased 30% primarily
due to increased subscriber acquisitions.

Equity losses of Sky Brazil decreased 70% to a loss of $23 million,
primarily due to the absence of the effects of the devaluation of the Real in
January 1999. Subscriber revenues increased 20% to $130 million as a result of
a 48% increase in the number of subscribers, partially offset by a 23% decrease
in U.S. dollar denominated average revenue per subscriber. On a local currency
basis, subscription revenue increased 67% and average revenue per subscriber
increased 4%. Partially offsetting these revenue gains was a 22% increase in
programming costs associated with the increased subscriber base. Sky Brazil had
approximately 508,000 subscribers at March 31, 2000.

Equity losses of Sky Mexico decreased 30% to a loss of $19 million
primarily due to the effects of a 49% growth in subscribers, which increased
subscription revenue by 87% and set-top box rental income by 138%. These
increased revenues were partially offset by increases in programming costs,
set-top box depreciation, marketing costs and administrative costs. Marketing
cost increases were due to the continued focus on acquiring new subscribers in
a highly competitive market. Depreciation increased due to a higher number of
set-top boxes in use by customers. Sky Mexico had approximately 462,000
subscribers at March 31, 2000.

Equity losses of ESPN STAR Sports decreased 30% to $16 million primarily
due to an increase in subscription revenue of 36% resulting from a larger
viewership, due in part to the digitalization and encryption of the
transmission. In addition, the absence of certain cricket events in fiscal 2000
had an offsetting impact on both revenue and programming costs.

Intercompany interest expense, net. Intercompany interest expense
decreased 28% to $108 million, reflecting lower average outstanding
intercompany balances, principally relating to the absence of intercompany
balances with NAP following its sale in March 1999.

Other income. Other income in the nine months ended March 31, 2000
represents the gain of $322 million on the sale of Asia Today Limited for
approximately $407 million. In the nine months ended March 31, 1999, an
aggregate gain of $551 million was recorded in connection with the sale of NAP
to TV Guide, in exchange for a 43.6% equity interest in TV Guide and net cash
of $671 million.

(Provision) benefit for income taxes. We recognized an income tax benefit
of $40 million for the nine months ended March 31, 2000 relating to the equity
losses of BSkyB, partially offset with income taxes provided on the earnings of
NDS during the period. The income tax benefit recognized in fiscal year 1999
relates to the receipt of tax-free dividends from BSkyB in excess of its equity
earnings.

Discontinued operations, net of tax. Discontinued operations consist of
the activities of our digital hardware business, which was sold to Ordinto
Investments, a subsidiary of News Corporation. Since this business was sold on
July 1, 1999, there are no operations during the nine months ended March 31,
2000. We recorded a gain on the sale of discontinued operations of $8 million
which represents the excess of sales price over the net book value of the
assets. In October 1999, Ordinto Investments sold the digital hardware business
to an unrelated third party.

Liquidity and Capital Resources

For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997

Cash and cash equivalents were $31 million at June 30, 1999 compared to
$34 million at June 30, 1998. For fiscal 1997, 1998 and 1999, we reported net
cash used in operating activities of $194 million, $205 million and $218
million, respectively. Excluding non-cash adjustments, the increase in net cash
used in operating activities from fiscal 1998 to fiscal 1999 of $13 million
resulted primarily from an increase in losses of $39 million, which was
partially offset by a decrease in working capital requirements in fiscal 1999
of $26 million. In fiscal year 1999, increases in accounts receivable, prepaid
and other assets of $118 million related in large part to increased outstanding
balances at NDS due to a high volume of smart card sales in the last two months
of fiscal 1999 and an extension of payment terms to certain customers, which
resulted in an increase in days sales outstanding from 64 days to 100 days. The
remaining increase in accounts receivable balances related primarily to the
seasonal effects of advertising revenue at NAP prior to its sale in March 1999.
The increase in accounts payable and accrued liabilities of $160 million
related in part to the purchase of smart cards in response to increased
customers, provisions associated with the termination of ISkyB.

Excluding non-cash adjustments, the increase in net cash used in
operating activities from fiscal 1997 to fiscal 1998 of $11 million resulted
primarily from increased losses of $25 million, which was offset by a decrease
in working capital requirements of $14 million in fiscal 1998.

Net cash provided by investing activities was $562 million in fiscal
1999, compared to net cash used in investing activities of $144 million in
fiscal 1998 and $118 million in fiscal 1997. Fiscal 1999 acquisitions related
to our purchase of a controlling interest in Channel [V]. Cash proceeds in
fiscal 1999 principally related to the sale of NAP. Our fiscal 1999 investment
activities included our initial investment in Stream (35% interest) and the
funding of ESPN STAR Sports, Sky Brazil, Sky Mexico and Sky Multi-Country
Partners. In fiscal 1998 our acquisitions included NAP's acquisition of TVSM, a
magazine publisher of monthly and weekly programming guides designed
specifically for and sold through companies in the cable industry. Cash
proceeds in fiscal 1998 related to the dilution of our interest in our Japanese
satellite platform. Our investments in fiscal 1998 related to the funding of
our investments in ESPN STAR Sports, Sky Brazil, Sky Mexico and Sky Multi-
Country Partners. Our fiscal 1997 cash proceeds reflect the dilution of our
interest in our Japanese satellite platform. Our investments in fiscal 1997
related to our initial investment in Sky Mexico, as well as the funding of our
investments in the Phoenix joint venture and ESPN STAR Sports.

Net cash used in financing activities was $363 million in fiscal 1999,
compared to net cash provided by financing activities of $368 million in fiscal
1998 and $324 million in fiscal 1997. This activity represents cash funding
received from News Corporation and paydowns of intercompany loans. Fiscal 1999
included the paydown of loans from News Corporation as a result of the cash
received in the sale of NAP. Fiscal 1998 and fiscal 1997 reflect funding from
News Corporation for normal business operations.

For the nine months ended March 31, 2000 and the nine months ended March
31, 1999

Cash and cash equivalents were $92 million at March 31, 2000 and $22
million at March 31, 1999. For the nine months ended March 31, 2000 and for the
nine months ended March 31, 1999, we reported net cash flows used in operating
activities of $289 million and $123 million, respectively. Excluding non-cash
adjustments, the increase in net cash used in operating activities from the
nine months ended March 31, 1999 to the nine months ended March 31, 2000 of
$166 million resulted from an increase in losses of $9 million and increased
working capital requirements of $157 million. The increase in accounts
receivable at March 31, 1999 related primarily to the seasonal effects of
advertising revenue at NAP prior to its sale in March 1999. The decrease in
accounts payable of $129 million in the nine months ended March 31, 2000
primarily reflected the paydown of liabilities relating to the high level of
smart card purchases at NDS in late fiscal 1999 and the payment of costs
associated with the termination of ISkyB.

Net cash used in investing activities was $165 million for the nine
months ended March 31, 2000, compared to net cash provided by investing
activities of $568 million for the nine months ended March 31, 1999. Cash
proceeds for the nine months ended March 31, 2000 reflect the cash proceeds
from the sale of NDS' digital hardware business. Our investments include our
funding of Stream, the Japanese satellite platform, Sky Brazil, Sky Mexico and
Sky Multi-Country Partners. For the nine months ended March 31, 1999,
acquisitions reflect our purchase of a controlling interest in Channel [V].
Cash proceeds include the cash received in the sale of NAP. Our investments
reflect the funding of Sky Brazil, Sky Mexico, Sky Multi-Country Partners and
ESPN STAR Sports.

Net cash provided by financing activities was $506 million for the nine
months ended March 31, 2000, compared to net cash used in financing activities
of $468 million for the nine months ended March 31, 1999. Financing activities
represent cash proceeds from the initial public offering of NDS, and cash
funding received from News Corporation for normal business operations.

Financing activities primarily reflect advances received from News
Corporation and its subsidiaries, which funded our net cash flow requirements
prior to the offering. We have participated in News Corporation banking
facilities, whereby overdrafts and cash balances are aggregated. Subsequent to
the offering, it is contemplated that we will continue to utilize the treasury
and cash management services, including the use of bank overdraft facilities,
of News Corporation and its subsidiaries. Interest expense or income on funds
borrowed from or lent to News Corporation will be calculated at rates set forth
in the master intercompany agreement to be entered into between Sky Global and
News Corporation.

It is anticipated that we will have significant cash needs for the
foreseeable future as we build out our various platforms and continue to invest
in research and development activities. Total commitments for capital
expenditures and operating leases over the next five years aggregate $226
million for combined entities.

We cannot predict with certainty the extent to which internally generated
cash flows and the proceeds from the offering will be sufficient to satisfy
future capital requirements. Therefore the amount of required capital and the
availability of additional financing cannot be determined at this time.
However, we anticipate that capital requirements in the next 12 months will be
funded from the proceeds of the offering, from internally generated cash flow
or borrowings from News Corporation. Thereafter, we may need to raise
additional funds. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our shareholders will be reduced and
such equity securities may have rights, preferences or privileges senior to
those of our common stock. However, there can be no assurance that additional
debt or equity financing will be available to us on acceptable terms or at all.

Prior to the offering, we will issue intercompany notes to a subsidiary
of News Corporation in an aggregate amount of $ billion, representing
intercompany borrowings. The intercompany notes will bear interest at
approximately 8% per year, adjusted annually and payable quarterly. We intend
to use the net proceeds from the offering to repay amounts due under the
intercompany notes. Immediately following the offering and the application of
the net proceeds, the aggregate amount outstanding under the intercompany notes
will be approximately $ billion.

In November 1996, News America, a wholly-owned subsidiary of News
Corporation, issued, through a wholly-owned trust, $1 billion of 5%
Exchangeable Trust Originated Preferred Securities (the "Exchangeable Preferred
Securities") along with 10,000,000 warrants to purchase shares or ADSs of BSkyB
(the "BSkyB warrants"). News America has the right to pay cash in U.S. dollars
equal to the market value of the BSkyB ordinary shares and ADSs for which the
BSkyB warrants are exercisable in lieu of delivering shares or ADSs. As part of
the restructuring, News Corporation's interest in BSkyB will be contributed to
us. In addition, in exchange for the satisfaction of $ of intercompany
indebtedness to News Corporation, we will enter into a

payment agreement with News America under which we will agree to pay and
perform all of News America's obligations related to the exercise of the BSkyB
warrants in connection with the Exchangeable Preferred Securities. At June 15,
2000, there were 9,725,669 BSkyB warrants outstanding, and the market value of
the shares of BSkyB underlying the BSkyB warrants exceeded the aggregate
warrant exercise price by approximately $925 million. Changes in the excess of
the market value of the shares of BSkyB over the aggregate warrant exercise
price will be charged against our earnings and cause corresponding changes in
the amount of our recorded obligation to News America.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk. Our operations are subject to the economic and political
conditions in the international markets in which we operate, including civil
unrest, government changes and the ability to transfer capital across borders.
Our ability to continue to form strategic business alliances with local
partners to meet regulatory requirements, enhance our content offerings to
satisfy subscriber demands and develop distribution networks are factors which
could affect our financial performance. Additionally, changes in law and
regulations, including changes in accounting standards, taxation requirements,
including tax rate changes, new tax laws and revised tax law interpretations,
could cause our actual results to differ materially.

Market Rate Sensitive Instruments and Risk Management. We do not have
significant exposure to other forms of market risk, including commodities
risks. Neither Sky Global nor its subsidiaries have historically held
derivative instruments. None of our equity affiliates, with the exception of
BSkyB and KirchPayTV, held derivative instruments at June 30, 1999 or at June
30, 1998.

Prior to the offering, we will agree to pay and perform all of News
America's obligations related to the exercise of the BSkyB warrants in
connection with the Exchangeable Preferred Securities. In lieu of delivering
shares or ADSs, we will have the right to instruct News America to pay cash in
U.S. dollars equal to the market value of the BSkyB ordinary shares and ADSs
for which the BSkyB warrants are exercisable. Our payment obligation to News
America will be marked to market on our balance sheet as of the end of each
reporting period based on the closing price of BSkyB shares.

Foreign Currency Exchange Risk. A risk inherent in our international
operations is the exposure to fluctuations in currency exchange rates. Exposure
to fluctuations in currency exchange rates arises as a result of a significant
portion of our revenues and expenses and our net investment in the foreign
assets and liabilities of certain satellite platforms accounted for under the
equity method being denominated in currencies other than the U.S. dollar. While
our platforms' revenues are generally earned in local currencies, a significant
portion of their liabilities and expenses, including programming acquisition
costs, public debt and expenses associated with set-top box agreements and
transponder agreements, are denominated in U.S. dollars. As a result, our
platforms are exposed to fluctuations in exchange rates.

With the exception of BSkyB and KirchPayTV, our platforms do not
currently engage in hedging transactions in respect of such currency
fluctuations, and such fluctuations may have a material adverse effect on our
business, operating results and financial condition. However, following the
closing of the offering, Sky Global may adopt a hedging policy, which may
provide for the use of derivative financial instruments in the future to manage
foreign currency exchange risks.

Seasonality

Our platforms are subject to seasonal factors. These include national
holiday and other promotions designed to drive subscriber growth through
special pricing of either the consumer equipment or programming packages,
special sporting events or series such as the Premier League in the U.K. or the
World Cup. Competitive conditions may also result in other promotional
activities, including price reductions or increased programming value
propositions.

NDS' business is subject to seasonal fluctuations in our customers'
markets. Broadcasters typically aim to achieve new channel or service launches
in the autumn or spring periods to coincide with demand in their markets and,
consequently, integration, development and license fee revenues tend to be
linked to these cycles. Smart card sales and set-top box royalties depend upon
the marketing campaigns of our customers and this has led to stronger periods
in the first half of each fiscal year. Significant conditional access revenues
are generated from customers who pay for their smart cards when a changeover
takes place.

Recently Issued Accounting Pronouncements

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," originally issued in June 1998, was subsequently amended by SFAS
No. 137, which had the effect of deferring the date of its effectiveness. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments embedded in other contracts and for hedging activities. This
statement is effective for fiscal periods beginning after June 15, 2000. We are
currently evaluating the possible effects of SFAS No. 133 on our combined
financial statements.

In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101. This bulletin summarizes certain
areas of the SEC's views in applying generally accepted accounting principles
to revenue recognition in the financial statements. We believe that our current
revenue recognition principles comply with this bulletin.

BUSINESS

Overview

Sky Global is the world's leading distributor of pay-TV, offering
entertainment and services via satellite to nearly 85 million households
through its various owned and affiliated distribution platforms. The geographic
footprint of these platforms covers Europe, India, Greater China, other regions
in Asia, the Middle East and Latin America. Our entertainment and service
offerings are delivered via satellite either directly to subscribers or to
cable operators or other third-party distributors for retransmission to their
subscribers. Our platforms provide subscribers high quality local and
international programming, featuring popular sports such as soccer, recent
movie releases and original programming.

Strategy

Offer customers the best local and international programming content
available.

A key advantage of our platforms in their respective markets is their
popular local and international programming. Each of our platforms possesses
regional sports and entertainment programming rights critical to driving
subscriber growth. Several of the platforms have obtained exclusive rights to
broadcast soccer and other popular sports. Our platforms have also obtained
exclusive and non-exclusive pay-TV or DTH programming rights from many of the
leading U.S. film studios. We expect our platforms will continue to focus on
obtaining the best available sports and entertainment programming.

We believe that locally produced programming in the viewer's native
language is essential for creating and maintaining subscriber loyalty. Each of
our platforms has entered into partnerships or agreements with local
programming suppliers and producers to develop or supply local language
content. Several of our platforms produce original programming for distribution
to their subscribers and several have also acquired extensive local film
libraries, which support their ability to consistently maintain an attractive
programming line-up for their subscribers. We expect that the platforms will
continue to develop and deliver quality local language programming to their
subscribers.

We also believe that the breadth of our platforms' programming content,
particularly content for which we have the exclusive pay-TV or DTH rights, is
an important advantage, and allows each regional platform to tailor the most
attractive consumer entertainment and service offering in its respective
market.

Realize economies of scale across our platforms by using their global
reach and large subscriber bases to lower operating and investment
costs.

We believe that the global reach and large subscriber bases of our
platforms will allow us to secure favorable technological and financial
arrangements from our suppliers, particularly with regard to set-top boxes and
related technology. We anticipate that the size of our aggregate subscriber
base will enable us to obtain set-top box volume discounts from our suppliers
and allow us to expedite the introduction of new versions of the set-top box,
as well as new applications and functions for the set-top box. We will pass
along the benefits of these arrangements to our platforms to enable them to
reduce subscriber acquisition costs and introduce new service features as
quickly as possible. To the extent possible, we intend to pursue common
technology standards for both hardware and software development throughout our
platforms. We believe that our large subscriber bases will encourage a more
accelerated development of improved hardware and software for digital
applications than could be obtained by our regional platforms on an individual
basis.

Build on the Sky and STAR brands and our relationship with News
Corporation and its subsidiaries, including Fox Entertainment Group,
Inc.

The Sky and STAR brands are widely recognized and are perceived to
represent high quality local and international television programming and
superior customer service. We believe that the strength of the Sky and STAR
brands is significant in both maintaining the loyalty of existing subscribers
and driving growth in new subscribers. We anticipate that our platforms can
capitalize on the strength of these brands not only to enhance their existing
businesses but also to support the launch of new service offerings and business
initiatives. We have historically benefitted from and we will continue to
benefit from our access to Fox's programming, which will be made available on
an arm's length basis, and News Corporation's management experience.

Invest in the development of enabling technologies to expand the range
of services offered by our platforms.

New technological advancements have and will continue to enable our
platforms to offer an increasing range of entertainment and services to their
subscribers throughout the world. We will continue to work with NDS and TV
Guide, as well as other hardware and software providers, to develop set-top
boxes with expanded functionality and embedded conditional access systems that
will enable the delivery of new interactive services. For example, set-top
boxes with built-in hard drives will allow individual subscribers to select
programming for viewing at their convenience. Through our relationships with
hardware and software providers, we intend to accelerate the introduction of
hardware and software innovations across the platforms.

In the future, we expect that the high-end set-top box will become a
media server providing a wireless home network allowing data communication
among television sets, printers, game consoles, telephones and other devices.
The media server will give the consumer the ability to control applications and
devices from remote locations, as well as permit access to the Internet,
television, audio systems and telephone from a number of devices throughout the
consumer's home. We expect to use the extended functionality to be offered by
the media server to enhance the entertainment and other service offerings
available to our subscribers.

Offer interactive television services and Internet-based services to
increase our subscriber bases, promote customer loyalty and increase per
subscriber revenue.

We anticipate that our platforms will continue to expand the range of
services and entertainment offered to their global subscriber bases,
transforming the television from an entertainment and information resource into
an interactive multimedia portal. We draw upon some of the most experienced DTH
and pay-TV managers in the world, providing us access to proven expertise and
business development teams to evaluate and roll out new services. We are
experienced at developing and delivering leading-edge technology and tailoring
consumer offerings to local market conditions.

We intend to maintain our leadership in home entertainment by
supplementing our high quality entertainment programming with unique
interactive programming and services and Internet-based services. We believe
that these further offerings will enable our platforms to become the preeminent
interactive home page, portal and content supplier for their respective
subscribers.

We anticipate that these new services will include:

. interactive services such as program guides, e-mail, games, weather
reports and horoscopes;

. enhanced television applications, allowing subscribers to choose
camera angles, view statistics while watching a sports event or
choose more in-depth coverage of selected news headlines;

. true video-on-demand, allowing subscribers to view local and
international programming at their convenience;

. a personal television recording service through the use of smart
digital recording functionality, which enables the subscriber to
select specific programs or preferred categories of programming for
viewing at times of the subscriber's choice;

. a "walled garden" interactive service that allows subscribers to
access services such as shopping and home banking through their
television from selected vendors. We anticipate that our platforms
will be able to generate revenues from advertising, transactions and
access fees charged to vendors selected by our platforms to provide
services within the "walled garden;"

. narrowband and broadband Internet access for the television, personal
computer, personal digital assistant and mobile telephone; and

. for our Internet-enabled customers, a "comfort zone" extension of the
"walled garden" incorporating access to the Internet where the most
popular content is preferentially situated by the platform for easy
access by its subscribers. We anticipate that our platforms will be
able to generate fees from advertising carried within the "comfort
zone," access fees charged to the selected vendors and transaction
fees.

Satellite Distribution Businesses

Europe

U.K./Ireland

The U.K./Ireland market had 25.0 million television households as of
December 31, 1999. The U.K./Ireland market had 3.8 million cable subscribers
(15.1%), 4.4 million DTH subscribers (17.5%) and 531,700 MMDS and digital
terrestrial pay-TV subscribers (2.1%) as of December 31, 1999.

BSkyB

We own approximately 38% of BSkyB. BSkyB is one of the leading pay-TV
broadcasters in the U.K., and is the leading supplier of sports, pay-per-view
content, movies, news and general entertainment programming to pay-TV operators
in the U.K. As of March 31, 2000, BSkyB had approximately 8.6 million
subscribers in the U.K. and Ireland. Of these subscribers, approximately 4.2
million were DTH subscribers (1.4 million analog and 2.8 million digital), 3.8
million were cable subscribers and 600,000 were subscribers to the ONdigital
digital terrestrial service. Approximately 66% of total subscribers subscribed
to one or more of BSkyB's premium channels.

BSkyB's ordinary shares and ADSs are traded on the London Stock Exchange
and the New York Stock Exchange, respectively, under the symbol "BSY".

Distribution

DTH subscribers contract directly with BSkyB for the package of basic and
premium channels they wish to receive. Cable subscribers, in contrast, contract
with their local cable operators, which in turn acquire the rights to
distribute certain of the channels BSkyB owns (the "Sky Channels") from BSkyB.
BSkyB also authorizes ONdigital to distribute versions of its premium movie and
sports channels. BSkyB generates revenues directly from its DTH subscribers and
from fees paid by cable operators and ONdigital.

BSkyB is converting its customers who receive its analog service to its
digital service, and aims to complete this transition no later than December
31, 2002. From the launch of Sky digital in October 1998 to

March 31, 2000, BSkyB has sold approximately 3.0 million digital satellite
systems, of which approximately 1.4 million were to new subscribers. In an
effort to accelerate the transition from analog to digital, BSkyB provides
customers with a free digital satellite system provided the customer agrees to
pay an installation charge and agrees to keep the system connected to an
operational telephone line. There is no obligation to subscribe to Sky digital
in order to accept the free equipment offer. BSkyB, together with British
Interactive Broadcasting, or "BiB," a joint venture in which BSkyB has an
equity interest, currently subsidize the cost of providing these free digital
satellite systems.

Programming

Programming offered by BSkyB comprises sports, movies, news and general
entertainment. Because of the importance of content to the appeal and
marketability of the services BSkyB offers, BSkyB makes significant investments
in the acquisition, commissioning and production of programming. Through its
three dedicated premium sports channels, Sky Sports is the leader in U.K.
sports broadcasting. BSkyB's programming rights for the Sky Sports Channels
include exclusive rights to broadcast live in the U.K. and Ireland a number of
important soccer, rugby, cricket, golf and boxing events. BSkyB currently has
exclusive broadcast rights for soccer, including the Premier League, Nationwide
Football League and the Football Association Cup, which expire at the end of
the 2000/2001 season. In June 2000, BSkyB was awarded the principal Premier
League contract for 66 live matches each season for three years from the start
of the 2001/2002 season to the close of the 2003/2004 season, subject to
documentation. In addition, BSkyB and the BBC were awarded live rights to the
Football Association Cup and England Internationals for the same period. In
addition to its three premium sports channels, BSkyB has launched
SkySports.comTV, Europe's first all-sports digital news channel.

BSkyB currently has minority interests in five soccer teams that will
compete in the Premier League next season: Manchester United, Chelsea, Leeds
United, Manchester City and Sunderland. BSkyB has also entered into a strategic
media alliance with Leeds Sporting, the holding company of the soccer club
Leeds United, whereby BSkyB will act as its exclusive media agent, excluding
rights required to be negotiated collectively by the Premier League, for an
initial period of five years. BSkyB has also announced agreements to enter into
similar strategic media alliances with the Chelsea, Manchester City and
Sunderland soccer clubs.

BSkyB's three core premium movie channels, Sky Premier, Sky MovieMax and
Sky Cinema, offer the most attractive package of motion picture content
available in the U.K. Sky One is BSkyB's flagship entertainment channel and
generates the highest ratings of any satellite or cable channel in the U.K. Sky
One is often the first U.K. television window for U.S. television programs,
showing major series such as The Simpsons, Pokemon and The X-Files. While these
series are extremely popular, original British content is increasing in
popularity and today represents on average about 31% of Sky One's programming
line-up. In addition, BSkyB currently offers its DTH digital subscribers over
60 screens of Sky Box Office programming on a near-video-on-demand basis.

BSkyB has obtained exclusive pay-TV rights to broadcast in the U.K. and
Ireland during a specific license time period current movie output produced or
distributed by Sony/Columbia, Disney (excluding animated films), Paramount,
Twentieth Century Fox, MGM, Universal and Warner Bros., as well as several
other independent U.S. and European licensors.

In addition to obtaining movie rights from major studios, BSkyB (by
itself and with partners) makes full length theatrical feature films and
television films, specifically designed to run on its movie channels. BSkyB has
made or is in the process of making 11 such films. One of the most recent
efforts, Saving Grace, received the World Audience Award at the Sundance Film
Festival in 2000. In addition, BSkyB aims to provide added value to its movie
subscribers through support programming. BSkyB currently has the exclusive
British rights to show the Oscars ceremony and has retained Barry Norman, the
most highly rated British film critic, previously of the BBC, to host a weekly
movie review show on Sky Premier.

In addition, through joint ventures, BSkyB has an interest, either
economic or equity, in the following channels: 50% interest in Nickelodeon,
Nick Replay, Nick Jr., The History Channel and the National Geographic Channel;
a 49.5% interest in the Granada Channels: Granada Breeze, Granada Men and
Motors and Granada Plus; a 49% interest in Music Choice Europe, a joint venture
with Warner Music and Sony Digital Radio Europe; a 33.3% interest in MUTV; a
25% interest in the Paramount Comedy Channel; and a 20% interest in QVC.

Interactive Services

BSkyB's digital DTH customers can also access interactive services
through the Open. . . . platform. Open. . . ., launched in October 1999,
provides interactive services, such as home shopping, banking, travel and
holiday services, information, games and e-mail through the television. The
customer's telephone line is the return path for these interactive services.
Open. . . . is currently available free of charge to all of Sky digital's
viewers and other digital satellite viewers in the U.K. Open. . . . derives
revenues from (1) the fees charged to retailers that provide services on the
platform, (2) revenue sharing in e-commerce transactions completed on the
platform and (3) advertising.

The Open. . . . interactive platform is operated by BSkyB's joint
venture, BiB, which is owned 32.5% each by BSkyB and by BT Holdings Limited,
20% by HSBC Holdings plc and 15% by Matsushita Electric Europe (Headquarters)
Limited. To establish the technological infrastructure for digital interactive
services and to establish a base of digital satellite set-top boxes and dishes
capable of receiving the Open . . . . interactive services, BiB offers
customers the benefit of an "interactive discount" on the cost of a digital
satellite system if the customers agree to enter into a contract with BiB and
to connect their digital satellite set-top box to an operational telephone line
and to keep a viewing card in the set-top box for at least 12 months.

BSkyB has recently launched a new enhanced television service, Sky Sports
Extra, which allows subscribers to view multiple camera angles covering the
same event, select highlights or watch continuous highlight replay, and match
statistics while keeping the fully produced live game in vision. Sky viewers
have responded enthusiastically with 36% of the Sky digital audience regularly
using the service.

New Media Initiatives

BSkyB intends to provide a variety of content to users wherever and
whenever they want it in the U.K. including through televisions, personal
computers and mobile telephones. BSkyB recently formed Sky New Media Ventures
plc to invest in online ventures. BSkyB has made several recent strategic
investments in interactive and other Internet businesses, including:

. an 18% interest in mykindaplace.com Limited, a website with 12
channels aimed at adolescent girls;

. a 14% interest in InFront Limited, which operates Streets OnLine, an
entertainment products Internet retailer;

. a 10% interest in Static 2358 Holdings Limited, a media company
focused on interactive television and broadcast design;

. a 10% interest in gameplay.com plc, a computer games portal and
community;

. an 8% interest in Toyzone.co.uk Limited, an online toy retailer; and

. a 5% interest in Sportal International Limited, a sports-focused
Internet company.

In June 2000, BSkyB made an offer to acquire Sports Internet Group plc, a
publicly traded company that designs and maintains third party sports sites as
well as its own Web sites. Under the offer, Sports Internet

shareholders will receive shares of BSkyB in exchange for their shares of
Sports Internet, which value Sports Internet at (Pounds)256 million. If all
Sports Internet shareholders tender their shares, our ownership interest in
BSkyB will decrease to approximately 37%. The offer is currently subject to
Office of Fair Trading, or "OFT," review.

Competition

BSkyB's main competitors for the acquisition of programming are the major
terrestrial broadcasters (the BBC, the ITV network and its members, Channel 4
and Channel 5), digital terrestrial television operators (such as ONdigital),
cable companies (NTL and Telewest) and a wide range of pay-TV channel
providers. BSkyB competes for advertising and sponsorship revenue with other
broadcasters, including the ITV companies (Carlton, Granada and United News and
Media), Channel 4 and Channel 5. Pay-TV packages are offered to subscribers by
BSkyB (by DTH satellite), ONdigital (by digital terrestrial television) and
cable operators, dominated by NTL and Telewest.

Our Role in Management

We have the right to appoint five directors of BSkyB, which number would
decrease if our share ownership decreased below 30% of BSkyB's equity. BSkyB's
board currently has 14 directors. Our chairman, Mr. K. Rupert Murdoch, has
served as the chairman of BSkyB's board of directors since June 1999. By virtue
of our owning more than 30% of BSkyB, we are deemed to be the "controlling
shareholder" of BSkyB for the purposes of the U.K. Listing Rules. In accordance
with these Rules, BSkyB's Articles of Association contain certain provisions
that enable it to act independently of its controlling shareholder. In
addition, our representatives on the BSkyB board may not vote on any material
matter in which we or any of our affiliates are interested parties. Our
representatives also serve on BSkyB's audit committee and remuneration
committee.

Germany/Austria

The German market had approximately 33.4 million television households as
of December 31, 1999. Germany had approximately 20.5 million cable subscribers
(61.5%) and 9.1 million DTH (primarily free-to-air) subscribers (27.3%) as of
December 31, 1999. The Austrian market had approximately 3.1 million television
households as of December 31, 1999. Austria had approximately 1.2 million cable
subscribers (38.5%) and 1.1 million DTH subscribers (35.2%) as of December 31,
1999.

KirchPayTV

BSkyB owns 24% of KirchPayTV, the leading German language pay-TV service
operator in Germany and Austria. The remaining interests in KirchPayTV are held
by KirchGroup, one of Europe's largest media groups.

As of March 31, 2000, KirchPayTV had a subscriber base of approximately
2.1 million subscribers in Germany and Austria, which consisted of
approximately 1.4 million digital subscribers and 700,000 analog subscribers.
In October 1999, KirchPayTV launched "Premiere World," its digital,
multichannel pay-TV operation that combined the operations of Germany's two
previously existing digital pay-TV services, Premiere and DF1.

Distribution

The KirchGroup has been a pioneer in the development of digital
television in the German-speaking television market. Its digital pay-TV
platform gives it the ability to broadcast up to 80 digital channels via
satellite directly to DTH subscribers and to cable operators including Kabel
Deutschland GmbH, a subsidiary of Deutsche Telekom, which then route the signal
through their cable network directly to KirchPayTV's subscribers or to
intermediate operators, who then pass the signal on to their subscribers.
KirchPayTV has an arrangement with Deutsche Telekom, which carries Premiere
World on the Kabel Deutschland cable network, which is 100% owned by Deutsche
Telekom. Deutsche Telekom recently divided the Kabel Deutschland cable network
into nine regional cable networks. A majority stake in each regional cable
network has been or will be

sold to third parties. However, these sales will not affect KirchPayTV's
carriage agreement as Deutsche Telekom has agreed it will transfer this
carriage obligation to the regional cable companies. KirchPayTV has also
entered into agreements with other cable operators, including Bosch Telecom and
Deutsche Netzmarketing, which combines several cable operations including
TeleColumbus and NetCologne, to deliver its services throughout Germany. Under
the amendment of the State Treaty on Broadcasting, which took effect on April
1, 2000, the cable operators gained more flexibility in allocating digital
cable capacity to TV channels and other broadband services. Of the available
digital cable capacity, one-third has to be allocated to "must carry" channels,
one-third to operator selected channels within stated programming categories
and the remainder to the operators' choice of channels. KirchPayTV, which has
long-term carriage arrangements with cable operators, will not be affected by
this amendment.

Programming

KirchPayTV's Premiere World offers subscribers a choice of programming
featuring premium movies, live sporting events and a variety of special
interest and theme channels. Premiere World offers four packages of
programming, which can be combined: Movie World, Sports World, Family World and
Gala World, as well as additional special interest channels.

On its Movie World channels, KirchPayTV offers an extensive portfolio of
movie channels. KirchPayTV's Sports World channels focus on live sporting
events using digital technology that allows subscribers to view multiple camera
angles covering the same event and an entry screen that displays all sporting
events broadcast at a given time. On its Family World channels, KirchPayTV
offers both third party family programming and content from its extensive
portfolio of pay-TV broadcasting rights to movies and television productions.
KirchPayTV recently launched its Gala World programming package designed to
appeal to persons 50 and older, the largest segment of the German-speaking
television market. KirchPayTV also offers its subscribers additional special
interest channels and premium motion pictures and adult movies on a pay-per-
view basis. Beginning August 2000, KirchPayTV plans to broadcast Bundesliga
soccer matches on a pay-per-view basis.

KirchPayTV has secured exclusive rights to live broadcasts of major
sporting events including all soccer matches of the first and second divisions
of the Bundesliga. It also has exclusive pay-TV rights for Formula One Grand
Prix races. KirchPayTV has exclusive pay-TV rights to all Tuesday and Wednesday
live Champions League soccer matches on Premiere World. The main Wednesday
night match will also be shown on the free-TV station RTL. KirchPayTV also has
long-term licensing and sublicensing arrangements for the exclusive pay-TV
broadcasting rights to current and future movie releases, as well as access to
motion pictures and made-for-TV movies of most of the leading U.S. film studios
and of leading U.S. and European film and television production companies and
distributors. Under an agreement with KirchMedia, KirchPayTV has the right to
acquire, on commercially reasonable terms, any pay-TV broadcasting rights for
the German speaking market owned or acquired by KirchMedia, either for itself
or on behalf of KirchPayTV.

Competition

Although KirchPayTV currently has no direct competitors offering DTH pay-
TV subscription services in the markets it serves, KirchPayTV competes with
over 30 free-to-air television channels for viewership and programming content.
Deutsche Telekom has launched a digital cable platform, MSG, which also markets
Premiere World to its subscribers who contract separately for this service with
Premiere World. Primacom, a German cable operator, has also announced it will
launch cable pay-TV services. Both of these services will compete with
KirchPayTV. KirchPayTV believes that programming is the key competitive factor
in the German television market. Other significant factors include consumer-
oriented scheduling of programming, the amount and scheduling of advertising,
the strength of a pay-TV platform's brand and broadcast reach. The Austrian
cable and broadcasting market is highly fragmented with cable as the
predominant platform in urban markets and satellite the predominant platform in
rural markets. Telekabel Wien, serving the Vienna region and owned

by United Pan-Europe Communications N.V., is Austria's largest cable operator
with over 450,000 total subscribers. The remaining cable operators service
limited customer bases, often totaling no more than 40,000 subscribers.
Premiere World is both the only national pay-TV and DTH operator in Austria.

BSkyB's Role in Management

BSkyB currently has the right to appoint one-third of the KirchPayTV
supervisory board. Through its minority shareholding, BSkyB has the ability to
influence the strategic direction of KirchPayTV.

Switzerland

KirchPayTV holds a 40% interest in Teleclub AG, a pay-TV service in
Switzerland, which as of April 30, 2000, had approximately 93,100 subscribers.

Italy

Italy had an estimated 20.1 million TV households as of December 31,
1999. Italy had approximately 243,000 cable subscribers (1.2%), 1.3 million DTH
subscribers (6.4%) and 449,500 terrestrial pay-TV subscribers (2.2%) as of
December 31, 1999.

Stream

We currently own approximately 42% of Stream S.p.A., a pay-TV service
provider in Italy. Our interest will increase to 50% upon consummation of a
pending acquisition anticipated to close in July 2000, subject to regulatory
approval. The remaining 50% interest will be held by Telecom Italia. As of
March 31, 2000, Stream had approximately 450,000 subscribers, comprising
400,000 DTH and 50,000 cable subscribers.

Distribution

Stream, one of two national digital broadcasting services in Italy,
distributes its programming both to cable subscribers, over cable lines leased
from Telecom Italia, and directly to DTH viewers. As Telecom Italia has decided
not to proceed with any further cable build-out, any further growth in this
market will likely come from increased DTH viewership.

Programming

Stream offers the following products: a basic subscription package of
Stream's 28 basic channels (including ten interactive channels), several soccer
packages, a premium sports channel, a premium two-channel movie package and
pay-per-view services. Stream also retransmits 11 free-to-air channels.

Exclusive soccer rights have been a large contributor to the growth of
pay-TV in Italy. Serie A soccer is the top national soccer division in Italy.
The top teams in Serie A benefit from extremely loyal fan followings. Serie A
television rights are not sold on a league-wide basis; rather each team sells
the exclusive rights to its own home games. Stream has obtained exclusive
rights to broadcast the home games of six of the 18 Serie A teams, including
Lazio, winner of the most recent Serie A championship, and three other teams
ranked in the top ten during the 1999/2000 soccer season.

In addition to soccer and other sports content, Stream has access to
movie content through its six year arrangement with Cecchi Gori, the leading
distributor of Italian language programming. Under this arrangement, which
expires in 2005, Cecchi Gori provides Stream with exclusive premier pay-TV,
pay-per-view and near-video-on-demand rights for films produced or distributed
in Italy by Cecchi Gori, exclusive broadcasting rights of the Cinema Classico
movie channel and first-choice rights to Cecchi Gori's 3,000 title movie
library.

Interactive Services

Stream is seeking to establish itself as an innovative operator by
developing new interactive features. By December 2001, Stream intends to launch
applications that take advantage of the remote control and the return path
capabilities of the set-top box. For example, Stream is working with major
Italian banks to launch a pilot TV online banking application, with online
brokerage services to be made available in the near future. Other projects
under development include a "walled garden" shopping environment and
interactive advertising.

New Media Initiatives

In the online environment, Stream aims to develop an Internet presence to
complement its core broadcast business by consolidating existing assets, such
as its corporate, games and news Web sites, and by developing new thematic
portals by repackaging current TV-oriented content.

Competition

Italy currently has 12 terrestrial analog channels nationwide, two of
which are pay-TV channels operated by Telepiu, a subsidiary of Canal+, and the
remainder of which are free-to-air channels operated by RAI, Mediaset and TMC.
The Italian TV market also includes 700 free-to-air local stations offering
limited content. Stream's primary competitor is Telepiu, which provides analog
terrestrial and digital DTH services. In the pay-TV market, Telepiu has
approximately 70% of the market based on the total number of subscribers and
has obtained exclusive rights to broadcast the home games of 12 of the 18 Serie
A teams.

Our Role in Management

We have the right to appoint one-half of Stream's board of directors and
the chief executive officer. Our consent and the consent of Telecom Italia, our
50% partner, are required to take significant actions, such as mergers and
capital raising transactions.

Asia and the Middle East

STAR

Our wholly-owned subsidiary, STAR, is engaged in the development,
production and distribution of television programming throughout Asia and the
Middle East. STAR currently broadcasts to 53 countries in Asia in seven
languages across 27 channels. STAR divides its markets into three regions:
India, Greater China (consisting of China, Taiwan and Hong Kong) and the rest
of Asia, with a primary focus on South Korea, Singapore, Pakistan, the
Philippines, Malaysia and Thailand. STAR believes that approximately 300
million people in 80 million households regularly tune in to STAR's premium and
exclusive channels.

Distribution

STAR's programming is primarily distributed via satellite to local cable
operators for distribution to their subscribers. In certain countries, STAR
also distributes its programming and other third-party programming via
satellite directly to viewers. In addition, some of STAR's channels, such as
Channel [V] Greater China and STAR Sports Asia, are free-to-air channels that
may be received by anyone with a satellite dish. These free-to-air channels
reach approximately 20 million households in mainland China and Hong Kong. In
addition, STAR's joint venture channel, the Phoenix Chinese Channel, which also
transmits on a free-to-air basis, reaches over 40 million households.

Programming

STAR is the leading provider of TV programming in Asia, currently
offering 27 channels. STAR wholly owns and operates eight channels, including
several versions of STAR Movies, the leading international movie channel in
India; STAR Chinese Channel, the second highest rated TV cable and satellite
channel in Taiwan; and STARPlus, STAR's highest rated channel in India. In
addition, STAR provides an additional 19 channels owned and operated by News
Corporation or STAR joint ventures, including the Phoenix joint venture, the
leading foreign satellite television operator broadcasting into mainland China,
and the ESPN STAR Sports joint venture.

STAR believes that high quality programming targeted towards the local
audience enhances the appeal and marketability of its television services. As a
result, STAR makes significant investments in the acquisition, commissioning
and production of programming.

The following are STAR's primary sources of programming:

. Exclusive rights to broadcast theatrical movies produced by several
major U.S. film studios, including Twentieth Century Fox, Dreamworks
SKG, MGM and Disney, and a variety of non-exclusive rights to
broadcast theatrical movies, including those produced by Polygram.

. Exclusive rights to broadcast many of Asia's most popular sporting
events. STAR's sports programming consists of several market-specific
sports channels that provide coverage of international and Asian
sporting events with commentaries in both English and in the local
language. These channels, which include STAR Sports Asia, STAR Sports
Taiwan, STAR Sports India, ESPN Asia, ESPN Taiwan and ESPN India, are
owned and operated by ESPN STAR Sports, a 50-50 joint venture between
STAR and ESPN. In addition to holding rights to broadcast certain
major international sporting events such as NBA games, Formula One
racing, US PGA Tour Events and U.K. Premier League soccer, ESPN STAR
Sports holds long-term contracts for various popular Asian sporting
events such as Chinese National League soccer games, China's
International Table Tennis Federation matches, international cricket
matches and the Women's World Volleyball Grand Prix.

. The most extensive contemporary Asian film library in the world,
containing over 570 Chinese language titles including the Golden
Harvest and Golden Princess film libraries, encompassing most of the
Jackie Chan and Bruce Lee titles. STAR has entered into or committed
to exclusive output agreements with four of the most prominent Hong
Kong film companies: Media Asia, China Star, BOB and FBI. Media Asia
is partly owned by Jackie Chan.

. Original programming is produced primarily through STAR
Entertainment, a division of STAR, that produces and commissions over
10,000 hours of programming per year for both India and Taiwan. For
example, STAR Entertainment acquires the rights to successful TV
formats, such as Who Wants To Be a Millionaire? and Family Feud,
which are adapted to the Asian market and reproduced locally. In
addition, Fortune Star Limited, a wholly-owned subsidiary of STAR,
was recently formed to produce and commission theatrical movies and
television programming for Chinese audiences worldwide.

. Strategic arrangements with leading local production companies. In an
effort to boost its regional focus, STAR pursues co-production
opportunities with local companies and is developing local
programming for a number of countries across Asia. For example, STAR
has entered into production arrangements with UTV, a leading
independent producer, to produce popular Indian content, as well as
with one of the leading industrial groups in India to own and operate
radio stations.

. A joint venture with major music companies, Channel [V] is a 24-hour
music television service that broadcasts music videos as well as
music and youth-oriented programming. Channel [V] is

75% owned and operated by STAR in partnership with three major music
entertainment groups, Bertelsmann Music Group, EMI and Time Warner.
Channel [V] channels include: Channel [V] Greater China, Channel [V]
International, Channel [V] India, Channel [V] Thailand (through a
joint venture with a Thai partner), and Channel [V] Australia and
Channel [V] Philippines (both through licensing arrangements with
local broadcasting partners).

New Media Initiatives

STAR owns and operates startv.com, a Web site that promotes STAR's
services. STAR is planning to expand startv.com into an Asian entertainment
portal. STAR is in discussions with a number of local companies, such as
Singapore Telecom (SingTel), to expand its existing infrastructure and to
develop new business opportunities in various regions.

Set forth below is a brief summary of STAR's business in its key
markets: India, Greater China and the other Asian markets.

India

India, with a population of 1.0 billion people, is the world's second
most populous country after China. The Indian market had 68.0 million
television households as of December 31, 1999. India had approximately 24.0
million cable subscribers (35.3%) as of December 31, 1999.

With approximately 560 employees in India, STAR, together with its
subsidiaries and affiliates, has the strongest local presence of any foreign
broadcaster in India.

Distribution

India currently prohibits the distribution of foreign satellite channels
directly to viewers' homes via Ku-band satellite transmission. As a result,
STAR's television services are distributed largely through cable systems. The
Indian cable industry is highly fragmented, with over 25,000 cable operators.
STAR also distributes its channels to selected hotels, businesses, embassy
compounds and selected institutions via its C-band satellite service. If the
existing legislation is modified to permit the broadcasting of DTH services,
STAR believes it is well positioned to capitalize on this opportunity.

Programming

STAR is the leading pay-TV channel supplier in India, providing over 30%
of pay-TV channels delivered to cable homes. STAR receives approximately 80%
of all programming revenues paid by cable operators. The market for TV
programming entertainment in India is segmented primarily along linguistic
lines, the largest segment in terms of viewership being Hindi. A now
terminated agreement with Zee Telefilms severely limited STAR's ability to own
and operate Hindi channels or produce Hindi programming. Since the termination
of the agreement in September 1999, STAR has aggressively increased its
production of Hindi programming. STAR also intends to launch a Hindi movie
channel by the end of 2000.

STAR offers a package of ten channels in India. STAR Plus, the flagship
channel, carries approximately 80% of its programming services in Hindi. STAR
News and Channel [V] India are offered substantially in Hindi. STAR also
provides local content on STAR Movies India, STAR Sports, ESPN, Channel [V]
India and STAR News. Of the ten channels, four are operated by joint ventures.

New Media Initiatives

STAR is working with several cable operators located in India's major
metropolitan areas to upgrade their networks for two-way operation and to
install Internet access servers at cable headends. These cable headends, which
will be connected to STAR's Network Operations Centre in Hong Kong via
satellite, will permit STAR to download content to subscribers at significantly
higher speeds than conventional methods.

To service the interactive and online markets, STAR has launched or
intends to launch the following Web sites:

. [V]india.com, a youth-focused entertainment site featuring music
content as well as career, travel, romance and education related
content;

. STARsports.com, an Asian sports content site that will include sports
news and video content from ESPN STAR Sports channels;

. a film site that will utilize STAR's existing sources of film content
and is anticipated to offer video streaming, interactive movie
trailers, previews and video on demand services; and

. a news site providing extensive local and international news coverage
sourced from STAR's local programming content, as well as Sky and Fox
programming.

To complement its wholly-owned and operated Web sites, STAR has made or
is in the process of making several strategic investments in existing Indian
Web sites and other Indian Internet-related businesses, including:

. a 33% interest in Indya.com, a general horizontal portal;

. a 25% interest in Explocity.com, an online and print city guide;

. a 20% interest in Indiaproperties.com, a leading real estate listings
site;

. a 15% interest in ITSpace.com, the leading Indian technology site;

. a 15% interest in Egurucool.com, an educational site;

. a 15% interest in Baazee.com, an auction site;

. a 10% interest in Fabmart, India's foremost online retailer of books
and music; and

. a 9% interest in LGCommerznow.com, an e-commerce enabler.

Competition

The pay-TV broadcasting industry has several participants. Competition
for STAR's channels is provided mainly by Zee Telefilms and Sony Corporation,
and potentially from the newly launched channels of Sahara TV and the Sri
Adhikari Brothers. We also compete with Doordarshan, the government-owned
broadcasting company that has a monopoly on terrestrial broadcasting. As a
result of government restrictions that severely limit the ability of companies
such as STAR to repatriate their advertising revenues abroad, STAR must sell
its advertising almost exclusively to export-oriented advertisers with non-
Rupee denominated earnings.

STAR competes against Zee Telefilms, another producer of Hindi language
programming, and Sony Corporation in bidding for both Hindi film rights and for
sports programming such as cricket rights. Competition for STAR's services
varies within each programming genre:

. STAR News competes primarily with Zee News, BBC, CNN and CNBC;

. STAR World competes primarily with Zee English and Sony Corporation's
AXN; and

. STAR Movies competes with Zee Movies, TCM, AXN, Hallmark, SETMAX and
HBO.

Greater China

Greater China, consisting of China, Taiwan and Hong Kong, contains the
world's largest population at 1.4 billion people. Approximately 88% of this
population has access to television services. Greater China had 263 million
television households (255.0 million in mainland China, 2.0 million in Hong
Kong and 6.0 million in Taiwan) as of December 31, 1999. Greater China had
approximately 65.7 million cable subscribers (25.6%), 8.6 million DTH
subscribers (3.3%) and 300,000 MMDS subscribers (0.1%) as of December 31, 1999.

With approximately 140 employees located in mainland China, STAR has the
strongest local presence of any foreign broadcaster in mainland China and has
agreements with dozens of cable operators throughout the region to distribute
its channels, including through Chinese International Television Corporation.

Distribution

In mainland China, STAR distributes its Phoenix Chinese Channel, STAR
Sports Asia and Channel [V] Greater China on a free-to-air basis. Mainland
China currently prohibits the distribution of foreign satellite channels,
except to certain hotels, businesses, embassy compounds and selected
institutions. STAR believes that, if the restrictions on foreign satellite
distribution are removed, it will be well positioned to attract viewer demand
with its high quality programming.

In Hong Kong, STAR currently distributes its services (Phoenix Chinese
Channel, STAR Sports Asia, STAR World and Channel [V] Greater China) via
satellite on a free-to-air basis. Most viewers in Hong Kong access these
channels via a satellite dish connected to their residential building's system.

In Taiwan, STAR currently has agreements that guarantee carriage on cable
systems owned and operated by both the Eastern Multimedia Group and United
Communications Group, the two largest cable operators in Taiwan.

Programming

STAR offers ten channels in Greater China, seven of which are offered in
Chinese languages and one of which is subtitled in Chinese. Of the ten
channels, six are operated by STAR and the remaining four are owned and
operated by STAR's joint ventures. In Hong Kong, STAR offers four free-to-air
channels. In Taiwan, STAR offers 11 channels, including two channels, STAR
Sports Taiwan and STAR Chinese Channel, specifically targeted to Taiwan. Of
these channels, the STAR Chinese Channel, a 24-hour Chinese language
entertainment channel operated by STAR, is the second most popular channel in
Taiwan while Phoenix Chinese Channel is believed to be the most popular foreign
satellite channel in China.

The Phoenix Chinese Channel is owned and operated through the Phoenix
joint venture in which STAR currently has a 45% interest. STAR formed the
Phoenix joint venture with strategic China-based partners to create a Chinese
content brand to complement STAR's other channels. The Phoenix joint venture
has forged a close relationship with a Beijing-based national production
company to develop approximately 15-20 hours of programming per week for the
Phoenix Chinese Channel and has also established partnerships with local
Chinese provincial broadcasting bureaus to co-produce content on an event-
driven basis. The Phoenix joint venture also owns and operates Phoenix Movies
Channel, a Chinese language movie channel, and the Phoenix CNE Channel, a
general entertainment channel broadcast in Europe to local Chinese audiences.
Together with other local production arrangements, these localized content
initiatives provide a significant competitive advantage for STAR's programming
efforts in China. The Phoenix joint venture has announced its intention to
conduct an initial public offering in Hong Kong, which is expected to reduce
STAR's interest in the joint venture to approximately 38%.

New Media Initiatives

To service the interactive and online markets in Greater China, STAR has
launched or intends to launch the following Web sites:

. chinabyte.com, a leading Chinese information technology site;

. Channel [V]-china.com, a youth-oriented site featuring music content
as well as concert listings, news, travel, entertainment, chatrooms
and celebrity interviews;

. STARsports.com., an Asian sports content site; and

. additional destination Web sites either through partnerships or by
creating its own branded sites.

STAR is continuing to invest in several leading Chinese consumer Web
sites, including:

. a 15% interest in SinoBIT.com, the first portal targeted to Chinese
high-tech entrepreneurs;

. a 12% interest in Renren.com, a leading community site that targets
the global Chinese community; and

. a 10% interest in netease.com, a leading Chinese portal.

STAR is also exploring partnership opportunities to develop additional
Web sites with focuses on education and finance.

Competition

STAR competes with various broadcasting networks which offer their
services via free-to-air terrestrial, cable and satellite throughout Greater
China. In mainland China, STAR competes primarily with China Central
Television, or "CCTV," China's state-owned broadcaster, which operates a
national network of 36 provincial stations and 728 local stations and maintains
a dominant position in Chinese television broadcasting. CCTV operates eight
channels for distribution within mainland China; four are analog terrestrial
channels and four comprise a pay-TV service broadcast by cable and satellite.
Government regulations require cable operators to carry CCTV's pay-TV service,
thus competing directly with STAR's programming. In addition, STAR also
competes with Television Broadcasts Limited, or "TVB," which offers television
services throughout Greater China, including two Mandarin language channels
delivered via satellite to mainland China. In addition cable operators may
contract for programming rights from third parties or create their own channels
and compete with STAR as an alternative to STAR's television services.

In Hong Kong, STAR competes primarily with TVB, which offers one English
and one Chinese free-to-air terrestrial channel to a majority of the television
households in Hong Kong. In addition, STAR competes with i-Cable Communications
Limited, the only pay-TV provider in Hong Kong. i-Cable delivers its pay-TV
services, consisting of over 16 channels, via cable and MMDS to 26% of the
cable households in Hong Kong. Other competitors are also developing digital
cable and interactive television services that may compete with the services to
be provided by STAR.

In Taiwan, approximately 78% of television households access television
services through cable systems. Eastern Multimedia Group and United
Communications Group control approximately 70% of the market. These cable
operators offer approximately 50 channels, a portion of which are STAR
channels. There are also five terrestrial stations, broadcasting the most
popular channels in Taiwan. The most popular local channel is TVBS, which is
jointly owned by TVB and Era Communications Co. Ltd.

Other Asian markets (excluding Japan)

The other Asian markets targeted by STAR consist primarily of South
Korea, Singapore, Pakistan, the Philippines, Malaysia and Thailand. These other
Asian markets (excluding Pakistan and the Middle East) had approximately 70.8
million television households as of December 31, 1999. These other Asian
markets (excluding Pakistan and the Middle East) had approximately 2.3 million
cable subscribers (3.3%), 2.2 million DTH subscribers (3.1%) and 150,000 MMDS
subscribers (0.2%) as of December 31, 1999.

Currently, STAR reaches approximately 35 million viewers in these other
Asian markets. STAR's original programming content is broadcast through a
variety of distribution arrangements with local cable operators in each market.
STAR intends to continue to provide local content to these various markets as
they develop in size and revenue, and to develop local capability in
production, distribution and advertising sales.

In these other Asian markets, STAR is investing in the development of
related Internet businesses, such as startv.com and channelv.com (and related
sites for Australia, Thailand, Korea and Israel), technology companies and
third-party Web sites.

Japan

The Japanese market had 47.2 million television households as of December
31, 1999. Japan had approximately 8.6 million cable subscribers (18.2%) and
14.5 million analog and digital DTH subscribers (30.7%) as of December 31,
1999.

SKY PerfecTV!

We own approximately 10% of SKY PerfecTV!, the leading multi-channel
digital satellite television distribution platform in Japan. The other major
shareholders, which also own approximately 10% interests in SKY PerfecTV!, are
Sony Corporation, Softbank Corporation, Fuji Television Network Inc. and Itochu
Corporation. In addition, Hughes Electronics Corporation, the parent of
DIRECTV, recently agreed to acquire approximately 7% of SKY PerfecTV! and
transfer its subscribers to SKY PerfecTV! SKY PerfecTV! has announced its
intention to conduct an initial public offering of its stock in the Fall of
2000. Our approximately 10% ownership gives effect to the issuance to Hughes
Electronics Corporation of its 7% interest but will be diluted as a result of
SKY PerfecTV!'s proposed initial public offering.

At March 31, 2000, SKY PerfecTV! broadcast 167 digital TV channels and
had approximately 1.8 million subscribers (not including DIRECTV's
approximately 400,000 subscribers).

Programming

Approximately 60 of the 167 SKY PerfecTV! channels are available on the
basic tier packages. The remaining channels are either pay-per-view offerings,
premium sports and movies, or a wide selection of special interest a la carte
channels, including news, music and sports channels.

Competition

As a result of DIRECTV Japan ceasing operations, which is expected to
occur by October 2000, SKY PerfecTV! will become the only multi-channel digital
satellite television distribution platform in Japan. SKY PerfecTV! faces
competition from digital cable services that have recently become available and
other satellite services, including WOWOW, currently an analog premium general
entertainment channel, and NHK, as well as the five major terrestrial networks.
SKY PerfecTV! anticipates competition from digital broadcast satellite services
from WOWOW, NHK and the five major terrestrial networks by the end of 2000 and
from digital terrestrial services in 2003.

Latin America

Brazil

The Brazilian market had an estimated 36.9 million television households
as of December 31, 1999. Brazil had approximately 1.9 million cable subscribers
(5.2%), 638,000 DTH subscribers (1.7%) and 432,000 MMDS subscribers (1.2%) as
of December 31, 1999.

Sky Brazil

We have a 36% interest in Net Sat, operator of Sky Brazil, the leading
DTH television service in Brazil. The remaining interests in Net Sat are held
by Globopar (together with TV Globo Ltda., "Globo") and LMI, which own 54% and
10% of Net Sat, respectively. Sky Brazil's current subscriber base of 508,000
as of March 31, 2000 represents approximately 55% of the current digital DTH
market in Brazil.

Net Sat believes that, due to the relatively recent introduction of pay-
TV services in Brazil, Brazil represents one of the largest potential and least
penetrated pay-TV markets in the world. As demand for pay-TV services continues
to grow in Brazil, Ku-band DTH systems offer the greatest opportunity for rapid
expansion into households in areas not currently serviced by cable or MMDS
operators. There are many rural areas of Brazil with little or no cable
television availability, where the cost to install a cable system would be
significant and, in many cases, economically unfeasible. Net Sat believes that
rural areas provide a prime market for its satellite television services. Of
the more than 5,000 municipalities in Brazil, only approximately 120 currently
have access to cable or MMDS service. Consequently, satellite transmission is
the most economical and, in many cases, the only way that programming can be
provided to rural consumers in Brazil. Sky Brazil is the only DTH service with
a nationwide footprint.

Distribution

Sky Brazil distributes its programming exclusively via DTH.

Programming

Sky Brazil broadcasts 135 channels. The master package offers 111
channels, while the advanced package has 126 channels. The majority of the
video channels are in Portuguese and cover general entertainment, sports, kids,
news, documentaries and education genres. Both packages offer advanced
programming guides.

The master and advanced packages offer 40 pay-per-view channels, 32 music
channels and a number of a la carte channels, including a medical news channel
and a sports channel only available to advanced package subscribers.
Subscribers living in Sao Paulo, Rio de Janeiro, Belo Horizonte and Porto
Alegre can also receive on a DTH-exclusive basis the local Globo free-to-air
signals.

Net Brasil, S.A., a subsidiary of Globo, acquires programming for Sky
Brazil from a variety of suppliers from the United States, Europe and Latin
America, including Globosat Programmadora Ltda. ("Globosat"). Globosat is a
leading supplier of pay-TV programming in Brazil. At present, Sky Brazil
distributes 16 Globosat pay-TV channels.

Sky Brazil has the exclusive rights to DTH distribution of all pay-TV
services in Brazil over which Globo companies and News Corporation have control
and a right of first refusal to distribute in Brazil pay-TV services over which
LMI has control. Sky Brazil has no current plans to develop or produce its own
programming, except for a promotional channel featuring its programming
services.

Competition

Sky Brazil competes with providers of pay-TV services primarily using
cable and DTH transmission technologies. The principal DTH operators in Brazil
are Sky Brazil, with a current subscription base of more than 508,000 as of
March 31, 2000, and Galaxy Brasil Ltda., which provides DTH services under the
name DIRECTV, with approximately 361,000 subscribers as of March 31, 2000. The
principal cable operators are Tevecap and Globo, which had approximately
318,000 and 949,000 subscribers, respectively, as of March 31, 2000.

Our Role in Management

Net Sat is managed jointly by us and Globo. Both Globo's and our approval
are required for Net Sat to undertake significant actions. Although we do not
direct the operations of Net Sat, we have the ability to exercise significant
influence regarding the direction of its business and the right to veto certain
proposed actions. Similarly, Globo, whose cable systems compete directly with
Sky Brazil in the pay-TV market, may withhold its consent to significant
actions.

Mexico

There were approximately 17.1 million television households in the
Mexican market as of December 31, 1999. Mexico had approximately 2.1 million
cable subscribers (12.4%), 592,000 DTH subscribers (3.5%) and 616,000 MMDS
subscribers (3.6%) as of December 31, 1999. Sky Mexico believes that the low
penetration of pay-TV services in Mexico is primarily due to the low level of
accessibility of such services before the recent introduction of DTH satellite
pay-TV services.

Sky Mexico

We have a 30% interest in Innova, our Mexican DTH platform, operating as
Sky Mexico. The remaining interests in Innova are held by Televisa and LMI,
which own 60% and 10% of Innova, respectively. Sky Mexico launched in December
1996 and had approximately 462,000 subscriber households as of March 31, 2000.
It currently offers 163 digital channels, consisting of 91 video channels, 25
pay-per-view channels and 47 audio channels.

Programming

Sky Mexico currently has the capacity to broadcast 163 channels and
offers its subscribers three programming packages, Sky Fun with 61 video
channels, Sky Nova with 67 video channels and Sky Universe with 91 video
channels. In addition, special events, such as boxing matches, concerts, sports
and movies are available on a pay-per-view or promotional basis. Subscribers to
all three packages can access 47 audio channels and 25 pay-per-view movie
channels, including one adult channel. Subscribers can also choose the
following premium packages: HBO Digiplex (five channels), Cinecanal and Movie
City (five channels), Sky World (eight channels), Sky World Plus (nine
channels) and three a la carte channels (Outdoor Life, Speedvision and Sky
Hot).

A programming committee consisting of representatives of Televisa and us
coordinates the acquisition of programming for Sky Mexico. Sky Mexico has the
exclusive right to DTH distribution in Mexico of all program services or
channels over which Televisa and News Corporation have control, subject in each
case to certain preexisting third-party agreements.

Sky Mexico has agreed to reserve a portion of its available video
channels for program services owned by its sponsors. Televisa has the right to
require Sky Mexico to carry its program services on 10% of the total number of
available video channels. In addition, News Corporation has the right to
require Sky Mexico to carry

its program services on 6 2/3% of the total available channels. LMI has the
right to require Sky Mexico to carry its program services on 4% of the
available channels. Sky Mexico has no current plans to develop or produce its
own programming, except its proprietary promotional channel featuring its
programming services.

Distribution

Sky Mexico distributes its programming exclusively via DTH.

Competition

Sky Mexico competes with pay-TV service providers using cable, MMDS, and
C-band and Ku-band DTH transmission technologies. It is expected that such
competition will intensify. Cablevision, the largest cable operator, 51% owned
by Televisa, and Multivision, a MMDS operator and Cablevision's principal
competitor in Mexico City, each offer channels that compete directly with Sky
Mexico's channels and pay-per-view channels. As of March 31, 2000, Cablevision
had 398,000 subscribers. Sky Mexico and DIRECTV, the digital DTH service
operated by Grupo Galaxy Mexicana S.A. de C.V., are the only operators of DTH
satellite services in Mexico. Galaxy is a joint venture between Hughes
Electronics and Venevision (Organizacion Cisneros). DIRECTV had approximately
145,000 subscribers as of December 31, 1999. Sky Mexico also competes with the
unauthorized reception of DTH signals from the U.S.

Our Role in Management

Innova is managed jointly by Televisa and us. Both Televisa's and our
approval are required in order for Innova to undertake significant actions.
Although we do not direct the operations of Innova, we have the ability to
exercise significant influence regarding the direction of its business and the
right to veto certain proposed actions. Similarly, Televisa, whose cable system
competes directly with Sky Mexico in the pay-TV market, may withhold its
consent to significant actions.

Colombia, Chile and Argentina

Sky Multi-Country Partners

We are partners with Globo, Televisa and LMI in Sky Multi-Country
Partners, which was formed to acquire interests in, and develop strategic DTH
alliances with, local partners in Latin America and the Caribbean basin,
excluding Mexico and Brazil. Sky Multi-Country Partners currently has interests
in DTH businesses in Chile, Colombia and Argentina.

Sky Multi-Country Partners has the exclusive right to DTH distribution in
its designated region of all program services or channels over which News
Corporation, Televisa, Globo and LMI have control, subject in each case to
certain preexisting third-party agreements. Sky Multi-Country Partners has
agreed to reserve a portion of its available video channels for program
services controlled by its owners.

We have a 30% interest in Sky Multi-Country Partners. Each of Globo and
Televisa also holds a 30% interest; LMI holds a 10% interest. The Sky Multi-
Country Partners business is managed jointly by the partners, through an
operating committee and a chief executive officer appointed by the unanimous
consent of the partners. Although we do not direct the operations of Sky Multi-
Country Partners, we have the ability to exercise significant influence
regarding the direction of its business and the right to veto certain proposed
actions.

Colombia

The Colombian market had 8.0 million television households as of December
31, 1999. Colombia had approximately 213,000 MMDS subscribers (2.7%), 97,000
DTH subscribers (1.2%) and 72,000 cable subscribers (0.9%) as of December 31,
1999.

As of June 30, 2000, Sky Multi-Country Partners owned 68% of Sky
Colombia, S.A., a joint venture with Casa Editorial El Tiempo, S.A., Radio
Cadena Nacional S.A., RTI Comunicaciones de Colombia Ltda. and Pastrana Arango
S.A. As of March 31, 2000, Sky Colombia had a subscriber base of approximately
42,000. Sky Colombia currently offers 142 digital channels including a variety
of movies, sports and general entertainment. In addition to exclusive pay-TV
rights to the Colombian National Football League, Sky Colombia also offers
exclusive international movie content. Sky Colombia's principal regional
competitor is DIRECTV, which offers 54 channels and had 38,000 subscribers as
of December 31, 1999. Other regional competitors include TV Cable Bogota, EPM
Medellin, and many small, legal and illegal cable systems.

Chile

Chile had approximately 4.2 million television households as of December
31, 1999. Chile had approximately 762,000 cable subscribers (18.1%), 33,000 DTH
subscribers (0.8%) and 19,000 MMDS subscribers (0.5%) as of December 31, 1999.

Sky Multi-Country Partners currently owns 100% of Sky Chile. As of March
31, 2000, Sky Chile had 33,000 subscribers. Sky Chile, the only pay-TV service
that covers the whole country, currently offers 137 digital channels, 64 video,
36 pay-per-view, five special event and 32 audio channels. In March 1999, Sky
Chile launched its pay-per-view services and began to offer near-video-on-
demand to its subscribers. Sky Chile's business competes with providers of pay-
TV services using cable, MMDS and DTH transmission technologies. As of December
31, 1999, Sky Chile's principal competitors were the two major cable operators,
VTR Cablexpress with over 400,000 subscribers and Metropolis-Intercom with over
280,000 subscribers.

Argentina

Argentina had approximately 10.0 million television households as of
December 31, 1999. Argentina had approximately 5.0 million cable subscribers
(50.5%), 108,000 DTH subscribers (1.1%) and 78,000 MMDS subscribers (0.8%) as
of December 31, 1999.

Sky Multi-Country Partners has a 100% interest in Sky Argentina S.C.A.
Sky Argentina was granted a DTH license in November 1999 and is in the process
of preparing to launch a DTH service later this year.

Subscriber Management Centers

Generally, our DTH platforms operate subscriber management centers
handling a range of customer services, including establishing and maintaining
accounts, billing and collection, telemarketing, consumer dial-up pay-per-view
orders and handling service difficulties and other inquiries, as well as
disconnection, relocation and reconnection services. For each platform,
subscriber management services are a critical component of the service offering
providing subscribers with a personal point of contact with the brand and
allowing the platform the opportunity to use superior customer service as a
differentiating feature from other pay-TV services. For example, BSkyB has over
4,300 customer service employees and intends to invest further in upgrading its
two subscriber management centers to allow its subscribers to access account
details, billing and other information via the set-top box or other devices
including mobile telephones and the Internet.

Related Technology Businesses

We are also involved in the development of technologically advanced set-
top boxes and related hardware and software that will enable us to become a
one-stop source of entertainment, information and interactive services,
including access to the Internet. This capability provides us with access to
the leading applications available to our satellite distribution businesses,
and permits the sharing of developments among our businesses. We own
approximately 80% of the equity and 98% of the total voting power of NDS, a
leading provider of conditional access systems to digital satellite and cable
pay-TV broadcasters. We also own approximately 44% of the equity and 49% of the
voting power of TV Guide, the international media and communications company
that publishes TV Guide and provides a variety of electronic program listing
guides.

NDS Group plc

NDS is a leading provider of distribution technologies and conditional
access systems to digital satellite and cable pay-TV broadcasters. Conditional
access systems scramble programming content to prevent unauthorized access and,
therefore, are a necessary component of every pay-TV system. NDS' systems
enable its customers to package programming content in pay-TV channels and pay-
per-view events and charge their subscribers for access to these channels and
events. These systems also enable NDS' customers to provide their subscribers
with electronic program guides and interactive services, including interactive
advertising and e-commerce. NDS derives the majority of its revenues from long-
term contracts with broadcasters to supply their conditional access systems,
including smart cards. NDS' revenues depend in large part on the number of
customers for its systems and services, the number of customers' subscribers,
the number of smart cards required by its customers' systems and the number and
type of interactive applications that they choose to offer to their customers.

NDS also designs and develops broadcast control software that is
essential for managing and operating digital television broadcasting
facilities. NDS' products support a variety of broadcasting media, including
analog and digital satellite television, digital cable television, digital
terrestrial television, the Internet and other digital broadband media. NDS
complements its product offerings with a range of services, including
consulting, broadcast system design and integration, support and maintenance
and, in some cases, on-site operation and management of its customers'
conditional access systems.

NDS' ADSs are traded on both the Nasdaq National Market and on EASDAQ
under the symbol "NNDS".

In 1989, NDS pioneered the use of smart cards as an inexpensive, easily
replaceable, conditional access security device for pay-TV. A smart card is a
plastic card, the size of a credit card, which carries an embedded computer
chip that implements the secure management and delivery of decryption keys
necessary to unscramble content and enable and disable access to programming
content. The broadcaster can include, within the broadcast signal sent to the
set-top box, instructions directing the smart card to enable, disable, upgrade
or downgrade a subscriber's subscription package. Previously, conditional
access systems were only available as a built-in hardware feature from
manufacturers of set-top boxes. This separation allows broadcasters to
introduce new features and services by issuing new smart cards instead of
replacing all of its subscribers' set-top boxes.

NDS' customers are located in North America, Europe, Latin America, the
Middle East and the Asia Pacific region, and consist of approximately 25
broadcasters, including seven of our platforms: BSkyB, STAR, Stream, Sky
Mexico, Sky Brazil, Sky Chile and Sky Colombia. In fiscal 1999, these platforms
purchased both conditional access systems and, with the exception of Sky
Brazil, broadcast systems and directly accounted for 41% of NDS' revenues from
continuing operations. NDS also provides conditional access systems to DirecTV
and Galaxy Latin America. Moreover, it provides or supports interactive
television applications to a number of broadcasters or television channel
producers such as BSkyB, Open. . . ., QVC/The Shopping Channel,

Discovery and Flextech. NDS has also won several major contracts in the digital
cable market, including agreements with Cablevision in the U.S., Matav in
Israel, INC in China and Madritel in Spain. As a result of these arrangements,
NDS currently provides conditional access systems to approximately 54% of the
world's DTH market. In addition, over 25 manufacturers of consumer electronic
devices, including television set-top boxes, have incorporated NDS' technology
into their products.

NDS is currently developing a variety of products, including a system for
QVC/The Shopping Channel U.K. that will allow subscribers to purchase an item
by pressing a button on their television remote control while the product is
being promoted on the air. This application is based on NDS' Value@TV
technology, which works with NDS' conditional access systems to enhance
interactive services. NDS is also developing application software that will
reside in the set-top box and allow subscribers to instantaneously respond to
advertising, by requesting further information or loyalty coupons from the
advertiser or by purchasing a product being advertised. In addition, NDS is
expanding its Open VideoGuard system to create the next generation conditional
access system, targeted to medium-sized broadcasters. This expanded system will
be fully integrated with NDS' interactive and set-top box large storage
applications, including Value@TV and xTV.

NDS' xTV software, which is currently in development, is a personal
television recording service that enables the digital TV subscriber to view
locally stored programming material in any sequence and at any time. xTV will
use a subscriber's profile to search for programs of special interest to that
subscriber. This software will scan electronic program guides and select
programs that will be subsequently recorded on the hard disk of the
subscriber's set-top box for viewing at the subscriber's convenience.
Furthermore, the xTV technology in combination with NDS' broadcasting control
software allows a broadcaster to provide highly targeted advertising and a
variety of new business models to maximize the revenue generation potential of
its content. For example, a broadcaster can offer a viewer the choice between
viewing a film for free if the viewer agrees to watch a certain amount of
advertisements or paying a certain amount to view the film uninterrupted by
advertising breaks.

In March 2000, NDS entered into a strategic alliance with Microsoft
Corporation, which currently sells TV-based enhanced television solutions for
network operators worldwide. Under the terms of this agreement, Microsoft will
obtain access to the source code of NDS' Core set-up box operating system and
the right to market this as part of the Microsoft TV product family.
Furthermore, Microsoft and NDS have committed to jointly develop and further
enhance Core as well as co-develop and co-market applications such as
electronic program guides, web browsers for TV, games and interactive
advertising.

In May 2000, NDS was awarded a contract to supply conditional access
technology and Chinese versions of its electronic program guide and core
operating system software to INC for the digital cable broadband network that
INC is deploying which will reach 16 provinces in China. NDS has also agreed
with INC to establish a research and development center in Beijing that will
concentrate on developing digital television technology specifically for
Greater China.

Competition

NDS competes in a number of business areas and no single company competes
with it in all of its product lines. Competition in its core area, conditional
access systems, is intense and is based on price, the features and
functionality offered by the conditional access system, the ability of NDS to
integrate its systems with broadcasting equipment of its customers, the degree
of compliance with international, regional and national standards and the
security of the overall system, among other factors. NDS considers its main
conditional access systems competitors to be NagraVision, a division of
Kudelski SA; Canal+ Technologies SA; General Instrument Corporation; Irdeto
B.V., a subsidiary of MIH Limited; and Viacces, a division of France Telecom.
NDS' main interactive application competitors include Open TV, Liberate, TiVo,
Wink and ACTV.

In the area of general broadcast system integration, NDS competes with
other broadcasting infrastructure companies such as Motorola, Inc., Philips
Electronics and Echostar Communications Corp. Competitors in the supply of data
broadcasting systems include Hughes Network Systems, Philips Video Systems, The
Fantastic Corporation and SkyStream Corporation (an unaffiliated company).

TV Guide

We and Liberty Media Corporation, or "Liberty," each own approximately
44% of the equity and 49% of the voting power of TV Guide, an international
media and communications company that provides print, passive and interactive
program listings guides to households, distributes programming to cable
television systems and DTH satellite providers, and markets satellite-delivered
programming to C-band satellite dish owners. TV Guide is organized into four
operating groups: TV Guide Magazine Group, TV Guide Television Group, TV Guide
Interactive Group and United Video Group.

The TV Guide Magazine Group publishes and distributes TV Guide, the most
widely circulated paid weekly magazine in the U.S. Printed in over 200 separate
editions, TV Guide had an average weekly circulation of approximately 10.9
million during the quarter ended March 31, 2000. TV Guide provides both
comprehensive television listings, including guides related to cable and
satellite programming, and feature articles relating to programming,
entertainers and the entertainment industry. In addition, the TV Guide Magazine
Group provides customized monthly television program guides for more than 300
cable systems in the U.S.

The TV Guide Television Group supplies on-screen program promotion and
guide services delivered via satellite. Its customers are U.S. cable television
systems and other multi-channel video programming distributors. These guidance
services include:

. TV Guide Channel, the leading electronic program listing guide in the
U.S., reaching approximately 50 million households in more than 2,400
cable systems; and

. Sneak Prevue, a pay-per-view program promotion service reaching over
33 million households in approximately 850 cable systems.

The TV Guide Interactive Group supplies pay-TV service providers with
satellite-delivered interactive on-screen program promotion and guide services
and interactive sports entertainment services. The guidance services include:

. TV Guide Interactive, an interactive on-screen program listings guide
reaching more than 3.5 million households that allows viewers to
retrieve program listings on demand;

. TV Guide Online, an Internet-based program listings guide; and

. TV Guide International, a program listing guide serving over 3
million subscribers in 24 countries.

In addition, through ODS Technologies, L.P. the TV Guide Interactive
Group produces, markets and distributes TVG Networks, a network focused on the
horse racing industry.

The United Video Group provides DTH satellite services, satellite
distribution of video entertainment services and satellite transmission
services for private networks. Through a subsidiary, UVTV, the United Video
Group also markets and distributes WGN (Chicago), KTLA (Los Angeles) and WPIX
(New York), three independent satellite-delivered television "superstations",
to cable television systems and other multi-channel video programming
distributors. In addition, UVTV offers six Denver-based television channels and
provides programming packages to satellite master antenna television systems.
TV Guide's SpaceCom Systems

subsidiary provides satellite-delivered point-to-multipoint audio and data
transmission services for various customers, including radio programmers,
paging network operators, financial information providers, news services and
other private business networks.

TV Guide's Class A common stock is traded on the Nasdaq National Market
under the symbol "TVGIA".

Proposed Merger with Gemstar

In October 1999, TV Guide entered into a merger agreement with Gemstar
International Group Limited under which TV Guide will become a wholly owned
subsidiary of Gemstar, which will be renamed TV Guide International, Inc.
Completion of the merger remains subject to regulatory approval. Upon
completion of the merger, we will own approximately 21% of TV Guide
International based on the number of outstanding shares on January 25, 2000.

Gemstar develops, markets and licenses proprietary technologies and
systems that simplify and enhance consumers' interaction with electronics
products and other platforms that deliver video, programming information and
other data. Gemstar's first proprietary system, VCR Plus+, enables consumers to
record a television program by simply entering a proprietary code into a VCR or
television equipped with VCR Plus+ technology. These proprietary codes are
printed next to television program listings in publications worldwide. This
system simplifies the task of recording television programming and is widely
accepted as the industry standard for programming VCRs.

Gemstar has also developed and acquired a large portfolio of technologies
and intellectual property for implementing its interactive program guides.
These technologies enable consumers to navigate through, sort, select and
record television programming. Gemstar's strategy, according to its public
filings, is to identify and develop technologies and systems that simplify and
enhance consumers' interaction with electronics products and other platforms
that deliver video, programming information and other data, similar to the VCR
Plus+ system. Gemstar has stated in its public filings that it seeks to have
its technologies widely licensed, incorporated and accepted as the technologies
and systems of choice by consumer electronics manufacturers, service providers
(such as owners or operators of cable systems, telephone networks, Internet
service providers, direct broadcast satellite providers, wireless systems and
other multi-channel video programming distributors), software developers and
consumers.

In January 2000, Gemstar acquired NuvoMedia and SoftBook Press, two
leading companies in the electronic book market.

New Media Initiatives

We and Gemstar are global leaders in interactive program guides, or
"IPGs." IPGs are expected to become one of the most important portals into
digital television. Current research on installed IPGs suggests that consumers
access the IPG frequently, generating on average over 80 page views per day per
household. This significant reach and frequency, combined with powerful
personalization and customization features, make IPGs a compelling medium for
advertising and e-commerce.

After the closing of the merger with Gemstar, TV Guide will be able to
aggregate the distribution of its own set-top box based guides with Gemstar's
consumer electronics based guides to offer advertisers the combined installed
base of both IPG formats. Such accelerated "critical mass" is expected to
create a strong advertising and e-commerce business opportunity.

In addition, TV Guide's established media sales division will have the
opportunity to sell cross-platform advertising programs, spanning from digital
IPGs to TV Guide's more traditional, branded media

platforms such as the TV Guide and TV Guide Channel to reach about 70 million
readers and viewers on a weekly basis. TV Guide International will be able to
offer interactive, digital program guides to each platform, enabling
subscribers to navigate through the depth and breadth of channels and program
offerings. In addition, the IPGs can also function as a portal to a range of
other value added interactive services such as true video on demand. TV Guide's
comprehensive digitized content data bases holding TV listings, movie review
and promotional clips can help provide turnkey solutions for interactive TV and
entertainment guidance to the subscribers of the various platforms.

Governance of TV Guide

Until the merger is completed, we and Liberty are bound by a
shareholders' agreement under which, with current ownership levels, each of us
and Liberty is entitled to designate four members to TV Guide's ten-member
board of directors.

Upon completion of the merger, Gemstar will be renamed TV Guide
International, Inc. and the board of directors will be expanded to 12 members.
Following the merger, we, Liberty and Henry C. Yuen, the existing chief
executive officer of Gemstar, will be bound by a new shareholders agreement
which provides that until the fifth anniversary of the merger, each of us and
Liberty will vote for the election of (1) Mr. Yuen as a director and as
chairman of the board and chief executive officer of TV Guide International,
(2) Elsie Ma Leung, the current chief financial officer of Gemstar, as co-
President, co-chief operating officer, a member of the office of the chief
executive and chief financial officer of TV Guide International, and (3) five
other persons as directors, including two independent directors, designated by
Mr. Yuen. Similarly, the agreement provides that Mr. Yuen will vote for the
election of (1) three directors, including one independent director, designated
by us and (2) three directors, including one independent director, designated
by Liberty, to the TV Guide International board. Each of us and Liberty will
lose the right to designate one director upon the transfer of 90% or more of
our or Liberty's respective shares of TV Guide International common stock.

Each of the parties to the shareholders agreement has agreed for a period
of five years following the merger to be bound by a customary standstill
provision that prohibits the acquisition of additional TV Guide International
shares except in certain limited circumstances. In addition, the shareholders
agreement provides that, for a period of five years following the merger, TV
Guide International will be the exclusive vehicle through which Sky Global and
LMI engage in the program guide business, print, electronic or otherwise,
within or outside the United States, other than NDS' existing business of
supplying electronic program guide technology solely in conjunction with the
development and sale of encryption and conditional access services for
television and data broadcasting. Under the shareholders agreement, each of us
and LMI will have customary rights to request registration of our TV Guide
International shares after the six-month anniversary of the merger.

Satellites and Uplink Facilities

Satellites

All of our platforms use satellites to broadcast their programming.
Programming is delivered to uplink facilities, which in turn transmit the
content up to the satellite transponders. The transponders then retransmit the
signal, either to satellite dishes owned by individuals or to cable operators
or other third-party distributors. These distributors then retransmit the
content to their subscribers via cable or other non-satellite means. In some
instances, our platforms obtain rights to broadcast using alternate
transponders in the event of the failure of any of their primary transponders.

All of our platforms lease their transponders from the satellite owners.
We and our platforms, collectively, are the largest single commercial user of
communications satellites in the world. In addition, we are the largest
customer of both PanAmSat Corporation, which owns and operates the world's
largest

commercial geostationary satellite network, and SES/ASTRA, which is the
leading satellite system for DTH transmission of TV, radio and multimedia in
Europe.

The following chart summarizes the transponder arrangements of our
platforms and TV Guide:

Satellite Number of Transponders
Platform Owner Currently in Use
-------- --------- ----------------------

BSkyB (digital) SES 19 BSkyB,
4 Open. . . . /BiB
BSkyB (analog) SES 17
KirchPayTV SES 6
Stream Eutelsat 7
STAR Asiasat 9
SKY PerfecTV! JSAT 34
Sky Brazil PanAmSat 11
Sky Mexico SatMex 12(/1/)
PanAmSat 12
Sky Multi-
Country Partners PanAmSat 12
TV Guide Various 17

- --------
(1) Once the PanAmSat transponders are operational, use of the SatMex
transponders will be phased out over three years.

Analog transponders can only transmit one channel per transponder
whereas digital transponders allow up to 15 digitally compressed channels to
be broadcast from each transponder. Therefore, digital transponders are a more
efficient method of content distribution on a per-channel cost basis.

Uplink Facilities

Most of BSkyB's programming originates at its head office in west London
and is transmitted by cable to three uplink facilities. Two of these
facilities, located in London and near Hereford, are owned and operated by
British Telecommunications plc. A third uplink facility located in Chilworth,
which is owned by BSkyB, also provides primary uplink and back-up services.
BSkyB also provides uplink services for third parties not associated with
BSkyB.

KirchPayTV transmits its encrypted television signals from its play-out
center located near Munich, Germany. KirchPayTV leases this site from
KirchInvest GmbH, an affiliate of KirchMedia.

From its play-out center in Rome, Stream transmits its signal to
satellites for distribution either directly to subscribers' homes or to cable
systems' headends for distribution to cable subscribers. Stream transmits its
services to cable subscribers over cable lines that it leases from Telecom
Italia.

STAR distributes all of its programming through its Network Operations
Center, which includes an uplink/downlink digital facility located in the
Clearwater Bay area of Hong Kong. This facility is capable of serving the
content and distribution demands of STAR's business and is expected to play an
integral part in STAR's broadband business. In addition to the Clearwater Bay
facility, ESPN STAR Sports also utilizes a second uplink/downlink digital
facility in Singapore.

Channels broadcast by SKY PerfecTV! are responsible for their playout
using either their own operations or those of third parties, including SKY
PerfecTV!, to send the signal via fiber optic to the uplink facilities. SKY
PerfecTV! uses three main uplink facilities in Tokyo and an uplink facility in
Osaka, as well as a backup uplink site in Tokyo.

We, together with our partners Globo, Televisa and LMI, own DTH TechCo
Partners ("DTH TechCo"). DTH TechCo operates the primary programming
distribution center, a state-of-the-art digital facility for the Latin American
platforms that collects programming from multiple sources for DTH transmission
services to all of Latin America and the Caribbean basin. It supplements
facilities operating in Mexico and Brazil. In order to minimize potential
weather interference and provide 24 hour fail safe service, DTH TechCo relies
on two uplink sites, the main one in Miami Lakes, Florida and a redundancy site
in Port St. Lucie, Florida. DTH TechCo has long term agreements to provide
these distribution services to Sky Brazil, Sky Mexico and Sky Multi-Country
Partners.

TV Guide owns the Chicago International Teleport, a 15-acre satellite
traffic and uplink facility. The Teleport operates ten transmit/receive
antennas and has the capacity to add many more. These antennas are used to
transmit or receive video, audio and data to and from various satellites for TV
Guide and its customers. The Teleport also has 33 receive-only antennas. TV
Guide also operates an uplink facility in Tulsa, Oklahoma, for its TV Guide
Channel which allows real-time promotional inserts into the video portion of
its service. In addition, TV Guide leases uplink station facilities in other
cities as needed. Information is generally delivered to the uplink transmit
station via satellite, dedicated telephone or fiber optic lines and is usually
scrambled at the uplink transmit site to avoid unauthorized receipt.

Regulation

Various aspects of our activities are subject to regulation in a number
of jurisdictions around the world. We believe that we are in material
compliance with the requirements imposed by such laws and regulations. The
introduction of new laws and regulations in countries where our products and
services are produced or distributed, and changes in the enforcement of
existing laws and regulations in such countries, could have a negative impact
on our interests.

United Kingdom and European Community

Broadcasting and Telecommunications Regulation

United Kingdom

BSkyB's Television Services Licenses. BSkyB's broadcasting services are
regulated by the U.K. Independent Television Commission, or "ITC", as satellite
television services, or "STS", and digital program services, or "DPS" under the
U.K. Broadcasting Acts. Each of BSkyB and its broadcasting joint ventures
currently holds an STS license for each of their respective channels and for a
number of other broadcasting services. BSkyB has also been issued a DPS
License, which is required for the distribution of its channels via digital
terrestrial television. BSkyB also holds various ancillary service licenses,
including licenses relating to the electronic program guide for digital
satellite services.

The ITC is responsible for enforcing compliance with the terms and
conditions applicable to its licenses and may revoke a license in order to
enforce the restrictions contained in the U.K. Broadcasting Acts on the
ownership of media companies or in the event that the characteristics of the
licensee change so that it would not be granted a new license. BSkyB's
entitlement to hold licenses would be affected if it were to become a
disqualified person, if it expanded its activities so as to exceed 15% of total
television audience share in the U.K. or if the rules on disqualification or
audience shares were to be changed. If BSkyB's activities were

to exceed 15% of total television audience share in the U.K., the U.K.
Broadcasting Acts empower the ITC to take steps to reduce this audience share
to below 15%. The ITC's ultimate sanction is license revocation. BSkyB is
currently well within the 15% limit. In addition, all licenses issued by the
ITC contain provisions as to program content and the quantity of advertising
and sponsorship arrangements.

Digital Terrestrial Television--Limits on Supply of Services. Under the
Broadcasting Act 1996, the number of channels that any one DPS license holder
and persons associated with it can supply via digital terrestrial television
are limited by a points system. BSkyB has used all, or nearly all, of the
points currently available to it in the provision of channels on digital
terrestrial television via the multiplex operator, ONdigital.

Listed Events--Limits on Exclusive Distribution Rights. The Broadcasting
Act 1996 limits the ability of a U.K. broadcaster to enter into a contract for
the acquisition of the exclusive rights to live broadcasts of designated
sporting or other events of national interest (such as the Olympic Games or the
Wimbledon Tennis Finals) without the previous consent of the ITC. The effect of
these rules is to ensure that many leading sports events cannot be shown live
exclusively on pay-TV.

BSkyB's Telecommunications Licenses. BSkyB operates under a number of
licenses under the Telecommunications Act and Wireless Telegraphy Acts in
relation to the technical side of its transmissions. The most important of
these are class licenses relating to conditional access and access control
services for digital transmissions, which are administered by the Office of
Telecommunications, or "OFTEL."

Other Jurisdictions

KirchPayTV, in which BSkyB owns a 24% stake, operates on the basis of
licenses granted by the German regional media authorities.

Stream operates under a temporary authorization for satellite and cable
digital broadcasting granted by the Italian Communications Authority, pending
the enactment of new legislation. Stream is currently in the process of
applying for a renewal of its existing authorization.

European Community

Television Without Frontiers. The EC Television Without Frontiers
Directive, or the "TWF Directive," sets forth basic principles for the
regulation of broadcasting activity in the EC.

Program Quotas. The TWF Directive requires member states to ensure "where
practicable and by appropriate means" that broadcasters reserve "a majority
proportion of their transmission time" for European works. In applying this
rule, broadcast time covering news, games, advertisements, sport events,
teletext and teleshopping services is excluded. BSkyB believes that it is
complying with the program quotas required under the TWF Directive.

Independent Productions. The TWF Directive also requires that member
states ensure "where practicable and by appropriate means" that broadcasters
reserve at least 10% of their transmission time (excluding time covering news,
sports events, games, advertising, teletext and teleshopping services) or, at
the option of the member states, 10% of their programming budget, for European
works created by producers who are independent of broadcasters. An adequate
proportion of the relevant works should be works produced within the five years
preceding their transmission.

Transmission Standards Directive and Other Directives. BSkyB's provision
of conditional access services for digital television to other broadcasters,
its provision of access control services other than for digital television and
its provision of a digital electronic programming guide, Sky Guide, for its
digital satellite

services, are subject to various EC directives and implementing legislation in
the U.K. The principal effect of these laws is to require BSkyB to make the
regulated services available on fair, reasonable and non-discriminatory terms
to third parties.

Regulation of Antitrust

BSkyB, KirchPayTV and Stream are subject to the EC competition law regime
(administered by the EC Commission and by civil courts in each member state)
and to individual national regimes in the countries where these platforms
operate. BSkyB is also subject to specific competition regulation by the ITC
under powers contained in the U.K. Broadcasting Acts.

European Community Regime

Anti-Competitive Agreements and Abuse of a Dominant Position. Provisions
of the EC Treaty render unlawful agreements and concerted practices which may
affect trade between member states and which have as their object or effect the
prevention, restriction or distortion of competition within the Common Market
(that is, the member states of the EC collectively). These provisions also
prohibit abuse by one or more enterprises of a dominant market position in the
EC or a substantial part of it, insofar as the abuse may affect trade between
member states.

The EC Commission has the power to enforce these provisions and may
determine that an entire agreement or, in some cases, that certain provisions
of an agreement are void. The EC Commission also has the power to impose heavy
fines (up to 10% of a group's annual revenue) and to issue orders prohibiting
the infringing conduct. The EC Commission has the exclusive right to grant
exemptions for agreements whose beneficial effects outweigh their restrictive
effects, provided that consumers receive a fair share of the benefit, that
competition will not be substantially eliminated and that no unnecessary
restrictions are accepted by the parties. The EC Commission may require an
agreement to be amended (including as to scope, exclusivity and/or duration) as
a condition of granting an exemption and may impose behavioral conditions
applying during the life of the agreement.

Mergers. The EC Merger Regulation applies to mergers, certain joint
ventures and the acquisition of holdings which confer decisive influence over
an enterprise which meet specified revenue thresholds. These transactions
normally cannot be consummated without prior approval from the EC Commission.

Effect on our Satellite Distribution Business. In connection with the
formation of the BiB joint venture and the acquisition of BSkyB's interest in
KirchPayTV, BSkyB, KirchPayTV and News Corporation agreed with the EC
Commission to abide by a series of undertakings that dictate the manner in
which the parties conduct their business in the digital television market.
Subject to compliance with these undertakings, the EC Commission has granted an
exemption through August 4, 2005 in respect of the Open. . . . joint venture.

The EC Commission has considered complaints and requests for interim
measures from a number of cable operators starting in June 1995, alleging that
BSkyB had infringed the competition regulatory provisions of the EC Treaty by,
among other things, the pricing of its services to cable operators. Some
aspects of these complaints were referred by the EC Commission to the ITC for
further investigation and may be considered during the current OFT review.

U.K. Competition Law Regime

The Competition Act 1998, with effect from March 1, 2000, has adopted at
the national level an antitrust system which mirrors the EC system described
above. When an agreement or business practice benefits from an exemption
granted at the EC level, this will also apply in the U.K.

The enforcement of the Competition Act prohibitions is very similar to
the EC regime and is administered by the OFT, which is headed by the Director
General of Fair Trading, or the "DGFT". However, in the case of infringements
under the Competition Act, fines can be imposed of up to 10% of the group's
annual U.K. revenue for the period of infringement, up to three years. In
addition, there is a separate system for investigation of monopolies by the
Competition Commission.

Mergers. The DGFT also reviews mergers and acquisitions of minority
holdings that confer control over an enterprise meeting certain thresholds and
fall outside the purview of the EC regime.

Effect on BSkyB's Affairs. Many of BSkyB's agreements were filed with the
OFT under the prior competition regime and a number of these, including BSkyB's
agreements with the Football Association Premier League Limited in relation to
exclusive live television rights for the seasons 1991/1992 to 2000/2001,
benefit from transitional provisions which exclude them from the operation of
the Competition Act for all or part of their remaining life. In some
circumstances, however, such agreements can be "clawed back" for further
review.

BSkyB continues to comply with informal undertakings given to the DGFT,
following a review of its business under the monopolies provisions of the Fair
Trading Act 1973. Under these undertakings, BSkyB has agreed to publish and
charge broadband cable operators in accordance with a ratecard which:

. shows a separate price for broadband cable carriage of each BSkyB
premium channel and for Sky One. The undertakings also require BSkyB
to maintain separate accounts for its DTH distribution business
showing a notional charge to that business for carriage of BSkyB's
channels no lower than that applicable to broadband cable operators;
and

. only includes discount structures approved by the DGFT.

The DGFT is currently carrying out a review of these undertakings to
consider whether they should remain in place, be modified or released. This
review may consider other aspects of BSkyB's business.

ITC Competition Jurisdiction

The ITC has duties to promote competition in the provision of the
television services it regulates under the Broadcasting Act 1990 and services
connected with such television services.

Effect on BSkyB's Affairs. The ITC issued rules to remedy certain
industry-wide practices in bundling television channels in June 1998 which are
given effect in the form of directions and license conditions. These rules
prohibit minimum carriage requirements on pay-TV channels. The rules also
impose a requirement that viewers must be able to buy premium channels from any
basic package (subject to the agreement of the distributors of their respective
channels and packages) and that, although premium channels need not be sold
independently of a basic package, they must be available individually to
viewers.

At the request of the EC Commission, the ITC continues to investigate
whether the wholesale price discount structure for BSkyB's channels could
prevent the entry of other providers into the market.

BSkyB believes that it will be able to comply with any rulings by the ITC
that affect it, but cannot determine whether the effects of the pending
investigation could be material.

Other Jurisdictions

The German antitrust authority is investigating the bundling of the
subscription of one of KirchPayTV's services, Premiere World, with the
provisions of set-top boxes.

Asia and the Middle East

General

STAR broadcasts television programming over a footprint covering
approximately 53 countries. Government regulation of direct reception and
rediffusion via cable or other means of satellite television signals, where it
is addressed at all, is treated differently throughout STAR's footprint. At one
extreme are absolute bans on private ownership of satellite receiving
equipment, except for certain institutions and individuals. Examples of such
countries include, but are not limited to, North Korea, Vietnam, Brunei and
Singapore. Other countries, such as China, have adopted a less restrictive
approach, opting to allow satellite dish owners to receive only authorized
broadcasts.

Increasingly in the Asia Pacific region, effective control of the content
of DTH services is maintained by governments through their imposition of
licensing requirements on local broadcast operators who collect subscription
fees. An additional tier of content control has been imposed by certain local
governments, such as Malaysia, by their imposition of prohibitions on the sale
of equipment, such as satellite dishes capable of receiving television services
other than government licensed satellite broadcasts. In other countries,
regulations are intended less to control access than simply to limit viewership
of satellite television through such measures as limiting the size of private
receiving equipment, such as in Egypt and Israel, or the type of receiving
equipment that is permitted, such as in India.

At the opposite end of the spectrum are countries such as Hong Kong,
Taiwan, Thailand, the Philippines, the United Arab Emirates and Sri Lanka,
where private satellite dish ownership is allowed and laws and regulations have
been adopted which support popular access to satellite services through local
cable redistribution.

India

Indian law prohibits the possession and sale of equipment capable of
receiving Ku-band signals, thereby preventing the distribution of foreign
satellite channels directly to viewers' homes via Ku-band satellite
transmission. In addition, in February 2000, the Indian government introduced
foreign direct investment guidelines that effectively prohibit any foreign
direct investment in the broadcasting sector, although the Cable Act of 1995
allows for foreign equity participation in the cable television industry up to
a maximum of 49%.

The Indian government allows foreign broadcasters to repatriate only
those advertising revenues earned from export-oriented advertisers with non-
Rupee denominated earnings, thus severely limiting STAR's advertising market.
Furthermore, repatriation of subscription revenues from India by foreign
broadcasters is prohibited.

Mainland China

Chinese law currently restricts the distribution of foreign satellite
channels to the general public. Only designated entities (as opposed to
individuals) may acquire satellite dishes to receive encrypted foreign
satellite channels. These designated entities consist of selected hotels,
businesses, embassy compounds and institutions. In addition, the State
Administration of Radio, Film and Television issues an annual list of encrypted
foreign satellite channels approved to be received in China through the
installation of decoders. The channels distributed by STAR are on this approved
channels list.

Cable systems may apply for permission to receive via satellite some
categories of individual foreign programs which are not continuous foreign
satellite feeds. The permitted categories of individual foreign programs can
then be re-broadcast to subscribers generally. The Chinese government has from
time to time required cable operators to remove foreign satellite programming
from their services. Chinese law prohibits

foreign investment in many television and other media-related industries
including television stations, infrastructure such as cable systems and
uplink/downlink facilities, and motion picture and television program
production companies.

Taiwan

In 1999, the Taiwanese government enacted the Satellite Audio and
Television Law, which restricts foreign direct equity ownership in local
satellite broadcasters to less than 50%, and the new Cable Audio and Television
Law, which limits the aggregate of foreign direct and indirect equity ownership
in local cable operators to less than 50%. At least 20% of cable programming is
required to be produced in Taiwan. There are no local content requirements for
satellite television channels.

Hong Kong

The most deregulated market in Greater China is Hong Kong, where
satellite television channels may be freely broadcast and received. STAR has a
satellite uplink and downlink license, which is required in order to operate
uplink, downlink and microwave stations for the transmission of television
services in and out of Hong Kong.

Under the new Broadcasting Bill, which is expected to be enacted in Hong
Kong by the end of 2000, television service providers will be required to
obtain a license based on the type of service provided. Existing satellite
television uplink and downlink licensees such as STAR will be required to apply
for a non-domestic license if their programming services are not primarily
targeting Hong Kong.

Latin America

The Latin American platforms are each subject to regulation in their home
country. Each platform operates its satellite distribution business subject to
a license it or one of its partners holds. Licenses are currently held for
operations in Brazil, Mexico, Colombia, Chile and Argentina. These licenses
expire at various dates beginning in 2009.

The regulatory regime varies from country to country. For example, Sky
Multi-Country Partners obtained a second license in Argentina for its satellite
uplink and downlink facilities there. In addition, several of these countries
also regulate the extent of foreign participation.

Employees

As of June 1, 2000, Sky Global and its subsidiaries employed
approximately 2,400 persons on a full-time basis. STAR's 1,473 employees are
principally located in Hong Kong, India, Taiwan and Dubai with other employees
located throughout Asia. None of these employees is subject to a collective
bargaining agreement. Of NDS' 930 full-time employees, approximately 440 are
based in Israel, 300 are based in the U.K. and 190 are based in the U.S., with
other employees in Hong Kong and Australia. Some of NDS' employees in the U.K.
are represented by the Broadcasting Entertainment Cinematograph Theatre Union,
which represents members on matters such as discipline, grievance and appeals.
Otherwise, none of NDS' employees is subject to a collective bargaining
agreement.

We believe our relations with our employees are good.

Properties

Our headquarters are located at 1211 Avenue of the Americas, New York,
N.Y., in office space leased from News Corporation.

STAR operates principally from leased office space located in Hong Kong
(180,000 square feet), India (110,000 square feet), Taiwan (23,000 square feet)
and Dubai (10,000 square feet). In addition, STAR owns a 62,000 square foot
uplink/downlink facility in Clearwater Bay, Hong Kong.

NDS operates from a number of facilities principally located in the U.K.,
Israel and the U.S. All of the U.K. and U.S. facilities are either licensed or
leased from News Corporation or its affiliates. All of the other facilities are
leased. NDS' executive and administrative offices are located at a 31,000
square foot facility in West Drayton, U.K. NDS leases three other principal
facilities in the U.K., aggregating 47,500 square feet; two facilities in
Israel, aggregating 107,000 square feet; and two facilities in California,
aggregating 52,000 square feet.

We consider our properties adequate for our present needs.

Legal Proceedings

Our subsidiaries and affiliates experience routine litigation in the
normal course of their business, which claims are generally covered under our
insurance policies. We do not believe that such pending litigation will have a
material adverse effect on our combined financial condition, future results of
operations or liquidity.

MANAGEMENT

Directors and Executive Officers of Sky Global

Our directors and executive officers as of the offering are as follows:

Name Age Position
---- --- --------

K. Rupert Murdoch 69 Chairman of the Board
Chase Carey 46 President, Chief Executive Officer and Director
Peter Chernin 49 Director
David F. DeVoe 53 Director
James R. Murdoch 27 Director
Lachlan K. Murdoch 28 Director
Arthur M. Siskind 61 Director

It is anticipated that, following the offering, three independent
directors will be appointed to our Board.

Set forth below is certain information with respect to our directors and
executive officers:

K. Rupert Murdoch. Chairman of the Board of Directors of Sky Global since
June 2000 and a Director since 1998. Chairman of the Board of Directors of News
Corporation since 1991. Executive Director and Chief Executive of News
Corporation since 1979. Director of News Limited, News Corporation's principal
subsidiary in Australia, since 1953. Director of News International plc, News
Corporation's principal subsidiary in the United Kingdom, since 1969. Director
of News America, News Corporation's principal subsidiary in the United States,
since 1973. Chairman and Chief Executive Officer of News America from 1985 to
1996 and President of News America from 1985 to 1996. Director of STAR since
1993 and Chairman of STAR from 1993 to 1998. Director of Fox since 1985,
Chairman since 1992 and Chief Executive Officer of Fox since 1995. Director of
BSkyB since 1990 and Chairman since June 1999. Director of Phillip Morris
Companies Inc. since 1989. Mr. Murdoch is the father of James R. Murdoch and
Lachlan K. Murdoch.

Chase Carey. Director, President and Chief Executive Officer of Sky
Global since June 2000. Director and Co-Chief Operating Officer of News
Corporation since 1996. Director of News America since 1996, President and
Chief Operating Officer since 1998 and Executive Vice President from 1996 to
1998. Director of Fox since 1992, Co-Chief Operating Officer since 1998 and
President from 1995 to 1998. Chairman and Chief Executive Officer of Fox
Television since 1994. Director of STAR since 1993. Director of NDS since 1998
and Chairman since October 1999. Director of TV Guide since March 1999.
Director of Gateway 2000 and Colgate University.

Peter Chernin. Director of Sky Global since June 2000. Director,
President and Chief Operating Officer of News Corporation since 1996. Director,
Chairman and Chief Executive Officer of News America since 1996. Director,
President and Chief Operating Officer of Fox since 1998. Chairman and Chief
Executive Officer of Fox Filmed Entertainment from 1994 to 1996. Chairman of
Twentieth Century Fox Film Corporation from 1992 to 1994. President of Fox
Broadcasting Company from 1989 to 1992. Director of TV Guide since March 1999.
Member of Advisory Board of PUMA AG since May 1999. Director of Tickets.com,
Inc. since September 1999. Director of E*TRADE Group, Inc. since October 1999.

David F. DeVoe. Director of Sky Global since 1998. Director of News
Corporation since 1990. Senior Executive Vice President of News Corporation
since 1996 and Chief Financial Officer and Finance Director since 1990.
Executive Vice President of News Corporation from 1990 until 1996. Director of
News America since 1991, Executive Vice President from 1991 to 1998 and Senior
Executive Vice President since 1998. Director of Fox since 1991 and Senior
Executive Vice President and Chief Financial Officer since 1998. Director of
STAR since 1993. Director of BSkyB since 1994. Director of NDS since 1996.

James R. Murdoch. Director of Sky Global since June 2000. Executive Vice
President of News Corporation since September 1999 and President of News
Digital Media, Inc. from 1997 until September 1999. Vice President, Music and
New Media of News Corporation from 1996 to 1997. He founded Rawkus
Entertainment LLP in 1995 and has served as its Chairman since its inception.
Director of NDS since October 1999. Director of STAR since February 2000 and
Chairman and Chief Executive Officer since May 2000. Director of YankeeNets
L.L.C. since September 1999. Mr. Murdoch is the son of K. Rupert Murdoch and
the brother of Lachlan K. Murdoch.

Lachlan K. Murdoch. Director of Sky Global since June 2000. Director of
News Corporation since 1996 and Senior Executive Vice President since February
1999. Director of News Limited since 1995 and Chairman and Chief Executive
since 1997. Managing Director of News Limited from 1996 until 1997 and Deputy
Chief Executive from 1995 until 1996. Chairman of Queensland Press Limited
since 1996 and a Director since 1994. Director of Beijing PDN Xiren Information
Technology Co. Ltd. since 1996. Director of STAR since 1995. Director of Foxtel
Management Pty. Ltd. since 1998. Director of One.Tel Limited since April 1999.
Mr. Murdoch is the son of K. Rupert Murdoch and the brother of James R.
Murdoch.

Arthur M. Siskind. Director of Sky Global since 1998. Director of News
Corporation since 1991. Senior Executive Vice President of News Corporation
since 1996 and Group General Counsel since 1991. Executive Vice President of
News Corporation from 1991 until 1996, Director of News America since 1991,
Executive Vice President from 1991 to 1998 and Senior Executive Vice President
since 1998. Director, Senior Executive Vice President and General Counsel of
Fox since 1998. Director of STAR since 1993. Director of BSkyB since 1992.
Director of NDS since 1996. Member of the Bar of the State of New York since
1962.

Board Composition

The board currently comprises seven directors and will be increased to no
less than ten directors following completion of the offering. Three additional
directors will be independent directors.

Committees of the Board

The board has established an audit committee and a remuneration
committee. Members of the audit committee following completion of the offering
will be composed of independent directors. The audit committee is expected to
meet not less than two times a year. The primary function of the audit
committee is to assist the board in fulfilling its oversight responsibilities
by reviewing: the financial reports and other financial information provided by
Sky Global to any governmental body or the public; Sky Global's systems of
internal controls regarding finance and accounting that management and the
board have established; and our auditing, accounting and financial reporting
processes generally. The members of the remuneration committee following
completion of the restructuring are expected to be Messrs. ,
and . The remuneration committee is expected to meet not less than
once a year in order to approve and recommend to the board the hiring and the
remuneration of the executive directors and key personnel. In particular, the
remuneration committee is required to approve any new service agreement entered
into between us and any of our senior executives.

Compensation of Directors and Officers

Our directors, other than our full-time employees and the full-time
employees of News Corporation or its affiliates, are entitled to annual
directors' fees of $ , plus $ for each board meeting and $
for each committee meeting attended. The directors may also be paid all
expenses properly incurred by them in attending meetings of the directors or
any committee of the directors or our general meetings or otherwise in
connection with the discharge of their duties as directors. Any director who
holds any executive office or who serves on any committee of the directors, or
who otherwise performs services which in the opinion of the directors are
outside the scope of the ordinary duties of a director, may be paid such extra
remuneration by way of salary, commission or otherwise, as the directors may
determine. The directors shall

have power to provide benefits whether by payment of gratuities, pensions or
otherwise to, or to any person on behalf of, any director or ex-director and
for the purpose of providing any such benefits to contribute to any scheme or
fund or to pay premiums. The directors may purchase and maintain insurance for,
or for the benefit of, any persons who are or were our directors, officers, or
employees or those of an associated company or who are or were trustees of any
pension fund in which our employees or those of any such other associated
company are interested.

Indemnification of Directors and Executive Officers and Limitation of Liability

The Delaware General Corporation Law authorizes a corporation's board of
directors to grant indemnity to directors and officers in terms sufficiently
broad to permit such indemnification under certain circumstances for
liabilities, including reimbursement for expenses incurred, arising under the
Securities Act of 1933.

As permitted by Delaware law, our certificate of incorporation eliminates
the personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for (1) any breach of the director's duty
of loyalty to us or our stockholders; (2) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (3)
unlawful payment of dividends or unlawful stock purchases or redemptions; or
(4) any transaction from which the director derived an improper personal
benefit.

Our certificate of incorporation provides that (1) we are required to
indemnify our directors and officers to the fullest extent permitted by
Delaware law, subject to certain very limited exceptions; (2) we are permitted
to indemnify our other employees to the extent that we indemnify our officers
and directors, unless otherwise required by law, our restated certificate of
incorporation, our restated by-laws or agreements; (3) we are required to
advance expenses, as incurred, to our directors and officers in connection with
a legal proceeding to the fullest extent permitted by Delaware law, subject to
certain very limited exceptions; and (4) the rights conferred in our restated
certificate of incorporation are not exclusive.

At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.

News Corporation maintains insurance on behalf of its officers and
directors and officers and directors of its subsidiaries, including us, against
any liability which may be asserted against any such officer or director,
subject to certain customary exclusions.

Executive Services and Compensation

Several of our executive officers are also executive officers of News
Corporation. Prior to the offering, News Corporation or other parent entities
paid all compensation of such officers. We and News Corporation or its
subsidiaries will enter into a master intercompany agreement, to be effective
following the completion of the offering, under which we will pay fees to News
Corporation or its subsidiaries which will include consideration for the
services rendered to us by such executive officers or other persons. To the
extent our executive officers are executive officers of News Corporation, they
will continue to render services to News Corporation and its subsidiaries in
addition to us. See "Relationships Between Sky Global and News Corporation--
Master Intercompany and Other Agreements."

Stock Option Plan

Our 2000 Stock Option Plan will provide for the grant of nonstatutory
stock options relating to Class A common stock to our employees and directors
and to our affiliates' employees and directors. Up to 5% of the total number of
issued and outstanding shares of our Class A and Class B common stock may be
issued or sold

under the terms of the plan. Our board of directors or a committee of the board
is granted discretion to administer the plan and to determine the recipients of
stock options, the number of shares subject to each option granted, the
exercise price of the option, the vesting schedule of the options (generally
over four years) and the duration of the option (generally ten years, subject
to earlier termination in the event of the termination of the optionee's
employment). Effective upon completion of the offering, options to purchase
shares of Class A common stock exercisable at an exercise price equal to the
offering price will be granted to employees of Sky Global.

PRINCIPAL STOCKHOLDER AND STOCK OWNERSHIP

Prior to and after the offering, all of the outstanding shares of
Class B common stock entitled to ten votes per share will be beneficially owned
by News Corporation. These shares will be entitled to % of our voting power
after the offering.

The following table sets forth, as of June 15, 2000, the beneficial
ownership of the outstanding ordinary shares of News Corporation, the only
class of shares of News Corporation generally entitled to voting rights, by
each person who at such time owned more than five percent of these shares, by
our directors and executive officers and by all of our directors and executive
officers as a group. The following table does not include beneficial ownership
of preferred limited voting ordinary shares of News Corporation.

Number of Percentage
Name and Address of Beneficial Owner Ordinary Shares of Class
- ------------------------------------ --------------- ----------

Cruden Investments Pty. Limited................. 607,558,293(/1/) 30%
Level 2
306 Little Collins Street
Melbourne, Victoria
Australia
K. Rupert Murdoch............................... 607,558,293(/1/) 30%
Chase Carey..................................... -- (/2/) *
Peter Chernin................................... -- (/3/) *
David F. DeVoe.................................. 32,000(/4/) *
James R. Murdoch................................ 3,272(/5/) *
Lachlan K. Murdoch.............................. 11,696(/6/) *
Arthur M. Siskind............................... 27,871(/7/) *
-----------
All of our directors and executive officers as a
group (7 persons).............................. 607,633,132
===========

- --------
* Less than one percent.
(/1/)Includes ordinary shares owned by (1) Mr. K. Rupert Murdoch, (2) Cruden
Investments Pty. Limited, a private Australian investment company owned by
Mr. K. Rupert Murdoch, members of his family and various corporations and
trusts, the beneficiaries of which include Mr. K. Rupert Murdoch, members
of his family and certain charities and (3) corporations which are
controlled by trustees of settlements and trusts set up for the benefit of
the Murdoch family, certain charities and other persons. By virtue of
shares of News Corporation owned by such persons and entities, and Mr. K.
Rupert Murdoch's positions as Chairman and Chief Executive of News
Corporation, Mr. K. Rupert Murdoch may be deemed to control the operations
of News Corporation and us. In addition, Mr. K. Rupert Murdoch, Cruden
Investments Pty. Limited and such other entities beneficially own
232,642,726 preferred ordinary shares.

(/2/)Mr. Carey has been granted options to purchase 2,800,000 preferred
ordinary shares, of which 1,600,000 are currently exercisable or become
exercisable within 60 days.

(/3/)Mr. Chernin has been granted options to purchase 3,075,000 preferred
ordinary shares, of which 325,000 are currently exercisable or become
exercisable within 60 days.

(/4/)In addition, Mr. DeVoe beneficially owns 16,000 preferred ordinary shares
and has been granted options to purchase 955,000 preferred ordinary
shares, of which 75,000 are currently exercisable or become exercisable
within 60 days.

(/5/)In addition, Mr. James R. Murdoch beneficially owns 1,668 preferred
ordinary shares and has been granted options to purchase 238,600 preferred
ordinary shares, of which 68,750 are exercisable or become exercisable
within 60 days.

(/6/)In addition, Mr. Lachlan K. Murdoch beneficially owns 885 preferred
ordinary shares and has been granted options to purchase 840,000 preferred
ordinary shares, of which 270,000 are exercisable or become exercisable
within 60 days.

(/7/)In addition, Mr. Siskind beneficially owns 50,143 preferred ordinary
shares and has been granted options to purchase 1,360,000 preferred
ordinary shares, of which 480,000 are currently exercisable or become
exercisable within 60 days.

RELATIONSHIPS BETWEEN SKY GLOBAL AND NEWS CORPORATION

Business Relationships

News Corporation and its subsidiaries and affiliates have engaged in a
broad range of relationships with us and our subsidiaries and affiliates. These
relationships have included the purchase of programming created or owned by
News Corporation and its subsidiaries and affiliates. We believe that the terms
and conditions of these arrangements are comparable to those which would
pertain to transactions with unaffiliated third parties.

Master Intercompany Agreement

For purposes of governing certain ongoing relationships between us and
News Corporation, we and News Corporation have entered into various agreements
and relationships. The agreements were negotiated in the context of a parent-
subsidiary relationship and therefore are not the result of arm's-length
negotiations between independent parties. We cannot assure you, therefore, that
each of these agreements, or the transactions provided for, will be effected on
terms at least as favorable to us as could have been obtained from unaffiliated
third parties. Some of the agreements summarized below are included as exhibits
to this registration statement, and the following summaries are qualified in
their entirety by reference to such exhibits which are herein incorporated by
reference. The following descriptions summarize all material terms of these
agreements.

We will enter into a master intercompany agreement with News Corporation,
which will provide various cash management, financial, tax, legal and other
services. The consideration for each of the services and other arrangements set
forth in the master intercompany agreement will be mutually agreed upon based
upon allocated costs, subject to the approval of our respective audit
committees.

Cash Management and Financing

Under the master intercompany agreement, we will utilize the worldwide
treasury and cash management function, including the use of bank overdraft
facilities, of News Corporation and its subsidiaries, subject to some
limitations. In addition, our cash balances will be available to News
Corporation and its subsidiaries. It is expected that following the
restructuring, we will receive interest on cash deposits with News Corporation
and pay interest on overdrafts at commercial interest rates which will not
exceed News Corporation's average cost of borrowings.

Executive Officer Services

The master intercompany agreement will provide that News Corporation or
its subsidiaries will make available to us the services of Messrs. and
other designated employees of News Corporation. Although it is contemplated
that these executives will spend a considerable portion of their business time
in connection with our business, they will also be engaged in activities for
News Corporation not related directly to our business. Under the master
intercompany agreement, News Corporation may terminate the availability of the
services of these executives upon notice to us.

Services of Sky Global's Employees

The master intercompany agreement provides that News Corporation and its
subsidiaries may periodically request certain of our employees to devote time
to the business activities of News Corporation, its subsidiaries and affiliated
and associated companies.

Facility Arrangements

Some of our facilities are and may in the future be located on premises
owned or leased by News Corporation or entities in which News Corporation has
an interest. In addition, some facilities of News Corporation, or entities in
which News Corporation has an interest, are or may in the future be located on
premises owned or leased by us. The master intercompany agreement provides that
News Corporation and its subsidiaries, on the one hand, and we, on the other
hand, will permit each other to use all or a portion of their respective
premises.

Employee Matters

The master intercompany agreement will provide that some of our employees
may be eligible to participate in stock option and other employee benefit plans
maintained by News Corporation. It is expected that following the
restructuring, we will assume and be solely responsible for all liabilities and
obligations with respect to current officers and employees of the businesses
owned and operated by us and former officers and employees of such businesses
who, immediately prior to the termination of their employment, were employed in
such businesses. In addition, employees of NDS, BSkyB, STAR and TV Guide will
continue to participate in stock option or other employee benefit plans
currently available to them.

Insurance

The master intercompany agreement will provide that News Corporation or
its subsidiaries will provide insurance coverage on our behalf against risks
and in amounts of coverage consistent with current coverages, or as otherwise
may be agreed upon. The master intercompany agreement will not require that
News Corporation maintain any type or amount of coverage.

Services

The master intercompany agreement will provide that News Corporation and
its subsidiaries will continue to provide various services to each other,
including material procurement, transportation and financial and administrative
services.

Trademarks

The master intercompany agreement will provide that News Corporation and
its subsidiaries will be granted a royalty-free license to use various
trademarks and service marks of ours and that we will be granted a royalty-free
license to use various trademarks and service marks of News Corporation and its
subsidiaries. The master intercompany agreement also will provide that the
license granted to us by News Corporation may be terminated at any time by News
Corporation.

Indemnities by Sky Global

News Corporation or its subsidiaries have, in the past, given certain
guarantees or made commitments relating to the businesses that are, or will be
following the restructuring, conducted by us. The master intercompany agreement
will provide that we will assume all such obligations and commitments and will
indemnify and hold News Corporation and its subsidiaries harmless from and
against all liabilities arising from any default under such obligations and
commitments.

Indemnities by News Corporation

The master intercompany agreement will provide that News Corporation will
indemnify and hold us harmless from and against any and all liabilities arising
from any default under the debt instruments or obligations of News Corporation
guaranteed by us in the future.

Intercompany Debt

Prior to the offering, News Corporation and its subsidiaries will
eliminate some of the intercompany borrowings owed by us and we will issue
intercompany notes to a subsidiary of News Corporation in an aggregate amount
of $ billion, representing intercompany borrowings. The intercompany
notes will bear interest at a rate equal to the average cost of long-term debt
of News Corporation (currently approximately 8% per year), adjusted annually
and payable quarterly. We intend to use a portion of the net proceeds from the
offering to repay amounts due under the intercompany notes. Immediately
following the offering and the application of the offering's net proceeds, the
aggregate amount outstanding under the intercompany notes will be approximately
$ billion.

Prior to the offering, in exchange for the satisfaction of $ of
intercompany indebtedness owed by us to News Corporation and some of its
subsidiaries, we will enter into a payment agreement with News America pursuant
to which Sky Global will agree to pay and perform all of News America's
obligations pursuant to (1) an indenture dated as of November 12, 1996 between
News America as issuer, News Corporation and various subsidiaries of News
Corporation as guarantors and The Bank of New York as trustee, (2) the 5%
subordinated discount debentures due 2016, issued by News America pursuant to
the indenture, (3) a warrant agreement, dated as of November 12, 1996, among
News America, News Corporation and the subsidiary guarantors and The Bank of
New York as exchange agent and (4) the BSkyB warrants issued by News America
pursuant to the warrant agreement.

The subordinated debentures were issued in an original aggregate
principal amount of $1,030,928,000 and are currently held by News Corporation
Finance Trust, a Delaware business trust. The subordinated debentures will
mature on November 12, 2016, and bear interest at 5% per year of principal
amount at stated maturity, payable in cash quarterly in arrears. Interest
payments may be deferred from time to time for successive periods not exceeding
20 consecutive quarters for each such extension period, during which period
interest will continue to accrue at a rate per year of 9%. During an extension
period, News America and, under its agreement with Sky Global, Sky Global will
be prohibited from making cash payments in connection with the exercise of
warrants until quarterly interest payments are resumed and all accumulated and
unpaid interest on the subordinated debentures is made current. The payment of
the principal and interest on the subordinated debentures is subordinated in
right of payment to all senior indebtedness of News America and the guarantors
of the subordinated debentures and ranks pari passu with News America's other
general unsecured indebtedness.

The subordinated debentures are redeemable for cash, at the option of
News America, in whole or in part, from time to time, on or after November 12,
2001 and are mandatorily redeemable at the option of each holder in the event
of a change of control triggering event, as defined in the indenture. A change
of control triggering event consists of a change in control of News
Corporation, which is shortly followed by a rating decline, with respect to the
Trust Originated Preferred Securities or "TOPrSSM" issued by News Corporation
Finance Trust and by News Corporation Exchange Trust, a Delaware business
trust. The subordinated debentures are also redeemable at the election of News
America in the event of a tax event, as defined in the indenture with respect
to the TOPrS. The redemption price of the subordinated debentures is equal to
$63.05 plus accrued original issue discount on the subordinated debentures plus
accrued and unpaid interest to the redemption date. Redemptions may only be
made, however, to the extent the principal amount at maturity of the
subordinated debentures outstanding after such redemptions would equal or
exceed $100 times the number of BSkyB warrants then outstanding.
- --------
SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.

Each BSkyB warrant entitles the holder to purchase on or prior to
November 12, 2016 exchange property, as defined in the warrant agreement,
consisting of 9,264 ordinary shares of BSkyB, or "BSkyB ordinary shares" (or,
at the holder's option, 1,544 American Depositary Shares, or "ADSs," each
representing six BSkyB ordinary shares). However, instead of delivering these
shares, News America has the right to deliver cash in U.S. dollars in an amount
equal to the then market value of the BSkyB ordinary shares at the time of
exercise. The exercise price of each BSkyB warrant is $67.05 prior to November
12, 2001. Thereafter, the exercise price is equal to $63.05 plus accrued
original issue discount on each of the TOPrS issued by News Corporation Finance
Trust. The exercise price may be paid in cash or by tendering one of the TOPrS
issued by News Corporation Finance Trust. A holder of the TOPrS issued by News
Corporation Exchange Trust may also exchange each of those securities for the
exchange property.

The BSkyB warrants are not redeemable prior to November 12, 2001.
Thereafter, the BSkyB warrants will be redeemable by News America if
subordinated debentures are simultaneously redeemed by News America in an
aggregate principal amount at maturity equal to $100 times the number of BSkyB
warrants redeemed. The redemption price per BSkyB warrant will equal $100, less
an amount equal to $63.05 plus accrued original issue discount on one of the
TOPrS issued by News Corporation Finance Trust plus a premium that reduces
incrementally from $2.50 in the year commencing November 12, 2001 to zero after
November 11, 2006. The payment agreement will provide that all obligations of
News America with respect to the BSkyB warrants will be borne by Sky Global.

Under the payment agreement, News America will undertake with Sky Global
that it will comply with any instruction delivered to it by Sky Global, to the
extent not inconsistent with the indenture or the warrant agreement, with
respect to (1) the deferral of interest on the subordinated debentures, (2) the
voluntary redemption of the subordinated debentures, including redemption by
reason of a tax event, or the BSkyB warrants, (3) the election to pay cash in
lieu of BSkyB ordinary shares or ADSs in connection with the exercise of a
BSkyB warrant and (4) redemption of BSkyB warrants.

News America's obligations to the holders of the BSkyB warrants and the
subordinated debentures remain unchanged by the payment agreement.

DESCRIPTION OF CAPITAL STOCK

The following summarizes all of the material terms of our capital stock,
restated certificate of incorporation and restated by-laws. You may obtain more
comprehensive information by consulting our restated certificate of
incorporation and restated by-laws, which have been filed with the SEC as an
exhibit to our registration statement, as well as the Delaware General
Corporation Law.

Common Stock

The holders of Class A common stock and Class B common stock have
identical rights except with respect to voting, conversion and transfer. The
holders of Class A common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders, and the holders of
Class B common stock are entitled to ten votes for each share held of record on
all matters submitted to a vote of stockholders. The holders of our common
stock do not have any cumulative voting rights. All shares of Class B common
stock are convertible into Class A common stock on a share-for-share basis at
any time at the election of the holder. In addition, if a holder of Class B
common stock attempts to transfer Class B common stock other than to a
permitted transferee, such Class B common stock will automatically convert into
Class A common stock.

Subject to any preferences applicable as to any outstanding shares of
preferred stock, holders of common stock are entitled to receive dividends out
of assets legally available as may be declared by the board of directors. Other
than the conversion rights of Class B common stock described above, holders of
shares of common stock have no preemptive, conversion, redemption, subscription
or similar rights. If we liquidate, dissolve or wind-up, the holders of common
stock will be entitled to receive, after distribution in full of the
preferential amount to be distributed to the holders of any series of preferred
stock, all of the remaining assets available for distribution ratably in
proportion to the number of shares of common stock held by them. The
outstanding common stock is, and all shares of common stock to be outstanding
upon the completion of this offering will be, fully paid and non assessable.
The rights, preferences and privileges of holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of preferred stock that we may designate and issue in the future.

Preferred Stock

The board of directors has the authority, without further action by the
stockholders, to issue up to shares of preferred stock in one or more
series and to fix the powers, rights, preferences, privileges and restrictions
of such preferred stock, any or all of which could be greater then those of the
common stock. The issuance of preferred stock could adversely affect the voting
power of holders of the common stock, reduce the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deterring or preventing a change in our control. We
currently have shares of preferred stock outstanding.

Selected Provisions of the Restated Certificate of Incorporation and Restated
By-laws

Some provisions of our restated certificate of incorporation and by-laws
may make a change of control more difficult to effect. For example, our Class A
common stock is entitled to one vote per share on all matters submitted to a
vote of stockholders and our Class B common stock is entitled to ten votes per
share on all such matters. After the offering, News Corporation will
beneficially own all of our Class B common stock representing approximately %
of our voting power. See "Risk Factors--We are controlled by one principal
stockholder."

Our restated certificate of incorporation provides that we have opted out
of the provisions of Section 203 of the Delaware General Corporation Law.
Section 203 restricts business combinations with interested stockholders in
some situations.

Listing

We will apply to list our Class A common stock on the New York Stock
Exchange under the symbol "SGN".

Transfer Agent and Registrar

will serve as transfer agent and registrar for our Class A common
stock.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market, or the possibility of these sales, could cause the trading price of our
shares to decrease.

Upon completion of the offering, we will have shares of
Class A common stock outstanding. In addition, we will have shares of
Class B common stock outstanding, all of which are beneficially owned by News
Corporation and are convertible into Class A common stock on a share-for-share
basis at the election of the holder or upon transfer or disposition to persons
who are not affiliates of News Corporation. All of the shares of Class A common
stock offered through this prospectus will generally be freely tradeable
without restriction under the Securities Act, except for any such shares held
at any time by any of our "affiliates," as such term is defined under Rule 144
promulgated under the Securities Act. Subject to such restrictions and
applicable law, News Corporation will be free to sell any and all shares of
Class B common stock that it beneficially owns.

In general, under Rule 144, a person who has beneficially owned shares
for at least one year, including an "affiliate," as that term is defined in
Rule 144, is entitled to sell, within any three-month period, a number of
"restricted" shares that does not exceed the greater of 1% of the then
outstanding shares of Class A common stock and the average weekly trading
volume during the four calendar weeks preceding such sale. Sales under Rule 144
are subject to some manner of sale limitations, notice requirements and the
availability of current public information about us. Rule 144(k) provides that
a person who is not deemed an "affiliate" during the three months preceding a
sale and who has beneficially owned shares for at least two years is entitled
to sell such shares at any time under Rule 144 without regard to the
limitations described above. An "affiliate" of an issuer is a person that,
directly or indirectly through one or more intermediaries, controls or is
controlled by or under common control with such issuer.

We and News Corporation have agreed, subject to exceptions, not to sell,
offer or otherwise dispose of any of our securities for a period of days
from the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

We can make no predictions as to the number of shares that may be sold in
the future or the effect, if any, that sales of such shares, or the
availability of such shares for future sale, will have on the market price of
the Class A common stock prevailing from time to time. Sales of a significant
number of shares of Class A common stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Class A
common stock and could impair our ability in the future to raise capital
through an offering of equity securities.

UNITED STATES TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of the Class A
common stock applicable to Non-U.S. Holders of such Class A common stock. For
the purpose of this discussion, a "Non-U.S. Holder" is any holder that for U.S.
federal income tax purposes is not a "U.S. person" (as defined below). This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant in light of such Non-U.S. Holder's particular
facts and circumstances (such as being a U.S. expatriate) and does not address
any tax consequences arising under the laws of any state, local or non-U.S.
taxing jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and
administrative and judicial interpretations thereof, all as in effect on the
date hereof, and all of which are subject to change, possibly with retroactive
effect. For purposes of this discussion, the term "U.S. person" means (1) a
citizen or resident of the U.S., (2) a corporation, partnership, or other
entity created or organized in the U.S. or under the laws of the U.S. or of any
political subdivision thereof, (3) an estate whose income is includible in
gross income for U.S. federal income tax purposes regardless of its source or
(4) a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority to
control all substantial decisions of the trust. Prospective non-U.S. investors
are urged to consult their tax advisors regarding the U.S. federal, state,
local and non-U.S. income and other tax consequences of owning and disposing of
Class A common stock.

Dividends

If we pay a dividend, any dividend paid to a Non-U.S. Holder of Class A
common stock generally will be subject to U.S. withholding tax either at a rate
of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. Dividends received by a Non-U.S. Holder
that are effectively connected with a U.S. trade or business conducted by such
Non-U.S Holder are exempt from such withholding tax. However, such effectively
connected dividends, net of certain deductions and credits, are taxed at the
same graduated rates applicable to U.S. persons.

In addition to the graduated tax described above, dividends received by a
corporate Non-U.S. Holder that are effectively connected with a United States
trade or business of the corporate Non-U.S. Holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be specified by
an applicable tax treaty.

Gain on Disposition of Common Stock

A Non-U.S. Holder generally will not be subject to U.S. federal income
tax on any gain realized upon the sale or other disposition of his Class A
common stock unless: (1) such gain is effectively connected with a U.S. trade
or business of the Non-U.S. Holder; (2) the Non-U.S. Holder is an individual
who holds such Class A common stock as a capital asset and who is present in
the U.S. for a period or periods aggregating 183 days or more during the
calendar year in which such sale or disposition occurs and certain other
conditions are met; or (3) we are or have been a "U.S. real property holding
corporation" for federal income tax purposes at any time within the shorter of
the five-year period preceding such disposition or such holder's holding
period. We have determined that we are not and do not believe that we will
become a "U.S. real property holding corporation" for U.S. federal income tax
purposes.

Backup Withholding and Information Reporting

Generally, we must report to the U.S. Internal Revenue Service (the
"IRS") the amount of dividends paid, the name and address of the recipient, and
the amount, if any, of tax withheld. A similar report is sent to the holder.
Under tax treaties or other agreements, the IRS may make its reports available
to tax authorities in the recipient's country of residence.

Dividends paid to a Non-U.S. Holder at an address within the U.S. may be
subject to backup withholding at a rate of 31% if the Non-U.S. Holder fails to
establish that it is entitled to an exemption or to provide a correct taxpayer
identification number and other information to the payer. Backup withholding
will generally not apply to dividends paid to Non-U.S. Holders at an address
outside the U.S. (unless the payer has knowledge that the payee is a U.S.
person).

Under current Treasury Regulations, the payment of the proceeds of the
disposition of Class A common stock to or through the U.S. office of a broker
is subject to information reporting and backup withholding at a rate of 31%
unless the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of the proceeds of
the disposition by a Non-U.S. Holder of class A common stock outside the U.S.
to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is (a) a U.S. person, (b) a "controlled foreign corporation" for U.S.
tax purposes or (c) a foreign person 50% or more of whose gross income for
certain periods is from the conduct of a U.S. trade or business unless such
broker has documentary evidence in its files of the holder's non-U.S. status
and certain conditions are met or the holder otherwise establishes an
exemption.

Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but would
alter the procedures for claiming benefits of an income tax treaty and change
the certification procedures relating to the receipt by intermediaries of
payments on behalf of the beneficial owner of shares of Class A common stock.
Non-U.S. Holders should consult their tax advisors regarding the effect, if
any, of the Final Regulations on an investment in the Class A common stock. The
Final Regulations are generally effective for payments made after December 31,
2000.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.

Estate Tax

An individual Non-U.S. Holder who owns Class A common stock at the time
of his death or had made certain lifetime transfers of an interest in Class A
common stock will be required to include the value of such Class A common stock
in such holder's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.

The foregoing discussion is a summary of the principal federal income and
estate tax consequences of the ownership, sale or other disposition of class a
common stock by non-U.S. holders. Accordingly, investors are urged to consult
their own tax advisors with respect to the income tax consequences of the
ownership and disposition of class a common stock, including the application
and effect of the laws of any state, local, foreign or other taxing
jurisdiction.

UNDERWRITING

We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Goldman, Sachs &
Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as U.S.
representatives of the U.S. underwriters named below. Subject to the terms and
conditions described in a U.S. purchase agreement among us and the U.S.
underwriters, and concurrently with the sale of shares to the
international managers, we have agreed to sell to the U.S. underwriters, and
the U.S. underwriters severally have agreed to purchase from us, the number of
shares listed opposite their names below.

Number
of
U.S. Underwriter Shares
---------------- ------

Goldman, Sachs & Co. ...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
---
Total..........................................................
===

We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada for
whom Goldman Sachs International and Merrill Lynch International are acting as
lead managers. Subject to the terms and conditions in the international
purchase agreement, and concurrently with the sale of shares to the
U.S. underwriters pursuant to the U.S. purchase agreement, we have agreed to
sell to the international managers, and the international managers severally
have agreed to purchase shares from us. The initial public offering
price per share and total underwriting discount per share are identical under
the U.S. purchase agreement and international purchase agreement.

The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults,
the U.S. and international purchase agreements provide that the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings for the sale of shares to be
purchased by the U.S. underwriters and the international managers are
conditioned on one another.

We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including liabilities under the Securities
Act, and to contribute to payments the U.S. underwriters and international
managers may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.

Commissions, Discounts and Expenses

The U.S. representatives have advised us that the U.S. underwriters
propose initially to offer the shares to the public at the initial public
offering price on the cover page of this prospectus, and to dealers at that
price less a concession not in excess of $ per share. The U.S. underwriters
may allow, and the dealers may reallow, a discount not in excess of $ per
share to other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.

The following table shows the public offering price, underwriting
discount and proceeds before expenses to Sky Global. The information assumes
either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment options.

Per
Share Without Option With Option
----- -------------- -----------

Public offering price................... $ $ $
Underwriting discount................... $ $ $
Proceeds, before expenses, to Sky
Global................................. $ $ $

The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by Sky Global.

Over-allotment Option

We have granted options to the U.S. underwriters to purchase up to
additional shares at the public offering price less the underwriting
discount. The U.S. underwriters may exercise these options for 30 days from the
date of this prospectus solely to cover any over-allotments. If the U.S.
underwriters exercise these options, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that U.S. underwriter's initial amount
reflected in the above table.

We have also granted options to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to
additional shares to cover any over-allotments on terms similar to those
granted to the U.S. underwriters.

Intersyndicate Agreement

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the U.S. underwriters and the
international managers may sell shares to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the intersyndicate agreement, the U.S. underwriters and any
dealer to whom they sell shares will not offer to sell or sell shares to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, except in
the case of transactions under the intersyndicate agreement. Similarly, the
international managers and any dealer to whom they sell shares will not offer
to sell or sell shares to U.S. persons or Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons, except in the case of
transactions under the intersyndicate agreement.

No Sale of Similar Securities

We and our executive officers and directors and all existing stockholders
have agreed, with exceptions, not to sell or transfer any common stock for
days after the date of this prospectus without first obtaining the written
consent of Goldman Sachs and Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:

. offer, pledge, sell, or contract to sell any common stock,

. sell any option or contract to purchase any common stock,

. purchase any option or contract to sell any common stock,

. grant any option, right or warrant for the sale of any common stock,

. lend or otherwise dispose of or transfer any common stock,

. request or demand that we file a registration statement related to
the common stock, or

. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.

This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.

New York Stock Exchange Listing

We expect the shares to be approved for listing on the New York Stock
Exchange under the symbol "SGN". In order to meet the requirements for listing
on that exchange, the U.S. underwriters and the international managers have
undertaken to sell a minimum number of shares to a minimum number of beneficial
owners as required by that exchange.

Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations among us, the U.S. representatives and lead managers. In addition
to prevailing market conditions, the factors to be considered in determining
the initial public offering price are

. the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,

. our financial information,

. the history of, and the prospects for, our company and the industry
in which we compete,

. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,

. the present state of our development,

. the market value of the shares of our publicly traded subsidiaries
and affiliates, and

. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

Price Stabilization, Short Selling and Penalty Bids

transactions that stabilize the price of the common stock, such as bids or
purchases to peg, fix or maintain that price.

If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the over-
allotment option described above. Purchases of the common stock to stabilize
its price or to reduce a short position may cause the price of the common stock
to be higher than it might be in the absence of such purchases.

The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.

Other Relationships

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions. In addition, John Thornton, Director, Co-
President and Co-Chief Operating Officer of the Goldman Sachs Group, Inc., an
affiliate of Goldman, Sachs & Co., serves on the board of directors of BSkyB.

LEGAL MATTERS

The validity of the shares of Class A common stock offered hereby will be
passed upon for us by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York,
New York. Certain legal matters will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps,
Slate, Meagher & Flom LLP has from time to time rendered legal services to News
Corporation and to certain of our other affiliates.

EXPERTS

We have included in this prospectus our audited combined financial
statements of Sky Global Networks, Inc. as of June 30, 1998 and 1999 and for
each of the three years in the period ended June 30, 1999 along with Arthur
Andersen LLP's audit report on these combined financial statements. Arthur
Andersen LLP issued the report as independent accountants and as experts in
auditing and accounting.

We have included in this prospectus our audited financial statements of
British Sky Broadcasting Group plc and subsidiaries as of June 30, 1998 and
1999 and for each of the three years in the period ended June 30, 1999 along
with Arthur Andersen's audit report on these financial statements. Arthur
Andersen issued the report as independent accountants and as experts in
auditing and accounting.

The consolidated financial statements of KirchPayTV GmbH & Co. KGaA as of
December 31, 1999 and 1998, and for each of the years then ended, have been
included herein in reliance upon the report of KPMG Deutsche Treuhand-
Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft, independent
auditors, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.

The financial statements of Net Sat Servicos Ltda., as of December 31,
1998, 1997 and 1996 and for each of the three years in the period ended
December 31, 1998 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers Auditores Independentes, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The financial statements of Innova S. de R.L. de C.V as of December 31,
1998 and 1997 and for the years ended December 31, 1998 and 1997 and for the
period from July 25, 1996 (Inception) to December 31, 1996 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.

The consolidated financial statements and schedule of TV Guide, Inc. as
of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999, have been included herein in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 under the Securities
Act of 1933 with the Securities and Exchange Commission. This prospectus does
not contain all of the information in the registration statement. You will find
additional information about us and the Class A common stock in the
registration statement. For more information about statements in this
prospectus relating to legal documents, we refer you to copies of the documents
that are filed as exhibits to the registration statement. Upon completion of
the offering, we will become subject to the informational requirements of the
Securities Exchange Act of 1934, and accordingly, we will file reports, proxy
statements and other information with the Commission.

You may read and copy the registration statement, the exhibits to the
registration statement and the reports and other information filed by us in
accordance with the Exchange Act at the Public Reference Office of the
Commission at 450 Fifth Street, N. W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661, and 13th Floor, Seven World Trade Center, New
York, New York 10048. You may obtain copies of all or any part of the material
by mail from the Public Reference Office of the Commission at 450 Fifth Street,
N. W., Washington, D.C. 20549 at prescribed rates or by request of Sky Global
Networks, Inc. Electronic filings made by us through the Commission's
Electronic Data Gathering, Analysis and Retrieval System are publicly available
through the Commission's Web site (http://www.sec.gov), which contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Upon listing on the New York
Stock Exchange, reports and other information may also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.

INDEX TO FINANCIAL STATEMENTS

Page
----

Sky Global Networks, Inc.
Report of Independent Public Accountants................................. F-3
Combined Balance Sheets as of June 30, 1998 and 1999 and March 31, 2000
(unaudited)............................................................. F-4
Combined Statements of Operations for the years ended June 30, 1997, 1998
and 1999 and the nine months ended March 31, 1999 and 2000 (unaudited).. F-5
Combined Statements of Cash Flows for the years ended June 30, 1997, 1998
and 1999 and the nine months ended March 31, 1999 and 2000 (unaudited).. F-6
Combined Statements of Shareholders' Equity for the years ended June 30,
1997, 1998 and 1999 and the nine months ended March 31, 2000
(unaudited)............................................................. F-7
Notes to Combined Financial Statements................................... F-8
Unaudited Pro Forma Combined Financial Statements........................ P-1
Unaudited Pro Forma Combined Balance Sheet at March 31, 2000............. P-2
Notes to Unaudited Pro Forma Combined Balance Sheet at March 31, 2000.... P-3
Unaudited Pro Forma Combined Statement of Operations for the nine months
ended March 31, 2000.................................................... P-4
Notes to Unaudited Pro Forma Combined Statement of Operations for the
nine months ended
March 31, 2000.......................................................... P-5
Unaudited Pro Forma Combined Statement of Operations for the year ended
June 30, 1999........................................................... P-6
Notes to Unaudited Pro Forma Combined Statement of Operations for the
year ended June 30, 1999................................................ P-7
British Sky Broadcasting Group plc
Report of Arthur Andersen, Independent Chartered Accountants............. B-2
Consolidated Profit and Loss Accounts for the years ended June 30, 1999,
1998 and 1997........................................................... B-3
Consolidated Balance Sheets at June 30, 1999 and 1998.................... B-4
Consolidated Cash Flow Statements for the years ended June 30, 1999, 1998
and 1997................................................................ B-5
Notes to Financial Information........................................... B-7
KirchPayTV GmbH and Co. KgaA
Independent Auditors' Report............................................. K-2
Consolidated Statements of Operations for the years ended December 31,
1998 and 1999........................................................... K-3
Consolidated Balance Sheets as of December 31, 1998 and 1999............. K-4
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1999........................................................... K-5
Consolidated Statements of Partner's and Share Capital (Deficit) for the
years ended December 31, 1998 and 1999.................................. K-6
Notes to Consolidated Financial Statements............................... K-7
Net Sat Servicos Ltda.
Report of Independent Accountants........................................ N-2
Consolidated Balance Sheet as of December 31, 1998, 1997 and 1996........ N-3
Consolidated Statement of Operations for the years ended December 31,
1998, 1997 and 1996..................................................... N-4
Consolidated Statement of Cash Flows for the years ended December 31,
1998, 1997 and 1996..................................................... N-5
Statement of Changes in Partnership Interest for the years ended December
31, 1998, 1997 and 1996................................................. N-6
Notes to the Consolidated Financial Statements........................... N-7
Innova, S. de R.L. de C.V. and Subsidiaries
Report of Independent Accountants........................................ I-2
Consolidated Balance Sheet as of December 31, 1998 and 1997.............. I-3
Consolidated Statements of Loss for the years ended December 31, 1998,
and December 31, 1997 and for the period from July 25, 1996 (Inception)
to December 31, 1996.................................................... I-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1998, and December 31, 1997 and for the
period from July 25, 1996 (Inception) to December 31, 1996.............. I-5
Consolidated Statements of Changes in Financial Position for the years
ended December 31, 1998, and December 31, 1997 and for the period from
July 25, 1996 (Inception) to December 31, 1996.......................... I-6
Notes to Consolidated Financial Statements............................... I-7

F-1

Page
----

TV Guide, Inc.
Independent Auditors' Report............................................. T-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............. T-3
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997........................................................... T-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.................................. T-5
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997..................................................... T-6
Notes to Consolidated Financial Statements for the years ended December
31, 1999, 1998 and 1997................................................. T-7
Schedule II--Valuation and Qualifying Accounts........................... T-35

F-2

After the restructuring transaction discussed in Note 17 to Sky Global
Networks, Inc.'s combined financial statements is effected, we expect to be in
a position to render the following audit report.

Arthur Andersen LLP

New York, New York
May 19, 2000

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Sky Global Networks, Inc.:

We have audited the accompanying combined balance sheets of Sky Global
Networks, Inc. (a Delaware corporation), combined on the basis described in
Note 1, as of June 30, 1998 and 1999, and the related combined statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended June 30, 1999. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Sky Global Networks, Inc. as of June 30, 1998 and 1999, and the combined
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1999, in conformity with accounting principles generally
accepted in the United States.

F-3

SKY GLOBAL NETWORKS, INC.

COMBINED BALANCE SHEETS
(Dollars in Millions)

June 30,
---------------- March 31,
1998 1999 2000
------- ------- -----------
(unaudited)

ASSETS
Current Assets:
Cash and cash equivalents........................ $ 34 $ 31 $ 92
Accounts receivable, net......................... 219 145 175
Receivable from sale of ATL investment........... -- -- 407
Inventories, net................................. 71 43 52
Prepaid expenses................................. 25 29 35
Net assets of discontinued operations............ 17 102 --
------- ------- -------
Total current assets........................... 366 350 761
------- ------- -------
Property, plant and equipment, net............... 181 132 122
Investments ..................................... 544 1,934 1,739
Intangible assets, net........................... 3,286 857 836
Other non-current assets......................... 27 24 23
Net assets of discontinued operations............ 52 -- --
------- ------- -------
Total assets................................... $ 4,456 $ 3,297 $ 3,481
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................. $ 156 $ 88 $ 81
Deferred subscription income..................... 163 -- --
Deferred revenue................................. 58 33 24
Accrued other operating charges.................. -- 23 8
Accrued expenses................................. 93 158 90
------- ------- -------
Total current liabilities...................... 470 302 203
------- ------- -------
Long-term deferred subscription income............ 53 -- --
Deferred income taxes............................. 963 327 286
Other non-current liabilities..................... 52 81 73
Long-term accrued other operating charges......... -- 45 39
Due to News Corporation and subsidiaries.......... 2,876 2,528 2,794
------- ------- -------
Total liabilities.............................. 4,414 3,283 3,395
------- ------- -------
Minority interest in subsidiaries................. 7 5 19
------- ------- -------
Commitments and contingencies
Shareholders' Equity:
Common stock..................................... 66 66 66
Paid-in capital.................................. 2,423 2,485 2,717
Accumulated deficit.............................. (2,374) (2,490) (2,681)
Accumulated other comprehensive loss............. (80) (52) (35)
------- ------- -------
Total shareholders' equity..................... 35 9 67
------- ------- -------
Total liabilities & shareholders' equity....... $ 4,456 $ 3,297 $ 3,481
======= ======= =======

The accompanying notes are an integral part of these combined financial
statements.

F-4

SKY GLOBAL NETWORKS, INC.

COMBINED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share data)

Year ended June Nine months ended
30, March 31,
------------------- ------------------
1997 1998 1999 1999 2000
----- ----- ----- -------- --------
(unaudited)

Revenues
Satellite Distribution.............. $ 84 $ 86 $ 111 $ 82 $ 107
Distribution Technology and
Conditional Access................. 148 152 222 128 188
Magazine Publishing................. 650 617 460 460 --
----- ----- ----- -------- --------
882 855 793 670 295
Expenses
Operating........................... 543 569 519 426 147
Selling, general and administrative
................................... 210 206 220 181 178
Depreciation and amortization....... 149 156 123 110 45
Other operating charges............. 25 13 87 21 --
----- ----- ----- -------- --------
Operating loss.................... (45) (89) (156) (68) (75)
----- ----- ----- -------- --------
Equity in earnings (losses) of
affiliates........................... 116 (41) (185) (126) (368)
Intercompany interest expense, net.... (285) (276) (212) (151) (108)
Minority interests.................... 1 1 6 3 7
Other income.......................... -- 3 551 551 322
----- ----- ----- -------- --------
Income (loss) from continuing
operations before income taxes and
discontinued operations.............. (213) (402) 4 209 (222)
(Provision) benefit for income taxes.. (12) 13 18 10 40
----- ----- ----- -------- --------
Income (loss) from continuing
operations....................... (225) (389) 22 219 (182)

Discontinued operations:
Income (loss) from discontinued
operations, net of tax ............ (1) 3 (3) (5) --
Gain on sale of discontinued
operations......................... -- -- -- -- 8
----- ----- ----- -------- --------
Discontinued operations, net...... (1) 3 (3) (5) 8
----- ----- ----- -------- --------
Net income (loss)................. $(226) $(386) $ 19 $ 214 $ (174)
===== ===== ===== ======== ========
Pro forma earnings (loss) per share:
Basic and diluted earnings (loss)
from continuing operations per
share..............................
Discontinued operations, net per
share..............................
----- ----- ----- -------- --------
Basic and diluted earnings (loss)
per share..........................
----- ----- ----- -------- --------
Basic and diluted weighted average
number of common equivalent shares
outstanding (in millions)..........
----- ----- ----- -------- --------

The accompanying notes are an integral part of these combined financial
statements.

F-5

SKY GLOBAL NETWORKS, INC.

COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Millions)

Year ended Nine months
June 30, ended March 31,
------------------- ----------------
1997 1998 1999 1999 2000
----- ----- ----- ------- -------

Cash flows from operating activities: (unaudited)
Net income (loss)...................... $(226) $(386) $ 19 $ 214 $ (174)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization........ 149 156 123 110 45
Non-cash compensation charge......... -- -- -- -- 20
Equity in (earnings) losses of
affiliates.......................... (116) 41 185 126 368
Gain on sales of subsidiaries and
investments......................... -- -- (551) (551) (330)
Minority interests .................. (1) (1) (6) (3) (7)
(Income) loss from discontinued
operations.......................... 1 (3) 3 5 --
Provision (benefit) for deferred
income taxes........................ 12 (13) (18) (10) (40)
Changes in operating assets and
liabilities net of acquisitions and
dispositions:
Accounts receivable, prepaid and
other assets ....................... (51) (3) (118) (91) (32)
Inventories ......................... 8 12 (15) (37) (10)
Accounts payable and accrued
expenses............................ 30 (8) 160 114 (129)
----- ----- ----- ------- -------
Net cash used in operating
activities........................ (194) (205) (218) (123) (289)
Cash flows from investing activities:
Cash used in acquisitions, net....... -- (75) (12) (12) --
Proceeds from sales of assets........ 29 18 677 671 111
Investments.......................... (156) (110) (154) (113) (266)
Dividends received................... 65 70 71 40 7
Capital expenditures................. (56) (47) (20) (18) (17)
----- ----- ----- ------- -------
Net cash (used in) provided by
investing activities.............. (118) (144) 562 568 (165)
Cash flows from financing activities:
Proceeds from NDS initial public
offering............................ -- -- -- -- 207
Advances from (to) affiliates, net... 324 368 (363) (468) 299
----- ----- ----- ------- -------
Net cash provided by (used in)
financing activities.............. 324 368 (363) (468) 506
Effect of exchange rate changes on cash
and cash equivalents.................. (5) (11) 16 11 9
----- ----- ----- ------- -------
Net increase (decrease) in cash and
cash equivalents...................... 7 8 (3) (12) 61
Cash and cash equivalents at beginning
of period............................. 19 26 34 34 31
----- ----- ----- ------- -------
Cash and cash equivalents at end of
period................................ $ 26 $ 34 $ 31 $ 22 $ 92
===== ===== ===== ======= =======

The accompanying notes are an integral part of these combined financial
statements.

F-6

SKY GLOBAL NETWORKS, INC.

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Millions)

Accumulated
Other
Common Paid-In Accumulated Comprehensive
Stock Capital Deficit Loss Total
---------- ---------- ----------- ------------- ----------

Balance at June 30,
1996................... $ 65 $ 750 $ (1,730) $ (9) $ (924)
Comprehensive income
(loss):
Net loss.............. -- -- (226) -- (226)
Foreign currency
translation
adjustment........... -- -- -- (14) (14)
---------- ---------- ---------- ---------- ----------
Total comprehensive
loss................... -- -- (226) (14) (240)
Dividends paid.......... -- -- (32) -- (32)
Capital contributions,
net.................... 1 1,465 -- -- 1,466
---------- ---------- ---------- ---------- ----------
Balance at June 30,
1997................... 66 2,215 (1,988) (23) 270
---------- ---------- ---------- ---------- ----------
Comprehensive income
(loss):
Net loss.............. -- -- (386) -- (386)
Foreign currency
translation
adjustment........... -- -- -- (57) (57)
---------- ---------- ---------- ---------- ----------
Total comprehensive
loss................... -- -- (386) (57) (443)
Capital contributions,
net.................... -- 208 -- -- 208
---------- ---------- ---------- ---------- ----------
Balance at June 30,
1998................... 66 2,423 (2,374) (80) 35
---------- ---------- ---------- ---------- ----------
Comprehensive income
(loss):
Net income............ -- -- 19 -- 19
Foreign currency
translation
adjustment........... -- -- -- 28 28
---------- ---------- ---------- ---------- ----------
Total comprehensive
income................. -- -- 19 28 47
Dividends paid.......... -- -- (135) -- (135)
Capital contributions,
net.................... -- 62 -- -- 62
---------- ---------- ---------- ---------- ----------
Balance at June 30,
1999................... 66 2,485 (2,490) (52) 9
---------- ---------- ---------- ---------- ----------
Comprehensive income
(loss):
Net loss.............. -- -- (174) -- (174)
Foreign currency
translation
adjustment........... -- -- -- 17 17
---------- ---------- ---------- ---------- ----------
Total comprehensive
(loss) income.......... -- -- (174) 17 (157)
Dividends paid.......... -- -- (17) -- (17)
Capital contributions,
net.................... -- 232 -- -- 232
---------- ---------- ---------- ---------- ----------
Balance at March 31,
2000 (unaudited)....... $ 66 $ 2,717 $ (2,681) $ (35) $ 67
========== ========== ========== ========== ==========

The accompanying notes are an integral part of these combined financial
statements.

F-7

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. Description of business and basis of presentation

Description of business

Sky Global Networks, Inc. ("SGN"), a Delaware corporation, is an indirect
wholly owned subsidiary of The News Corporation Limited ("News Corporation"),
an Australian registered company. SGN was incorporated in August 1998 as TVG
Holdings, Inc. and was renamed Sky Global Networks, Inc. in June 2000. During
the periods covered by these combined financial statements, SGN and certain
other subsidiaries of News Corporation were principally engaged, directly and
through joint ventures, in (i) Satellite Distribution--owning, operating and
distributing satellite television services globally, (ii) Distribution
Technology and Conditional Access--providing conditional access systems to
digital satellite and cable pay-TV broadcasters and (iii) until March 1, 1999,
Magazine Publishing--magazine publishing and distribution.

Basis of presentation

Prior to the initial public offering referred to in Note 17, News
Corporation will effect a restructuring (the "Restructuring") by transferring
to SGN, at book value, substantially all of its subsidiaries engaged in
Satellite Distribution and Distribution Technology and Conditional Access.
Included in this transfer will be Star Television Limited ("STAR"), NDS Group
plc ("NDS") and certain other wholly owned subsidiaries of News Corporation
that hold ownership interests in various satellite distribution platforms
including Japan Digital Broadcasting Services, Inc. ("SKY PerfecTV!"), Net Sat
Servicos Ltda. ("Sky Brazil"), Innova S. de R.L. de C.V. ("Sky Mexico") and Sky
Multi-Country Partners ("SMCP"). In addition, subsidiaries of News Corporation
will contribute their direct equity interests in British Sky Broadcasting Group
plc ("BSkyB") and Stream S.p.A. ("Stream") to SGN. During the periods covered
by these combined financial statements, SGN, the businesses transferred by News
Corporation, along with News America Publications Inc. ("NAP") and related
assets (collectively, the "Company" or "Historical Reporting Group",
individually, a "Member") were under common control as an integral part of News
Corporation's overall operations. These combined financial statements have been
prepared from News Corporation's historical accounting records and present the
combined results and financial position of the Historical Reporting Group for
all periods presented as if the Company had been a separate stand alone entity.

The financial information included herein may not necessarily reflect the
Company's future or historical combined financial position, results of
operations, cash flows, and changes in shareholders' equity had the
Restructuring and the transactions referred to in Note 17 occurred as of the
beginning of the periods presented.

The accompanying unaudited combined financial statements as of March 31,
2000, and for the nine months ended March 31, 1999 and 2000, have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X and are consistent with
the audited financial statements. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
in the United States for complete financial statements. In the opinion of
management, all normal recurring adjustments considered necessary for fair
presentation have been included. Operating results for the nine months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire fiscal year.

F-8

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

2. Summary of significant accounting policies

Principles of combination

The combined financial statements include the accounts of SGN combined
with those entities constituting the Historical Reporting Group, which are
consolidated with the accounts of such entities' majority-owned and controlled
subsidiaries. For financial reporting purposes, control generally means
ownership of a majority interest in an entity. The Company uses the equity
method to account for investments in unconsolidated affiliates in which it
exercises significant influence but does not control.

The following Members are included in the Historical Reporting Group:

Combined Entities Period Included Equity Affiliates Period Included
----------------- ----------------- ------------------ -------------------

NAP 7/1/96 to 3/1/99 TV Guide, Inc. 3/1/99 to 03/31/00
NDS 7/1/96 to 3/31/00 BSkyB 7/1/96 to 03/31/00
STAR 7/1/96 to 3/31/00 Stream 6/1/99 to 03/31/00
SKY PerfecTV! 6/1/97 to 05/1/98
DTH Latin America:
Sky Brazil 7/1/96 to 03/31/00
Sky Mexico 3/1/97 to 03/31/00
SMCP 10/1/97 to 03/31/00
STAR affiliates:
Channel [V] 7/1/96 to 12/31/98
ESPN STAR Sports 11/1/96 to 03/31/00
Phoenix 7/1/96 to 03/31/00

The combined entities and equity affiliates are included in the combined
financial statements for all periods presented or from the date of acquisition
if later than July 1, 1996, and, if applicable, through the date of disposition
(see Note 3).

All material intracompany accounts and transactions between the combined
entities have been eliminated. All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements of
those entities constituting the Historical Reporting Group as described in Note
1.

Fiscal year

The Company maintains a 52-53 week fiscal year ending on the Sunday
nearest to June 30 in each year. Each of the fiscal years presented is a 52-
week year.

Foreign currency translation

The functional currency of the Company during the periods covered by
these combined financial statements is primarily the United States dollar. The
functional currency of the Company's foreign operations generally is the
applicable local currency for each foreign subsidiary and foreign equity
affiliate. Assets and liabilities of foreign subsidiaries and foreign equity
affiliates are translated at current exchange rates, and revenues and expenses
are translated at average exchange rates for the applicable period. The
resulting translation adjustment is recorded as a component of Accumulated
Other Comprehensive Loss in shareholders' equity.

Transactions denominated in currencies other than the applicable
functional currency are recorded based on exchange rates prevailing at the time
such transactions arise. Subsequent changes in exchange rates result in
transaction gains and losses which are reflected in the accompanying combined
statements of operations.

F-9

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Cash and cash equivalents

The Company defines cash and cash equivalents as cash on deposit in banks
and cash invested temporarily in various instruments with original maturities
of three months or less. Bank overdrafts of $20 million and $70 million are
included in Accrued Expenses in the accompanying combined balance sheets as of
June 30, 1998 and 1999, respectively.

Inventories

Inventories primarily consist of television programming rights related to
the Company's satellite distribution business, and smart cards and smart card
components related to the Company's distribution technology and conditional
access business. Until the sale of NAP on March 1, 1999 (see Note 3),
inventories also included paper.

Inventories are stated at the lower of cost or market. Cost is determined
on either a first-in, first-out ("FIFO") basis or an average cost basis which
approximates FIFO. Provision is made for obsolete, slow-moving or defective
items where appropriate.

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 63, "Financial Reporting by Broadcasters," program rights for entertainment
programs and sporting events are amortized over their license periods. The
Company has single and multi-year contracts for broadcast rights of programs
and sporting events. At the inception of these contracts and periodically
thereafter, the Company evaluates the recoverability of the costs associated
therewith against the revenues directly associated with the program material
and related expenses. Where an evaluation indicates that a programming contract
will result in an ultimate loss, additional amortization is provided to
currently recognize that loss.

Property, plant and equipment

Property, plant and equipment are stated at cost. Depreciation and
amortization for financial statement purposes is provided using the straight-
line method over an estimated useful life of 3 to 10 years. Leasehold
improvements are amortized using the straight-line method over the shorter of
their useful lives or the life of the lease. Costs associated with the repair
and maintenance of property are expensed as incurred.

Investments

Investments in which the Company's ownership interest is less than 20%
and which are not considered marketable securities are carried at the lower of
cost or net realizable value. For those investments in affiliates in which the
Company's voting interest is 20% to 50%, the equity method of accounting is
used. The Company's share of net earnings or losses of affiliates includes the
amortization of the difference between the Company's investment and its share
of the net assets of the investee at acquisition, which is amortized over forty
years. Recognition of gains on sales of subsidiaries to affiliates accounted
for under the equity method is deferred in proportion to the Company's
ownership interest in such affiliates.

Minority interests

Recognition of a minority interest holder's share of gains or losses of
subsidiaries is generally limited to the amount of such minority interest
holder's allocable portion of the common equity of those subsidiaries. The
Company's minority interest relates to Channel [V].

F-10

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Intangible assets

Intangible assets represent the excess cost of acquired subsidiaries over
the amounts assigned to their tangible net assets at acquisition. Such amounts
are amortized on a straight-line basis of twenty years (for NDS) and forty
years (for other entities).

The Company periodically reviews the propriety of the carrying amount of
long-lived assets and the related intangible assets as well as the related
amortization period to determine whether current events or circumstances
warrant adjustments to the carrying value and/or the estimates of useful lives.
This evaluation consists of the Company's projection of undiscounted future
operating cash flows before interest over the remaining lives of the intangible
assets, in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." Based on its review, the Company believes
that no significant impairment of its long-lived assets or related intangible
assets has occurred.

Revenue recognition

The Company principally derives its revenues from the sale of air time to
advertisers, affiliate fees charged to cable operators, the sale of
subscription television services, the sale of distribution technology and
conditional access systems and software and, until March 1, 1999, the magazine
publishing and distribution revenue associated with NAP.

Satellite Distribution

Satellite distribution revenues are primarily derived from the sale of
air time to advertisers, which are recognized in the period during which the
commercials are aired and affiliate fees charged to cable operators, which are
recognized in the period in which the service is provided.

Distribution Technology and Conditional Access

Distribution technology and conditional access revenues include the
following:

. revenue from the sale of smart cards to broadcasters for distribution
to and use by their subscribers;

. subscriber based fees from broadcasters for the maintenance and
support of their distribution technology and conditional access
systems;

. revenue from integration development and support services to digital
broadcasters, including software development and enhancements;

. license and royalty fees for the use of NDS developed technology and
security products; and

. revenue from the sale of broadcast products.

Revenue from the sale of smart cards is recognized upon shipment to the
broadcaster or its subscribers.

NDS receives subscriber-based fees from broadcasters for the maintenance
and support of their distribution technology and conditional access systems to
be provided over a specified period, typically 18 to 40 months. Revenues are
generally recognized in the period in which the services are performed.
However, in certain instances, NDS has contracted to replace the smart cards at
a future date at no additional charge to the broadcasters. In such
circumstances, a portion of the fee, which is equal to the estimated fair value
of the smart cards, is deferred until the replacement smart cards are shipped
to the broadcaster or its subscribers.

F-11

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Revenue from integration development and support, which typically include
software development and enhancements, include both time and materials based
contracts and fixed price contracts. Once the systems are operational, ongoing
maintenance and support services are provided. Revenue from time and material
based contracts are recognized as the service is provided and the costs are
incurred. For fixed price contracts with multiple elements, which are typically
one to two years in duration, revenue is recognized in accordance with
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", or SOP 81-
1, "Accounting for Performance of Construction-type and Certain Production-type
Contracts", as specified in SOP 97-2. Under this method, revenue and the
related costs are recognized at the completion of each milestone, and service
revenue, including maintenance, is recognized as such services are provided.
Contracts are reviewed periodically and provisions for estimated losses on
uncompleted contracts are made in the period in which such estimated losses are
determined.

License and royalty fees are recognized in the period during which such
fees are earned.

Revenue from the sale of broadcast products (see Note 12) is recognized
when such products are shipped to the customer.

Magazine Publishing

Magazine publishing revenues include the following:

. advertising revenue is recorded upon the release of the magazine
for sale, net of agency commissions and discounts. Allowances
for doubtful accounts, returns and volume rebates are provided
based upon historical experience;

. subscription revenue is recognized in the period the magazines
are delivered to subscribers;

. newsstand revenue is recognized based on the on-sale dates.
Allowances for estimated returns are recorded based on
historical experience; and

. distribution revenue is recognized as distribution services are
performed.

Software development costs

Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", capitalization of
software development costs begins upon establishment of technical feasibility
as to the completion of a working model. From this point in the development
process, the Company will secure a contract for the ultimate sale of the
product to a customer before continuing with the development of that product to
meet the specific needs of the customer. These contracts are accounted for
under SOP 81-1 where appropriate.

Financial instruments

The fair value of financial instruments, including cash and cash
equivalents and investments, is generally determined by reference to market
values resulting from trading on national securities exchanges. In cases where
quoted market prices are not available, fair value is based on estimates using
present value or other valuation techniques.

Deferred revenue and subscription income

The costs of supplying smart cards are recognized upon shipment of the
smart cards to the broadcaster or its subscribers. A portion of the subscriber
fee revenue is deferred, equivalent to the estimated fair value of

F-12

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

the smart cards, which has been calculated based on the revenue NDS would
expect to earn in supplying an equivalent volume of smart cards in a stand-
alone arrangement. This revenue is then recognized upon shipment of the
replacement smart cards to the broadcaster or its subscribers.

NDS receives government grants towards the costs of certain capital
expenditures. Such grants are treated as deferred revenue and are recognized in
the combined statements of operations over the expected useful lives of the
related assets.

Until the sale of NAP on March 1, 1999 (see Note 3), deferred
subscription income represented advance orders and payments for magazine
subscriptions from subscribers.

License agreements

NDS has the right to use certain intellectual property under various
license agreements. Royalties payable under these agreements are typically
calculated as a percentage of relevant revenues and are charged in the combined
statement of operations to match with the recognition of those revenues. One of
these agreements is with a related party (see Note 14).

Research and development

Research and development costs are expensed as incurred.

Research and development costs, which are included in operating expenses,
were $34 million, $39 million, and $60 million for the years ended June 30,
1997, 1998 and 1999, respectively.

Income taxes

The Company accounts for income taxes using SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred taxes have not been provided
on the cumulative undistributed earnings of foreign subsidiaries since amounts
are expected to be reinvested indefinitely. The Company provides for income
taxes as if it were a stand-alone taxpayer.

Stock-based compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for stock-
based compensation awards to employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options awarded to employees and directors is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock.

Earnings per share

With respect to the computation, presentation and disclosures for
earnings per share, the Company utilizes SFAS No. 128, "Earnings per Share."
Basic and diluted earnings per share has been calculated under SFAS No. 128 as
if the number of common shares outstanding immediately prior to the offering
had been outstanding for all of the periods presented.

F-13

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Comprehensive income

The Company follows SFAS No. 130, "Reporting Comprehensive Income" for
the reporting and display of comprehensive income and its components in
financial statements and thereby reports a measure of all changes in equity of
an enterprise that results from transactions and other economic events other
than transactions with the shareholders. Items of comprehensive income (loss)
are reported in the combined statements of shareholders' equity.

Use of estimates

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the combined
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.

Market risk exposure

The Company is potentially subject to foreign currency exchange rate risk
relating to receipts from customers and payments to suppliers in the Asia-
Pacific region, Europe and Latin America, as well as other international
markets. The Company's combined financial results could be affected by factors
such as changes in foreign currency exchange rates or weak economic conditions
in the foreign markets in which the Company operates. The Company does not
engage in hedging activities.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. The Company maintains cash and cash equivalents with
various major institutions and limits the amount of credit exposure to any one
institution. At June 30, 1998 and 1999, approximately 14% and 22%,
respectively, of the Company's accounts receivable were from customers in
India.

Issuances of stock by subsidiaries or equity affiliates

When one of the Company's subsidiaries or equity investees issues
additional shares to third parties, the percentage ownership interest in the
investee decreases. In the event the issuance price per share is more or less
than the average carrying amount per share, the Company recognizes a non-cash
gain or loss on the issuance. This non-cash gain or loss, net of any deferred
taxes, is generally recognized as Other Income in the Company's combined
statements of operations in the period the change in ownership interest occurs.

Recently issued accounting pronouncements

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No.133 was subsequently amended by SFAS
No. 137, which had the effect of deferring the date of its effectiveness. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement is effective for fiscal
periods beginning after June 15, 2000. The Company is currently evaluating the
possible effects of SFAS No. 133 on its combined financial statements.

In December 1999, the staff of Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes
certain areas of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company believes
that its current revenue recognition principles comply with SAB 101.

F-14

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

3. Acquisitions and dispositions

In June 1999, the Company acquired a 35% interest in Stream, a satellite
pay-TV provider in Italy for $37 million. Subsequent to March 31, 2000, the
Company increased its ownership interest (see Note 17).

In March 1999, the Company sold NAP and certain related assets to TV
Guide, Inc. ("TVG," formerly known as United Video Satellite Group, Inc.) in
exchange for common stock representing a 43.6% equity interest in TVG and net
cash of $671 million. The net book value of the net assets sold was $1.6
billion, which included approximately $2 billion of intangible assets. The
Company recorded a pro rata gain of $551 million on this sale, which is
reflected in Other Income in the accompanying combined statements of
operations.

The table below reflects the unaudited pro forma combined results of the
Company, as if the disposition of NAP and the acquisition of 43.6% of TVG had
taken place at the beginning of fiscal year 1998.

Year ended June 30,
----------------------
1998 1999
---------- ----------
(in millions, except
per share data) ---

Revenues..................... $ 238 $ 333
Net income (loss)............ (377) 19
Earnings per share, basic and
diluted.....................

In a series of transactions during fiscal 1999, STAR acquired a
controlling interest in Channel [V] for cash consideration of approximately $20
million which was allocated to intangible assets. Channel [V] is a 24-hour
music television channel that broadcasts music videos in Asia Pacific and the
Middle East. Subsequent to March 31, 2000, the Company increased its ownership
interest in Channel [V].

The Company's ownership interest in Japan Sky Broadcasting ("JSkyB"), a
venture which owns and operates a satellite broadcasting business in Japan, was
reduced, in a series of transactions at cost, from 50% to 33% in June 1997 and
further reduced to 25% in September 1997. In May 1998, JSkyB merged with Japan
Digital Broadcasting Services Corporation to form "SKY PerfecTV!", a direct-to-
home ("DTH") platform in Japan. The Company retained an 11.375% ownership
interest in the newly merged entity. During March 2000, SKY PerfecTV! merged
with DIRECTV Japan. The Company's interest was reduced to 9.9%.

In October 1997, the Company, through a Member, acquired a 30% interest
in SMCP to conduct satellite broadcast activities in South America and the
Caribbean basin, excluding Brazil and Mexico. SMCP owns and operates DTH
operations in Colombia and Chile and has a DTH license in Argentina.

In March 1997, the Company, through a Member, acquired a 40% interest in
Sky Mexico, a Mexican DTH satellite platform for $15 million. In fiscal 1998,
the Company's effective ownership interest was reduced to 30% through dilution
from the sale at cost of equity interests in Sky Mexico to other investors.

In November 1996, ESPN STAR Sports ("ESS") was created through a joint
venture between STAR (50%) and ESPN (50%), to provide international and Asian
sports programming. The Company contributed to the joint venture cash and net
assets of approximately $52 million.

F-15

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

4. Inventories, net

Inventories consisted of the following (in millions):

June 30,
--------- March 31,
1998 1999 2000
---- ---- -----------
(unaudited)

Programming rights, net............................ $21 $21 $30
Raw materials ..................................... 34 -- --
Work-in-progress................................... 8 17 15
Finished goods, net ............................... 8 5 7
--- --- ---
Inventories, net................................. $71 $43 $52
=== === ===

5. Investments

The Company has various investments accounted for under the equity and
cost methods. The following table includes the Company's carrying amount and
percentage ownership of its significant investments (in millions):

June 30, 1998 June 30, 1999 March 31, 2000
Percentage Carrying Carrying Carrying
Investment Description Ownership Amount Amount Amount
---------- ----------- ------------- ------------- ------------- --------------
(unaudited)

TVG Provider of electronic
and magazine program
guides.................. 43.60% $ -- $1,471 $1,440
BSkyB Satellite television
broadcaster in the U.K.
and Ireland............. 39.75% 327 234 80
Stream Satellite television
broadcaster in Italy.... 35.00% -- 31 47
DTH Latin America:
Sky Brazil Satellite television
broadcaster in Brazil... 36.00% 10 -- --
Sky Mexico Satellite television
broadcaster in Mexico... 30.00% -- -- --
SMCP Holding company for DTH
platforms in Latin
America................. 30.00% 7 9 12
STAR affiliates:
ESS Asian and international
sports programming
channels................ 50.00% 18 26 22
Phoenix 24-hour Chinese
entertainment channels.. 45.00% 6 6 6
Other equity investments Various................. Various 157 132 59
------ ------ ------
Total equity method
investments............ 525 1,909 1,666
Other Investment held at
cost.................... Less than 20% 19 25 73
------ ------ ------
Total Investments..... $ 544 $1,934 $1,739
====== ====== ======

F-16

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

At June 30, 1999, the Company's share of losses exceeded its capital
contributions for Sky Brazil and Sky Mexico by $32 million and by $46 million,
respectively. The Company's intention is to continue to fund these investments,
therefore, the Company continues to report its share of the losses. These
excess loss amounts are included in Other Non-current Liabilities in the
accompanying combined balance sheets.

TVG and BSkyB are both publicly traded entities. The fair market value of
the Company's ownership interests as of June 30, 1999 was $2.4 billion and $6.4
billion for TVG and BSkyB, respectively. The fair market value of the Company's
ownership interests as of March 31, 2000 was $6.4 billion and $18.1 billion for
TVG and BSkyB, respectively.

Of the Company's total share ownership in BSkyB, as of May 19, 2000
approximately 13%, representing 90,098,598 shares of BSkyB, may be used by the
Company to satisfy the Company's obligation to reimburse NAI under the Payment
Agreement for any exercises of the BSkyB Warrants in connection with the
Exchangeable Preferred Securities (see Note 17).

The carrying amount of the equity investments exceeded the Company's
percentage share of the underlying net assets by approximately $102 million and
$1.3 billion as of June 30, 1998 and 1999, respectively.

Summarized combined financial information for all equity affiliates is as
follows (in millions):

June 30,
-------------
1998 1999
------ ------

Current assets.............................................. $1,222 $1,778
Non-current assets.......................................... 2,103 5,934
Current liabilities......................................... 982 1,989
Non-current liabilities..................................... 2,127 4,219

Nine months
ended March
Year ended June 30, 31,
--------------------- --------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(unaudited)

Revenues............................ $2,194 $2,749 $3,550 $2,553 $3,582
Operating income (loss)............. 436 121 (181) (101) (751)
Net income (loss)................... 348 (159) (624) (492) (911)

F-17

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

The Company's share of the income (losses) of each of its equity
affiliates is as follows (in millions):

Share of equity income (loss)
---------------------------------
Nine months
Year ended June ended March
30, 31,
------------------- ------------
Affiliate 1997 1998 1999 1999 2000
--------- ----- ----- ----- ----- -----
(unaudited)

TVG..................................... $ -- $ -- $ (5) $ (2) $ (31)
BSkyB................................... 200 113 (10) 17 (156)
Stream.................................. -- -- (7) -- (111)
DTH Latin America:
Sky Brazil............................ (14) (56) (83) (77) (23)
Sky Mexico............................ (11) (45) (35) (27) (19)
SMCP.................................. -- (9) (22) (17) (21)
STAR affiliates:
ESS................................... (35) (36) (25) (23) (16)
Phoenix............................... (9) (8) (5) (5) --
Other................................... (15) -- 7 8 9
----- ----- ----- ----- -----
$ 116 $ (41) $(185) $(126) $(368)
===== ===== ===== ===== =====

6. Property, plant and equipment, net

Property, plant and equipment consisted of the following (in millions):

June 30,
----------
1998 1999
---- ----

Furniture, fixtures and equipment.............................. $247 $197
Buildings ..................................................... 40 32
Leasehold improvements......................................... 15 15
Land........................................................... 5 5
---- ----
Total property, plant and equipment.......................... 307 249
Accumulated depreciation and amortization...................... (126) (117)
---- ----
Property, plant and equipment, net........................... $181 $132
==== ====

Depreciation and amortization expense was $29 million, $36 million, and
$32 million for the years ended June 30, 1997, 1998 and 1999, respectively.

7. Due to News Corporation and subsidiaries

The Company was indebted to News Corporation and its subsidiaries in the
amount of approximately $2.9 billion and $2.5 billion as of June 30, 1998 and
1999, respectively. Interest expense with respect to such debt was charged at
rates determined periodically by News Corporation, which averaged 9.96% and
7.90% in 1998 and 1999, respectively. Following the initial public offering
referred to in Note 17, the interest rate charged on such indebtedness will be
approximately 8% per annum, adjusted annually and payable quarterly.

During the fiscal years ended June 30, 1997, 1998 and 1999, News
Corporation contributed $1,466 million, $208 million and $62 million,
respectively, of amounts due to News Corporation and subsidiaries to combined
shareholders' equity of the Company. Additionally, during the fiscal years
ended June 30, 1997 and 1999, the Company paid dividends of $32 million and
$135 million, respectively, which were included in amounts due to News
Corporation and subsidiaries.

F-18

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

8. Income taxes

During the periods presented, the Company and certain members of the
Historical Reporting Group were included in the consolidated tax returns of
other News Corporation entities. The Company has provided for income taxes as
if it were a stand-alone taxpayer. Income taxes payable are reflected in the
combined balance sheets in Due to News Corporation and subsidiaries.

NDS entered into a Group Relief Agreement dated October 29, 1999, with a
subsidiary of News Corporation, which provides for the mutual surrender of
losses and other allowances by group relief. Subject to terms of the agreement,
the party accepting such surrender shall pay or cause to be paid to the
surrendering party an amount equal to the amount of tax such accepting party
would have paid but for such surrender.

Components of the (provision) benefit for income taxes were as follows
(in millions):

Year ended June 30,
----------------------
1997 1998 1999
------ ------ ------

Current:
Federal............................................. $ (1) $ (1) $ (1)
State and local..................................... -- -- --
Foreign............................................. -- (3) --
Deferred:
Federal ............................................ 14 13 --
State and local..................................... 12 15 --
Foreign ............................................ (37) (11) 19
------ ------ ------
$ (12) $ 13 $ 18
====== ====== ======

A reconciliation of income tax expense based on the U.S. federal
statutory rate to income tax expense as per the combined statements of
operations is summarized as follows (in millions):

Year ended June 30,
----------------------
1997 1998 1999
------ ------ ------

Income tax benefit (expense) at the U.S. federal rate
..................................................... $ 74 $ 141 $ (2)
State and local taxes (net of federal tax benefit).... 12 15 --
Non taxable gain...................................... -- -- 192
Foreign tax free dividends............................ 23 24 23
Effect of countries with different statutory rates.... (7) (18) (24)
Loss from foreign operations for which no benefit has
been recognized...................................... (55) (64) (80)
Amortization of goodwill.............................. (10) (9) (6)
Other................................................. 3 1 1
Increase in valuation allowance....................... (52) (77) (86)
------ ------ ------
$ (12) $ 13 $ 18
====== ====== ======

The permanent difference related to the non-taxable gain of $192 million
in 1999 relates to the basis difference arising from a tax-free transfer of
NAP's stock to TVG. An unrecorded deferred tax asset exists for the basis
difference associated with this tax-free transfer. Since the asset will not be
recognized until the TVG stock is sold, which will not take place in the
foreseeable future, this asset has not been recorded in the accompanying
combined financial statements.

F-19

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

The components of deferred tax assets and liabilities, are as follows as
of (in millions):

June 30,
-------------
1998 1999
------ -----

Deferred tax assets:
Net operating loss carryforwards................................. $ 368 $ 218
Accrued expenses................................................. 18 14
Less: valuation allowance........................................ (321) (186)
------ -----
Total net deferred tax assets.................................. 65 46
------ -----
Deferred tax liabilities:
Intangible assets ............................................... 621 --
Investments ..................................................... 391 368
Other............................................................ 16 5
------ -----
Total deferred tax liabilities................................. 1,028 373
------ -----
Net deferred tax liabilities..................................... $ 963 $ 327
====== =====

The deferred tax asset related to the net operating loss carryforwards
was $368 million and $218 million as of June 30, 1998 and 1999, respectively.
The decrease of $150 million during fiscal 1999 was primarily attributable to
the sale of NAP to TVG. The valuation allowance recorded against deferred tax
assets was $321 million and $186 million as of June 30, 1998 and 1999,
respectively. The decrease of $135 million during fiscal year 1999 resulted
from the reduction of the valuation allowance related to the sale of NAP to
TVG. In addition, the decrease of intangible assets of $621 million during
fiscal year 1999 is also the result of the NAP sale. At June 30, 1999,
intangible assets are either non-deductible for tax purposes or are in
jurisdictions that do not require a deferred tax.

As of June 30, 1999, the Historical Reporting Group had aggregate net
operating loss ("NOL") carryforwards of $1.0 billion. These NOL's were
generated in jurisdictions where NOL's are permitted to be carried forward
indefinitely. Since it is more likely than not that in the immediate future
these NOL's will not be utilized, a valuation allowance has been provided for
them.

Income taxes paid to foreign jurisdictions for the years ended June 30,
1997, 1998 and 1999 were not material.

9. Share option plans

The Company did not have a share option plan for the periods presented;
however, certain employees of the Company have been granted News Corporation
stock options under the News Corporation Share Option Plan (the "News Plan").
In addition, employees of NDS are entitled to receive options under the NDS
Executive Share Option Plan (the "NDS Plan").

As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company has chosen to account for stock-based awards to
employees under both plans using the intrinsic value method in accordance with
APB No. 25, "Accounting for Stock Issued to Employees".

News Corporation Share Option Plan

Under the News Plan, the price of options granted is the weighted average
market price of the shares sold on the Australian Stock Exchange during the
five trading days immediately prior to the date of the options being granted.
Stock options are exercisable at a ratio of four options per American
Depositary Receipt ("ADR").

F-20

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Options issued under the News Plan have a term of ten years, but are
exercisable only after they have been vested in the option holder. The options
granted vest over a four-year period.

A summary of the News Plan activity for employees of the Historical
Reporting Group excluding NAP was as follows:

Weighted Average
Number Exercise Price
--------- ----------------

Options outstanding, July 1, 1996........... 450,000 $4.56
Options granted ............................ 1,558,400 $3.94
---------
Options outstanding, June 30, 1997.......... 2,008,400 $4.03
Options granted ............................ 1,288,000 $2.90
Options exercised........................... (42,000) $3.13
Options forfeited........................... (114,000) $3.13
---------
Options outstanding, June 30, 1998.......... 3,140,400 $3.12
Options granted ............................ 830,800 $5.34
Options exercised........................... (331,500) $3.70
Options forfeited .......................... (65,900) $3.32
---------
Options outstanding, June 30, 1999.......... 3,573,800 $3.83
Options granted (unaudited) ................ 1,103,200 $6.34
Options exercised (unaudited)............... (934,400) $3.12
Options forfeited (unaudited) .............. -- --
---------
Options outstanding, March 31, 2000
(unaudited)................................ 3,742,600 $4.44
=========

At June 30, 1999, of the 3,573,800 options outstanding, 1,111,000 were
exercisable at a weighted average exercise price of $3.73, and a weighted
average remaining contractual life of 7.87 years.

The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:

Year ended June 30,
-----------------------
1997 1998 1999
------- ------- -------

Risk free interest rate................................. 5.09% 5.57% 4.73%
Dividend yield.......................................... 1.5% 1.5% 1.5%
Expected volatility .................................... 33.27% 33.27% 33.27%
Expected life of options ............................... 7 years 7 years 7 years

The weighted average fair value of options granted during the years ended
June 30, 1997, 1998 and 1999 was $1.62, $1.35 and $2.03, respectively.

NDS Executive Share Option Plan

The NDS Plan was established in 1997 and provides for the grant of
options to employees to purchase shares in NDS over a 10 year term. Options
granted under the NDS Plan vest over a four-year period. The NDS Plan
authorizes options to be granted subject to a maximum of 7.5% of the ordinary
shares of NDS in issue at the date of grant. Vested options became exercisable
upon the NDS initial public offering ("NDS IPO") in November 1999 (see Note
17).

The Company recognized no compensation expense in accordance with the
provisions of APB No. 25 prior to the NDS IPO, as the vested options were not
exercisable. However, on the date of the NDS IPO, the Company recognized a non-
cash compensation charge of approximately $20 million based upon the difference
between the exercise price and the IPO price for each of the vested options.

F-21

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

A summary of the NDS Plan activity was as follows:

Weighted Average
Number Exercise Price
--------- ----------------

Options outstanding, July 1, 1996......... -- --
Options granted .......................... 1,523,234 $ 8.14
---------
Options outstanding, June 30, 1997........ 1,523,234 $ 8.14
Options granted .......................... 719,416 $ 8.14
Options forfeited......................... (230,178) $ 8.14
---------
Options outstanding, June 30, 1998........ 2,012,472 $ 8.14
Options granted .......................... 878,368 $ 9.85
Options forfeited ........................ (53,171) $ 8.28
---------
Options outstanding, June 30, 1999........ 2,837,669 $ 8.66
Options granted (unaudited)............... 945,913 $21.85
Options exercised (unaudited)............. (96,245) $ 8.29
Options forfeited (unaudited)............. (612,567) $ 8.69
---------
Options outstanding, March 31, 2000
(unaudited).............................. 3,074,770 $12.73
=========

The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:

Year ended June 30,
-------------------
1998 1999
--------- ---------

Risk free interest rate.................................... 5.53% 5.07%
Dividend yield ............................................ 0% 0%
Expected volatility ....................................... 50% 50%
Expected life of options .................................. 3 years 3 years

The weighted average fair value of options granted during the years ended
June 30, 1998 and 1999 was $3.18 and $3.81, respectively.

Had compensation expense for the News Plan and NDS Plan been determined
based on the fair value at the grant date for options under the alternative
method prescribed by SFAS No. 123, the change in the Company's net (loss)
income and net (loss) income per share would have been immaterial.

10. Details of other financial statement accounts

Revenues

(in millions)

Year ended Nine months ended
June 30, March 31,
-------------- ------------------
1997 1998 1999 1999 2000
---- ---- ---- --------- ---------
(unaudited)

Satellite Distribution:
Advertising......................... $ 40 $ 47 $ 62 $ 44 $ 58
Affiliate fees and other............ 44 39 49 38 49
Distribution Technology and
Conditional Access................... 148 152 222 128 188
Magazine Publishing:
Circulation......................... 436 413 289 289 --
Advertising and other............... 214 204 171 171 --
---- ---- ---- --------- ---------
Total revenues........................ $882 $855 $793 $ 670 $ 295
==== ==== ==== ========= =========

F-22

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Other operating charges

Other operating charges consisted of the following (in millions):

Nine months
ended
Year ended June 30, March 31,
---------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ----- ------
(unaudited)

Indovision platform phase-out............ $ 14 $ 13 $ 54 $ 16 $ --
Hong Kong business restructure........... 11 -- 11 5 --
ISkyB termination........................ -- -- 22 -- --
------ ------ ------ ----- ------
Total other operating charges.......... $ 25 $ 13 $ 87 $ 21 $ --
====== ====== ====== ===== ======

Indovision platform phase-out

In fiscal 1997, the Company entered the Indonesian DTH market through a
platform operated as Indovision. Shortly thereafter, given the then severe
economic downturn and volatility of the Indonesian market, the Company
downsized its operations in Indonesia and ultimately decided in December 1998
to cease all DTH activities in Indonesia. In connection with the decision to
terminate the operations in fiscal 1999, the Company provided for the long term
transponder obligations of approximately $48 million, as it was determined that
the capacity could not be deployed elsewhere in the business.

Hong Kong business restructure

The Hong Kong business restructure relates to costs associated with the
rationalization of STAR's broadcast operations and engineering facilities in
Hong Kong in fiscal 1997 and 1999. During fiscal year 1997, the Company
eliminated redundancies in the technical infrastructure including provisions
for unused transponders and a subscriber management system. In fiscal 1999,
STAR eliminated excess staff levels, related office expenses and recorded a
loss on a transponder, which is no longer used.

ISkyB termination

Indian Sky Broadcasting ("ISkyB"), the Company's DTH distribution
platform initiative in India, was terminated during fiscal 1999 due to
regulatory restrictions. The amount included in other operating charges above
reflects the costs associated with the termination of a satellite lease and the
write down of fixed assets.

F-23

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

The remaining balance of these other operating charges are included in
Accrued Other Operating Charges in the accompanying combined balance sheets.

Indovision Hong Kong
platform business ISkyB
phase-out restructure termination Total
---------- ----------- ----------- -----
(in millions)

Balance at June 30, 1996 $-- $-- $-- $--
Accrued other operating charges...... 14 11 -- 25
Payments............................. (14) (11) -- (25)
---- ---- ---- ----
Balance at June 30, 1997 -- -- -- --
Accrued other operating charges...... 13 -- -- 13
Payments............................. (13) -- -- (13)
---- ---- ---- ----
Balance at June 30, 1998 -- -- -- --
Accrued other operating charges...... 54 11 22 87
Payments............................. (9) (1) (9) (19)
---- ---- ---- ----
Balance at June 30, 1999............. 45 10 13 68
Less: current portion................ 6 4 13 23
---- ---- ---- ----
Long-term accrued other operating
charges............................. $ 39 $ 6 $-- $ 45
==== ==== ==== ====

Shareholders' equity of Historical Reporting Group

June 30, 1998
------------------------------------------------
(in millions)
Accumulated
Other
Common Paid-in Accumulated Comprehensive
Company Stock Capital Deficit Income (Loss) Total
------- ------ ------- ----------- ------------- -------

SGN......................... $ -- 445 $(1,712) $ 3 $(1,264)
News Television Ltd......... -- -- (60) -- (60)
News Cayman Holdings Ltd. .. -- 1,467 (459) 3 1,011
Newscorp Japan Holdings BV.. -- 273 (12) (55) 206
NDS Group................... 66 222 (412) (28) (152)
Other....................... -- 16 281 (3) 294
------ ------ ------- ------ -------
Total..................... $ 66 $2,423 $(2,374) $ (80) $ 35
====== ====== ======= ====== =======

At June 30, 1998, of the accumulated deficit in Other, $284 million
represented the Company's share of the accumulated earnings of BSkyB.

F-24

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

June 30, 1999
----------------------------------------------
(in millions)
Accumulated
Other
Common Paid-in Accumulated Comprehensive
Company Stock Capital Deficit Income (Loss) Total
------- ------ ------- ----------- ------------- -----

SGN........................... $ -- $ 446 $(1,312) $ (4) $(870)
News Television Ltd........... -- -- (116) 1 (115)
News Cayman Holdings Ltd. .... -- 1,664 (779) (1) 884
Newscorp Japan Holdings BV.... -- 112 (12) (16) 84
NDS........................... 66 222 (405) (20) (137)
Other......................... -- 41 134 (12) 163
------ ------ --------- ---------- -----
Total....................... $ 66 $2,485 $(2,490) $ (52) $ 9
====== ====== ========= ========== =====

At June 30, 1999, of the accumulated deficit in Other, $162 million
represented the Company's share of the accumulated earnings of BSkyB.

At June 30, 1999, common stock of SGN consisted of $0.01 par, 3,000
common shares authorized, 100 common shares issued and outstanding. SGN
directly held the investment in NAP.

At June 30, 1999, ordinary shares of News Television Limited ("NTL")
consisted of (Pounds)1 par, 162,550,508 authorized, issued and outstanding. NTL
is the holding company for the Company's investment in Stream.

At June 30, 1999, ordinary shares of News Cayman Holdings Limited ("News
Cayman") consisted of $1.00 par value, 400,000 ordinary shares authorized,
27,734 ordinary shares issued and outstanding; and 500,000 Redeemable shares,
Australian $1.00 par value, 7,457 Redeemable shares issued and outstanding.
News Cayman holds the Company's 100% ownership in STAR, as well as the
Company's investments in Sky Brazil and Sky Mexico.

At June 30, 1999, NDS had 42,000,002 deferred, 48,000,000 Series A
ordinary and 52,000,000 Series B ordinary shares authorized; par value
(Pounds)1.00 per deferred share and $0.01 per Series A and B ordinary share;
42,000,002 deferred shares and 42,001,000 Series A ordinary shares issued and
outstanding.

At June 30, 1999, common stock of SESLA, Inc. ("SESLA") consisted of no
par value, 200 authorized, 100 common shares issued and outstanding. SESLA is
the holding company for the Company's investments in SMCP and Sky Latin America
Partners. These amounts are included in Other above.

At June 30, 1999, common stock of News America DTH TechCo, Inc. ("NADT")
consisted of no par value, 200 authorized shares, 100 common shares issued and
outstanding. NADT is the holding company for the Company's investment in DTH
TechCo Partners. These amounts are included in Other above.

Intangible assets

Intangible assets' amortization expense was $84 million, $119 million and
$69 million for the years ended June 30, 1997, 1998 and 1999, respectively.

Accumulated amortization on intangible assets was $1.0 billion and $134
million as of June 30, 1998 and 1999, respectively. SGN sold NAP in March 1999,
which principally accounted for this change (see Note 3).

F-25

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

11. Employee benefit plans

The Company does not sponsor any company-wide pension plan and does not
provide other post-retirements benefits or post-employment benefits to
employees. Certain wholly-owned subsidiaries sponsor their own plans, as
described below.

NDS Defined Pension Plan

NDS maintains a defined benefit pension plan ("NDS Pension Plan") for
full-time employees. The pension cost is shown in the following table (in
thousands):

Year ended
June 30,
--------------
1998 1999
------ ------

Service Cost-benefit earned during the period............. $1,032 $ 973
Interest Cost on projected benefit obligation. ........... 1,010 1,400
Expected Return on Assets................................. (1,402) (1,609)
Net amortization of loss.................................. -- 69
------ ------
Net periodic pension expenses........................... $ 640 $ 833
====== ======

The following weighted-average assumptions were used in accounting for
the NDS Pension Plan:

Year ended
June 30,
--------------
1998 1999
------ ------

Discount rate ............................................ 7.5% 6.5%
Investment return......................................... 9.25% 8.5%
Salary growth ............................................ 6.25% 5.0%
Pension increases ........................................ 4.0% 3.0%

Prepaid pension cost was $0.8 million and $1.1 million as of June 30,
1998 and 1999, respectively.

The following is a reconciliation of the projected benefit obligation
("PBO") for the years ended June 30, 1998 and 1999 (in thousands):

PBO at July 1, 1997............................................. $13,669
Interest on PBO................................................. 1,011
Service cost.................................................... 1,034
Distributions................................................... (38)
Employee contributions.......................................... 412
(Gains) losses.................................................. 2,900
-------
PBO at June 30, 1998............................................ 18,988
Interest on PBO................................................. 1,399
Service cost.................................................... 989
Distributions................................................... (562)
Employee contributions.......................................... 498
(Gains) losses.................................................. (647)
-------
PBO at June 30, 1999............................................ $20,665
=======

F-26

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

The following table is a reconciliation of the fair value of plan assets
as of June 30, 1998 and 1999 (in thousands):

Plan assets at July 1, 1997, at fair value....................... $14,222
Employer contributions........................................... 1,006
Employee contributions........................................... 412
Benefits paid.................................................... (87)
Return on assets................................................. 1,313
-------
Plan assets at June 30, 1998, at fair value...................... 16,866
Employer contributions........................................... 1,139
Employee contributions........................................... 498
Benefits paid.................................................... (621)
Return on assets................................................. 15
-------
NDS Plan assets at June 30, 1999, at fair value.................. $17,897
=======

The following table is a reconciliation of the funded status as of June
30, (in thousands):

1998 1999
------- -------

Funded status......................................... $(2,122) $(2,768)
Unrecognized net actuarial loss....................... 2,932 3,884
------- -------
Prepaid pension expense............................... $ 810 $ 1,116
======= =======

STAR Defined Contribution Plan

STAR maintains a 10% noncontributory defined contribution plan for full-
time employees. The Company recorded pension expense related to the plan of
approximately $2 million for each of the three years ended June 30, 1999.

12. Discontinued operations

In July 1999, NDS sold its digital hardware business to Ordinto
Investments, a subsidiary of News Corporation, for $111 million. Accordingly,
the Company reported results of the operations of the digital hardware business
and the gain on disposal as discontinued operations in the accompanying
combined financial statements. In October 1999, Ordinto Investments sold the
digital hardware business to an unrelated third party.

Summarized operating results of discontinued operations are as follows
(in millions):

Nine months
Year ended ended
June 30, March 31,
--------------- --------------
1997 1998 1999 1999 2000
---- ---- ---- ----- ------
(unaudited)

Revenues................................... $127 $144 $146 $ 96 $ --
Income (loss) from discontinued operations,
net of taxes of $1 million, $2 million, $0
and $1 million as of June 30, 1997, 1998,
1999 and March 31, 1999, respectively..... (1) 3 (3) (5) --
Gain on sale............................... -- -- -- -- 8

F-27

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

13. Commitments and contingencies

Leases

Future minimum lease payments under noncancellable operating leases for
office space, transponders related to the Satellite Distribution businesses and
other operating leases, which extend through April 2014, are as follows (in
millions):

Year ending June 30,
2000.............................................................. $ 53
2001.............................................................. 47
2002.............................................................. 45
2003.............................................................. 40
2004.............................................................. 35
Thereafter........................................................ 234
----
Total future minimum lease payments............................. $454
====

Total rental expense for operating leases approximated $21 million, $19
million and $20 million for the years ended June 30, 1997, 1998 and 1999,
respectively.

Purchase commitments

As of June 30, 1999, total purchase commitments, principally for capital
expenditures, amount to $5.8 million and are payable within one year.

The Company has entered into film output contracts, which extend through
2004. The future minimum payments of these contracts as of June 30, 1999 are as
follows (in millions):

Year ended June 30,
2000............................................................... $20
2001............................................................... 21
2002............................................................... 21
2003............................................................... 4
2004............................................................... 5
---
Total future minimum payments.................................... $71
===

In October 1998, STAR entered into an output agreement with Twentieth
Century Fox Film Corporation ("TCFFC"), a subsidiary of News Corporation. This
agreement has a term of five years with the following minimum guarantees per
year: $4.3 million in 2000, $4.2 million in 2001, $4.3 million in 2002, $4.4
million in 2003 and $4.5 million in 2004. These commitments are included in the
above table.

Litigation

In the ordinary course of business, the Company has become involved in
disputes or litigation. While the result of such disputes cannot be predicted
with certainty, in management's opinion, based in part on the advice of
counsel, the ultimate resolution of these disputes will not have a material
adverse effect on the Company's financial position or its combined results of
operations.

F-28

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Bank facility

STAR maintains an overdraft, import, and a standby letter of credit
facility. As of June 30, 1998 and 1999 and March 31, 2000, there are no amounts
outstanding under these facilities. The aggregate amount of these facilities is
$5 million. These facilities are secured by a corporate guarantee for $5.6
million from News Corporation.

News Corporation guarantees

News Corporation has guaranteed certain contingent liabilities for STAR
and its equity affiliates. These guarantees include letters of credit,
performance bonds, transponder and other leases. The aggregate of the
guarantees is approximately $393 million and extend through May 2014.

News Corporation has also guaranteed various transponder leases for Sky
Brazil, Sky Mexico and SMCP. The aggregate of these guarantees is approximately
$377 million and extends through 2019.

Prior to the initial public offering, the Company will agree to indemnify
News Corporation from and against any obligations they may incur by reason of
their guarantees.

14. Related party transactions

The Company conducts various types of business transactions with News
Corporation as follows: licensing to the Company of intellectual property
rights through July 1, 1999, provision by NDS of integrated broadcast systems
and conditional access and the receipt by the Company of administrative
services from a subsidiary of News Corporation. Licensing and system provision
transactions are negotiated in the same manner as other third-party contracts.
Amounts charged for administrative services represent the actual costs incurred
by News Corporation.

Licensing of intellectual property rights

Through its discontinued digital hardware business, NDS had licensed
certain intellectual property rights relating to the discontinued operations
from News Securities BV, a subsidiary of News Corporation. Royalties were
payable under the license agreement, calculated as a percentage of the relevant
NDS revenue. The amounts included within discontinued operations in each year
and the amounts outstanding at each year-end attributable to these intellectual
property rights are shown below. This arrangement was cancelled at the time of
the sale of the digital hardware business (see Note 12). NDS retained the
liability to News Securities BV of $32 million as of June 30, 1999 which was
paid in full during October 1999.

June 30,
--------------
1997 1998 1999
---- ---- ----
(in millions)

Discontinued operations.................................... $21 $24 $19
Account payable............................................ $ 5 $30 $32

Distribution technology and conditional access services

NDS provides distribution technology and conditional access services to
equity affiliates within the Company and other News Corporation affiliates.
These services are negotiated in the same manner as other third-party
contracts. Principally, these sales are from NDS to the following equity
affiliates of the Company:

F-29

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

BSkyB, Sky Brazil, Sky Mexico, DTH TechCo and SMCP. The equity ownership by
the Company for each of these equity affiliates is less than 50%.

The amounts included within the Company's revenues in each year and the
amounts outstanding at each year-end attributable to these related parties are
as follows:

June 30,
--------------
1997 1998 1999
---- ---- ----
(in millions)

Revenues................................................... $117 $103 $116
Accounts receivable........................................ $ 26 $ 23 $ 46

All accounts receivable from equity affiliates are attributable to the
Company's continuing operations.

Administrative services and financing

A subsidiary of News Corporation provided NDS administrative services
including payroll, legal and secretarial services of approximately $1 million
during each of the three years ended June 30, 1999.

STAR provides broadcast and uplink services to the following equity
affiliates: ESS, ATL, Phoenix and Channel [V]. STAR also provides various
general and administrative services to Phoenix and Channel [V]. As of June 30,
1998 and 1999, there were $15 million and $10 million, respectively, of
accounts receivable related to these transactions.

Through March 1, 1999, NAI provided general managerial assistance to NAP
including assistance relating to centralized medical, dental and pension
plans, paper purchasing, travel arrangements, legal, rent and insurance and
allocated a proportionate share of these actual costs to NAP. The basis for
such allocation varied depending upon the nature of the cost and includes such
factors as headcount and square footage. Allocated costs totaled approximately
$5 million, $4 million and $4 million in the years ended June 30, 1997, 1998
and 1999, respectively. The Company's management believes that such
allocations are reasonable and are representative of third party costs for
identical services. No services have been provided to NAP since its sale to
TVG.

The master intercompany agreement, as well as the Group Relief Agreement
(see Note 8) were entered into in the context of a parent-subsidiary
relationship and therefore are not the result of an arm's-length negotiations
between independent parties. There can be no assurance, therefore, that each
of such agreements, or the transactions provided for therein, or any
amendments thereof will be effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties.

15. Segment Information

The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes standards for
the reporting of information about operating segments in annual and interim
financial statements. The Company has three operating segments: (1) Satellite
Distribution-owning, operating and distributing satellite television services
principally in the Asia Pacific region; (2) Distribution Technology and
Conditional Access-providing conditional access software and systems used by
pay television broadcasters and content providers in Europe, the United
States, Latin America and Asia Pacific; and (3) until March 1, 1999, Magazine
Publishing-magazine publishing and distribution in the United States.

F-30

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

The Company's reportable operating segments have been determined in
accordance with the Company's internal management structure, which is organized
based on operating activities. The accounting policies of each business segment
are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based upon several factors of which
the primary financial measure is segment operating income. Intersegment
revenues are generally accounted for at amounts comparable to sales to
unaffiliated customers and are eliminated in the combined financial statements.

Nine months
ended March
Year ended June 30, 31,
--------------------- -------------
1997 1998 1999 1999 2000
(in millions) ----- ------ ------ ----- ------
(unaudited)

Revenues:
Satellite Distribution.................. $ 84 $ 86 $ 111 $ 82 $ 107
Distribution Technology and Conditional
Access................................. 148 152 222 128 188
Magazine Publishing..................... 650 617 460 460 --
----- ------ ------ ----- ------
$ 882 $ 855 $ 793 $ 670 $ 295
===== ====== ====== ===== ======
Operating loss and reconciliation to
(loss) income from continuing operations
before income taxes and discontinued
operations:
Satellite Distribution .................. $(117) $ (138) $ (141) $ (96) $ (82)
Distribution Technology and Conditional
Access.................................. 13 11 37 14 7
Magazine Publishing...................... 84 51 35 35 --
Other operating charges.................. (25) (13) (87) (21) --
----- ------ ------ ----- ------
Operating loss........................... (45) (89) (156) (68) (75)
----- ------ ------ ----- ------
Equity in earnings (losses) of
affiliates.............................. 116 (41) (185) (126) (368)
Intercompany interest expense, net....... (285) (276) (212) (151) (108)
Minority interests....................... 1 1 6 3 7
Other income............................. -- 3 551 551 322
----- ------ ------ ----- ------
(Loss) income from continuing operations
before income taxes and discontinued
operations.............................. $(213) $ (402) $ 4 $ 209 $ (222)
===== ====== ====== ===== ======
Depreciation and Amortization:
Satellite Distribution .................. $ 41 $ 44 $ 46 35 33
Distribution Technology and Conditional
Access.................................. 8 13 9 7 12
Magazine Publishing...................... 100 99 68 68 --
----- ------ ------ ----- ------
$ 149 $ 156 $ 123 $ 110 $ 45
===== ====== ====== ===== ======
Capital Expenditures:
Satellite Distribution .................. $ 24 $ 10
Distribution Technology and Conditional
Access.................................. 20 8
Magazine Publishing...................... 3 2
------ ------
$ 47 $ 20
====== ======
Combined Assets:
Identifiable Assets:
Satellite Distribution .................. $ 271 $ 260
Distribution Technology and Conditional
Access.................................. 180 246
Magazine Publishing...................... 175 --
------ ------
626 506
Intangible Assets:
Satellite Distribution .................. 846 829
Distribution Technology and Conditional
Access.................................. 32 28
Magazine Publishing...................... 2,408 --
------ ------
Total Identifiable Assets................ 3,912 1,363
------ ------
Investments.............................. 544 1,934
------ ------
Total combined assets.................... $4,456 $3,297
====== ======

F-31

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Equity in earnings (losses) of affiliates are principally satellite
television broadcasting entities. Other income and (provision) benefit for
income taxes are not allocated to segments, as they are not under the control
of the segment management.

Year ended June 30,
--------------------
1997 1998 1999
----- ------ ------

Geographic Segments
(in millions)
Revenues:
United States....................................... $ 650 $ 617 $ 460
Europe.............................................. 148 152 222
Asia Pacific........................................ 84 86 111
----- ------ ------
$ 882 $ 855 $ 793
===== ====== ======
Long-Lived Assets:
United States....................................... $2,429 $ --
Europe.............................................. 129 64
Asia Pacific........................................ 988 949
Investments......................................... 544 1,934
------ ------
$4,090 $2,947
====== ======

Revenues are attributed to geographic regions based upon the location
from which the sale originated. The revenues related to the Satellite
Distribution segment are generated from customers in the Asia Pacific region
including the Middle East. Revenues related to the Magazine Publishing segment
are generated from customers within the United States. Revenues related to the
Distribution Technology and Conditional Access segment are generated from
customers within the United States (52%), Europe (29%) and other (19%) for the
year ended June 30, 1999.

16. Valuation and Qualifying Accounts

The Company's valuation and qualifying accounts as of June 30, 1997, 1998
and 1999 are as follows (in millions):

Beginning of Costs and
year expenses Deductions End of year
------------ --------- ---------- ------------

Year ended June 30, 1997:
Allowance for doubtful
accounts................ $ 8 $ 12 $ (10) $10
Reserve for inventory.... 1 -- -- 1
Reserve for volume
rebates................. 3 1 (2) 2
Reserve for magazines
returns................. 40 395 (385) 50

Year ended June 30, 1998:
Allowance for doubtful
accounts................ $10 $ 14 $ (6) $18
Reserve for inventory.... 1 3 -- 4
Reserve for volume
rebates................. 2 1 -- 3
Reserve for magazine
returns................. 50 490 (491) 49

Year ended June 30, 1999:
Allowance for doubtful
accounts................ $18 $ 5 $ (7) $16
Reserve for inventory.... 4 -- (2) 2
Reserve for volume
rebates................. 3 2 (3) 2
Reserve for magazine
returns................. 49 489 (538) --

F-32

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

17. Subsequent events

Prior to May 19, 2000

Acquisitions and Dispositions

In July 1999, a division of NDS that engages in the developing and
manufacturing of digital compression products was sold to a subsidiary of News
Corporation for $111 million. (see Note 12). In October 1999, Ordinto
Investments sold the digital hardware business to an unrelated third party.

In October 1999, TVG entered into a merger agreement with Gemstar
International Group Limited ("Gemstar") pursuant to which TVG will become a
wholly-owned subsidiary of Gemstar based on the number of outstanding shares in
September 1999. The closing of the transaction is subject to satisfaction of
certain customary conditions including regulatory approval. The Company's
ownership of the merged entity will decrease to approximately 21%.

In November 1999, NDS completed its IPO. NDS sold 10,350,000 ADSs at $20
per ADS, for gross proceeds of $207 million. Subsequent to the NDS IPO, the
Company owns approximately 80% of NDS.

In March 2000, STAR finalized the terms of the sale of its 50% interest
in Asia Today Limited ("ATL"), whose principal assets were investments in the
Zee television channels in India and Siticable, an Indian cable operator, to
Zee TeleFilms Limited ("ZTL"), a company listed on the Bombay stock exchange,
for total consideration receivable of approximately $407 million, of which $148
million is payable in cash and the balance of the consideration in shares of
ZTL. This sale resulted in a $322 million gain, which is reflected in Other
Income in the accompanying combined statements of operations. In April 2000,
STAR received all of the proceeds from this sale and retained 3,415,518 shares
of ZTL (valued at approximately $55 million) with the remaining proceeds ($358
million) used to repay intercompany indebtedness.

In March 2000, STAR acquired preferred shares convertible into a 10%
interest in Netease.com, the second largest Chinese horizontal portal, for
approximately $40 million, of which $5 million is payable in televised
promotions and the balance was paid in cash.

In March 2000, BSkyB announced the acquisition of a 24% stake in
KirchPayTV, operator of the German Premiere World pay television platform, for
consideration of DM1.0 billion ($488 million) (which was financed from the
issue of 19 million BSkyB shares) and 78 million new BSkyB shares. The
acquisition closed in May 2000. As a result of this transaction, the Company's
equity interest in BSkyB has been reduced to 37.57%.

In April 2000, the Company entered into an agreement to increase its
interest in Stream to 50% through the purchase of shares of certain minority
interest holders for approximately $85 million. In connection with this
agreement, in May 2000, the Company increased its ownership interest to
approximately 42%. The acquisition of the remaining 8% is expected to close in
July 2000 after satisfaction of regulatory approvals.

In April 2000, STAR agreed to acquire a 33.3% interest of Indya.com, a
general interest horizontal portal in India for approximately $50 million. The
acquisition is planned to close in June 2000.

In May 2000, STAR increased its ownership interest in Channel [V] to 75%.

In May 2000, STAR acquired a 15% interest in Baazee.com, an auction web
site in India, for approximately $11 million.

In May 2000, STAR acquired a 12% interest in Renren.com, a horizontal
portal for overseas Chinese community, for approximately $12.5 million.

F-33

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Subsequent to May 19, 2000 (unaudited)

Obligation associated with News America Incorporated's exchangeable preferred
securities and warrants

In November 1996, News America Incorporated ("NAI"), a wholly-owned
subsidiary of News Corporation, issued through a wholly-owned trust (the
"Exchange Trust"), 10,000,000 5% Exchangeable Trust Originated Preferred
Securities (the "Exchangeable Preferred Securities") for aggregate gross
proceeds of $1 billion. The proceeds were used to purchase, through another
wholly-owned trust (the "Finance Trust"), 5% Subordinated Discount Debentures
due November 12, 2016 (the "Subordinated Debentures") issued by NAI and
10,000,000 warrants to purchase ordinary shares or ADSs of BSkyB (the "BSkyB
Warrants"). The BSkyB Warrants are redeemable at the option of NAI on November
12, 2001 and any time thereafter. The Exchangeable Preferred Securities are
mandatorily redeemable on November 12, 2016 or earlier to the extent of any
redemption by NAI of any Subordinated Debentures or BSkyB Warrants. In lieu of
delivering shares or ADSs, NAI has the right to pay cash in US dollars equal to
the market value of the BSkyB ordinary shares and ADSs for which BSkyB Warrants
are exercisable.

Prior to the initial public offering, the Company, in exchange for the
satisfaction of $ of intercompany indebtedness to News Corporation, will
enter into a Payment Agreement with NAI pursuant to which the Company will
agree to pay and perform all of NAI's obligations related to the exercise of
the BSkyB Warrants in connection with the Exchangeable Preferred Securities. In
lieu of delivering shares or ADSs, as holders of these securities elect to
exercise, the Company will have the right to instruct NAI to pay cash in U.S.
dollars equal to the market value of the BSkyB ordinary shares for which the
BSkyB Warrants are exercisable. The Company will present the gross obligation
under the Payment Agreement on the consolidated balance sheet on a separate
line in current liabilities entitled "Obligation associated with News America's
exchangeable preferred securities and warrants". At March 31, 2000 and May 19,
2000, there were 9,725,669 BSkyB Warrants outstanding. The market value of the
shares of BSkyB ((Pounds)16.60 ($26.81) per share and (Pounds)10.53 ($17.00)
per share, respectively) underlying the BSkyB Warrants exceeded the aggregate
warrant exercise price by approximately $1.4 billion and $560 million,
respectively. Changes in the excess of the market value of the shares of BSkyB
over the aggregate warrant exercise price will be charged against earnings and
cause corresponding changes in the amount of the Company's recorded obligation
to NAI. A movement of 50 pence in BSkyB's share price results in a change of
approximately (Pounds)45 million ($73 million) in the related obligation.

Master Intercompany Agreement

As a subsidiary of News Corporation, the Company will enter into a Master
Intercompany Agreement, which will provide various cash management, financial,
tax, legal and other services. The consideration for each of the services and
other arrangements set forth in the Master Intercompany Agreement will be
mutually agreed upon based upon allocated costs; provided that all such
consideration and any material arrangements will be subject to the approval of
the audit committee of the Company. All costs relating to direct intercompany
services have been reflected in the accompanying combined financial statements.

Initial Public Offering

On June , 2000, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission covering the proposed initial
public offering of million shares of newly issued Class A common stock (the
"IPO"). Immediately before the IPO, News Corporation will effect the
Restructuring. In addition, SGN will (i) authorize new Class A and Class B
Common Stock and convert SGN's outstanding common stock into shares of
Class B Common Stock, and (ii) issue intercompany notes to a subsidiary of News
Corporation in an aggregate amount of $ billion and bearing interest at

F-34

SKY GLOBAL NETWORKS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

approximately 8% per annum, adjusted annually and payable quarterly. For the
year ended June 30, 1999, after giving effect to these pro forma transactions,
pro forma net loss and net loss per share would have been $ million and
$ , respectively. For the nine months ended March 31, 2000, the pro forma net
loss and net loss per share would have been $ million and $ ,
respectively.

F-35

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined statement of operations for
the fiscal year ended June 30, 1999 are based on the historical combined
financial statements of Sky Global Networks, Inc. (the "Company") included
elsewhere herein. The unaudited pro forma combined statement of operations for
the year ended June 30, 1999 give effect to the following transactions:

(1) the reduction in the ownership interest in BSkyB resulting from
BSkyB's issuance of shares in connection with its acquisition of a
24% interest in KirchPayTV;

(2) the sale of News America Publications, Inc. to TV Guide, Inc. and
the receipt of a 43.6% interest in TV Guide, Inc.;

(3) the consummation of the NDS initial public offering;

(4) the acquisition of an additional 15% ownership interest in Stream
such that subsequent to the acquisition the Company held a 50%
ownership interest;

(5) the sale of the Company's interest in ATL; and

(6) the assumption of the obligation associated with News America
Incorporated's exchangeable preferred securities and warrants.

The following unaudited pro forma combined balance sheet at March 31,
2000 and statement of operations for the nine months ended March 31, 2000 are
based on the unaudited historical combined financial statements of the Company
included elsewhere herein. The unaudited pro forma combined financial
statements give effect to the following transactions:

(1) the reduction in the ownership interest in BSkyB resulting from
BSkyB's issuance of shares in connection with its acquisition of a
24% interest in KirchPayTV;

(2) the consummation of the NDS initial public offering;

(3) the acquisition of an additional 15% ownership interest in Stream
such that subsequent to the acquisition the Company held a 50%
ownership interest;

(4) the sale of the Company's interest in ATL; and

(5) the assumption of the obligation associated with News America
Incorporated's exchangeable preferred securities and warrants.

The following unaudited pro forma as adjusted combined balance sheet at
March 31, 2000 and unaudited pro forma as adjusted statements of operations for
the nine months ended March 31, 2000 and for the year ended June 30, 1999 gives
effect to (i) the pro forma transactions described above, (ii) the
authorization of the new Class A and Class B Common Stock and the conversion of
the Company's outstanding common stock into shares of Class B Common Stock
(the "Recapitalization"), (iii) the issuance of intercompany notes to a
subsidiary of News Corporation in an aggregate amount of $ billion and
bearing interest at approximately 8% per annum, adjusted annually and payable
quarterly, and (iv) the offering and the application of the net proceeds
therefrom.

The unaudited pro forma combined statements of operations were prepared
as if the above transactions had occurred as of the first day of the periods
presented. The unaudited pro forma combined balance sheet at March 31, 2000 was
prepared as if the above transactions had occurred on that date. The unaudited
pro forma combined financial statements should be read in conjunction with the
historical combined financial statements of the Company. The unaudited pro
forma combined financial statements are presented for informational purposes
only and are not necessarily indicative of the operating results that would
have occurred if the transactions had been consummated as of the dates
indicated, nor are they necessarily indicative of future financial condition or
operating results.

P-1

SKY GLOBAL NETWORKS, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

At March 31, 2000
(Dollars in Millions)

(AA) (BB) (CC) (DD) Offering Pro Forma
Actual BSkyB Stream ATL TOPrS Pro Forma Adjustments As Adjusted
------- ----- ------ ------ ------- --------- ----------- -----------

ASSETS
Current Assets:
Cash and cash
equivalents........... $ 92 $-- $-- $ -- $ -- $ 92 $ $
Accounts receivable,
net................... 175 -- -- -- -- 175
Receivable from sale of
ATL investment........ 407 -- -- (407) -- --
Inventories, net....... 52 -- -- -- -- 52
Prepaid expenses....... 35 -- -- -- -- 35
------- ---- ---- ------ ------- ------- ---- ----
Total current assets... 761 -- -- (407) -- 354
------- ---- ---- ------ ------- ------- ---- ----

Property, plant and
equipment, net........ 122 -- -- -- -- 122
Investments............ 1,739 225 85 55 -- 2,104
Intangible assets,
net................... 836 -- -- -- -- 836
Other non-current
assets................ 23 -- -- -- -- 23
------- ---- ---- ------ ------- ------- ---- ----
Total assets........... $ 3,481 $225 $ 85 $ (352) $ -- $ 3,439 $ $
======= ==== ==== ====== ======= ======= ==== ====
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable....... $ 81 $-- $-- $ -- $ -- $ 81 $ $
Deferred revenue....... 24 -- -- -- -- 24
Accrued other operating
charges............... 8 -- -- -- -- 8
Accrued expenses....... 90 -- -- 6 -- 96
Obligation associated
with News America's
exchangeable preferred
securities and
warrants.............. -- -- -- -- 2,415 2,415
------- ---- ---- ------ ------- ------- ---- ----
Total current
liabilities........... 203 -- -- 6 2,415 2,624
------- ---- ---- ------ ------- ------- ---- ----
Deferred income taxes... 286 68 -- -- -- 354
Other non-current
liabilities............ 73 -- -- -- -- 73
Long-term accrued other
operating charges...... 39 -- -- -- -- 39
Due to News Corporation
and subsidiaries....... 2,794 -- 85 (358) (2,415) 106
------- ---- ---- ------ ------- ------- ---- ----
Total liabilities...... 3,395 68 85 (352) -- 3,196
------- ---- ---- ------ ------- ------- ---- ----
Minority interest in
subsidiaries........... 19 -- -- -- -- 19
------- ---- ---- ------ ------- ------- ---- ----

Commitments &
Contingencies

Shareholders' Equity:
Common stock........... 66 -- -- -- -- 66
Class A common stock... -- -- -- -- -- --
Class B common stock... -- -- -- -- -- --
Paid-in capital........ 2,717 -- -- -- -- 2,717
Accumulated deficit.... (2,681) 157 -- -- -- (2,524)
Accumulated other
comprehensive loss.... (35) -- -- -- -- (35)
------- ---- ---- ------ ------- ------- ---- ----
Total shareholders'
equity................ 67 157 -- -- -- 224
------- ---- ---- ------ ------- ------- ---- ----
Total liabilities and
shareholders' equity.. $ 3,481 $225 $ 85 $ (352) $ -- $ 3,439 $ $
======= ==== ==== ====== ======= ======= ==== ====

See accompanying notes to unaudited pro forma combined balance sheet.

P-2

SKY GLOBAL NETWORKS, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET

At March 31, 2000

(AA) Reflects the adjustment to equity earnings of affiliates resulting from
the acquisition of a 24% interest in KirchPayTV and an increase to the
investment in BSkyB for the gain related to BSkyB's issuance of shares in
connection with the acquisition. A deferred tax liability adjustment was
made at the statutory rate of 30%.

(BB) Reflects the change in the investment related to the acquisition of an
additional 15% ownership interest in Stream, and the related increase to
Due to News Corporation and subsidiaries.

(CC) Reflects the subsequent receipt of the consideration from the sale of the
Company's 50% interest in ATL and the retention of 3,415,518 shares of
Zee Telefilms Limited (valued at approximately $55 million) with the
remaining proceeds used to repay amounts due to News Corporation and
subsidiaries, as if the transaction had occurred on March 31, 2000.

(DD) Reflects the assumption of the obligation associated with the News
America Incorporated exchangeable preferred securities and warrants for a
total of $2.4 billion, based on a value of BSkyB shares as of March 31,
2000 of (Pounds)16.60 per share.

P-3

SKY GLOBAL NETWORKS, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the nine months ended March 31, 2000
(Dollars in Millions, except per share data)

(A) (B) (C) (D) (E) Offering Pro Forma
Actual BSkyB NDS Stream ATL TOPrS Pro Forma Adjustments As Adjusted
------ ----- ---- ------ ---- ------- --------- ----------- -----------

Revenues:
Satellite
Distribution.......... $ 107 $ -- $-- $-- $-- $ -- $ 107 $ $
Distribution Technology
and Conditional
Access................ 188 -- -- -- -- -- 188
----- ----- ---- ---- ---- ------- -------- ---- ------
295 -- -- -- -- -- 295
----- ----- ---- ---- ---- ------- -------- ---- ------
Expenses:
Operating.............. 147 -- -- -- -- -- 147
Selling, general and
administrative........ 178 -- -- -- -- -- 178
Depreciation and
amortization.......... 45 -- -- -- -- -- 45
----- ----- ---- ---- ---- ------- -------- ---- ------
Operating income
(loss)................ (75) -- -- -- -- -- (75) --
----- ----- ---- ---- ---- ------- -------- ---- ------
Equity in earnings
(losses) of
affiliates............. (368) (57) -- (47) (8) -- (480)
Intercompany interest
expense, net........... (108) -- 4 (4) 15 3 (90)
Minority interests...... 7 -- -- -- -- -- 7
Other income (expense).. 322 -- -- -- -- (1,442) (1,120)
----- ----- ---- ---- ---- ------- -------- ---- ------
Income (loss) from
continuing operations
before income taxes.... (222) (57) 4 (51) 7 (1,439) (1,758)
(Provision) benefit for
income taxes........... 40 -- (1) -- -- -- 39
----- ----- ---- ---- ---- ------- -------- ---- ------
Income (loss) from
continuing
operations............. $(182) $ (57) $ 3 $(51) $ 7 $(1,439) $ (1,719) $ $
===== ===== ==== ==== ==== ======= ======== ==== ======
Pro forma earnings
(loss) per share--
basic and diluted.....
===== ======== ======
Pro forma weighted
average shares
outstanding--basic and
diluted...............
===== ======== ======

See accompanying notes to unaudited pro forma combined statement of operations.

P-4

SKY GLOBAL NETWORKS, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the nine months ended March 31, 2000

(A) Reflects the change in equity earnings had the Company's ownership of
BSkyB been reduced from 39.75% to 37.57% at July 1, 1999. The Company's
ownership was reduced due to the additional shares BSkyB issued in
connection with the KirchPayTV transaction. No income tax benefit has been
reflected in the unaudited pro forma statement of operations since it is
not more likely than not that KirchPayTV operations will become profitable
in the foreseeable future. No adjustment has been made to the unaudited
pro forma combined statement of operations for the one-time, non-recurring
gain related to the change in the Company's ownership of BSkyB. This one-
time, non-recurring gain will be recorded in the Company's results of
operations during the fourth quarter of fiscal 2000.

(B) Reflects the reduction of intercompany interest expense and the related
provision for income taxes (at a statutory rate of 30%) associated with
the application of the net proceeds of the NDS initial public offering
against the amount due to News Corporation and subsidiaries as if the
transaction had occurred on July 1, 1999.

(C) Reflects the increase in intercompany interest expense and the change in
equity in earnings (losses) of affiliates had the Company increased its
ownership interest in Stream from 35% to 50% on July 1, 1999.

(D) Reflects the impact of the sale of the Company's 50% interest in ATL,
whose principal assets were investments in the Zee television channels in
India and Siticable, an Indian cable operator, to Zee Telefilms Limited as
if the transaction had occurred on July 1, 1999.

(E) Reflects the expense related to the change in excess market value of BSkyB
shares over the warrant exercise price, had the obligation been assumed
July 1, 1999.

P-5

SKY GLOBAL NETWORKS, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the year ended June 30, 1999
(Dollars in Millions, except per share data)

(A) (B) (C) (D) (E) (F) Pro Offering Pro Forma
Actual BSkyB TV Guide NDS Stream ATL TOPrS Forma Adjustments As Adjusted
------ ----- -------- ---- ------ ---- ----- ----- ----------- -----------

Revenues:
Satellite
Distribution.......... $ 111 $-- $ -- $-- $ -- $-- $-- $ 111 $ $
Distribution Technology
and Conditional
Access................ 222 -- -- -- -- -- -- 222
Magazine Publishing.... 460 -- (460) -- -- -- -- --
----- ---- ----- ---- ----- ---- ---- ----- ----- -----
793 (460) -- -- -- -- 333
----- ---- ----- ---- ----- ---- ---- ----- ----- -----
Expenses:
Operating.............. 519 -- (312) -- -- -- -- 207
Selling, general and
administrative........ 220 -- (44) -- -- -- -- 176
Depreciation and
amortization.......... 123 -- (69) -- -- -- -- 54
Other operating
charges............... 87 -- -- -- -- -- -- 87
----- ---- ----- ---- ----- ---- ---- ----- ----- -----
Operating loss......... (156) -- (35) -- -- -- -- (191)
----- ---- ----- ---- ----- ---- ---- ----- ----- -----
Equity in earnings
(losses) of
affiliates............ (185) (67) -- -- (106) (6) -- (364)
Intercompany interest
expense, net.......... (212) -- 35 26 (7) 28 28 (102)
Minority interests..... 6 -- -- (7) -- -- -- (1)
Other income
(expense)............. 551 -- -- -- -- -- -- 551
----- ---- ----- ---- ----- ---- ---- ----- ----- -----
Income (loss) from
continuing operations
before income taxes.... 4 (67) -- 19 (113) 22 28 (107)
(Provision) benefit for
income taxes.......... 18 -- -- (8) -- -- -- 10
----- ---- ----- ---- ----- ---- ---- ----- ----- -----
Income (loss) from
continuing
operations............ $ 22 $(67) $ -- $ 11 $(113) $ 22 $ 28 $ (97) $ $
===== ==== ===== ==== ===== ==== ==== ===== ===== =====
Pro forma earnings
(loss) per share--
basic and diluted.....
===== ===== =====
Pro forma weighted
average shares
outstanding--basic and
diluted...............
===== ===== =====

See accompanying notes to unaudited pro forma combined statement of operations.

P-6

SKY GLOBAL NETWORKS, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the year ended June 30, 1999

(A) Reflects the change in equity earnings had the Company's ownership of
BSkyB been reduced from 39.75% to 37.57% at July 1, 1998. The Company's
ownership was reduced due to the additional shares BSkyB issued in
connection with the KirchPayTV transaction. No income tax benefit has been
reflected in the unaudited pro forma statement of operations since it is
not more likely than not that KirchPayTV operations will become profitable
in the foreseeable future. No adjustment has been made to the unaudited
pro forma combined statement of operations for the one-time, non-recurring
gain related to the change in the Company's ownership of BSkyB. This one-
time, non-recurring gain will be recorded in the Company's results of
operations during the fourth quarter of fiscal 2000.

(B) Reflects the reduction of intercompany interest expense and the
elimination of the operating results related to the sale of News America
Publications, Inc. to TV Guide, Inc. and the adjustment for the equity
earnings received from TV Guide, Inc. as if it had occurred on July 1,
1998.

(C) Reflects the reduction of intercompany interest expense associated with
the application of the net proceeds of the NDS initial public offering and
sale of the digital hardware business as if it had occurred on July 1,
1998.

(D) Reflects the increase in intercompany interest expense and the change in
equity earnings had the Company increased its ownership of Stream from 35%
to 50% on July 1, 1998.

(E) Reflects the impact of the sale of the Company's 50% interest in ATL,
whose principal assets were investments in the Zee television channels in
India and Siticable, an Indian cable operator, to Zee Telefilms Limited as
if the transaction had occurred on July 1, 1998. No adjustment has been
made to the unaudited pro forma combined statement of operations for the
one-time, non-recurring gain related to the sale of the Company's 50%
interest in ATL. This one-time, non-recurring gain has been recorded in
the Company's results of operations during the nine months ended March 31,
2000.

(F) Reflects the intercompany interest expense savings related to reduction in
the intercompany debt in connection with the assumption of the obligation
associated with the News America Incorporated's exchangeable preferred
securities and warrants, had the obligation been assumed July 1, 1998.

P-7

FINANCIAL STATEMENTS OF BRITISH SKY BROADCASTING GROUP plc

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report of Arthur Andersen, Independent Chartered Accountants............. B-2
Consolidated Profit and Loss Accounts for the years ended June 30, 1999,
1998 and 1997........................................................... B-3
Consolidated Balance Sheets at June 30, 1999 and 1998.................... B-4
Consolidated Cash Flow Statements for the years ended June 30, 1999, 1998
and 1997................................................................ B-5
Notes to Financial Information........................................... B-7

B-1

REPORT OF THE INDEPENDENT CHARTERED ACCOUNTANTS

To the Members of
British Sky Broadcasting Group plc:

We have audited the accompanying consolidated balance sheets of British
Sky Broadcasting Group plc and subsidiaries as of June 30, 1999 and 1998 and
the related consolidated profit and loss accounts and consolidated cash flow
statements for each of the three years in the period ended June 30, 1999, all
expressed in pounds sterling and prepared on the basis set forth in note 1 to
the consolidated financial statements. These financial statements are the
responsibility of the Company's directors. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with United Kingdom generally
accepted auditing standards which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the directors, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
British Sky Broadcasting Group plc and subsidiaries as of June 30, 1999 and
June 30, 1998, and the consolidated results of their operations and cash flows
for each of the three years in the period ended June 30, 1999, in conformity
with generally accepted United Kingdom accounting principles.

Accounting practices used by the Company in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the UK, but do not conform with accounting principles generally accepted in the
United States. A description of these differences and a complete reconciliation
of consolidated net income and stockholders equity to US generally accepted
accounting principles is set forth in note 26.

Arthur Andersen
Chartered Accountants

London, England
August 10, 1999

B-2

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

30 June 1999
---------------------------------
Before Exceptional
30 June 30 June exceptional items (see
Notes 1997 1998 items note 4) Total
----- --------- --------- ----------- ----------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m

Turnover: Group and
share of joint
ventures............... 1,270.1 1,465.0 1,583.0 -- 1,583.0
Less: Share of joint
ventures' turnover..... (20.8) (30.9) (38.0) -- (38.0)
------- -------- -------- ------ --------
Group turnover.......... 2 1,249.3 1,434.1 1,545.0 -- 1,545.0
Operating expenses,
net.................... 3 (875.3) (1,093.5) (1,359.7) (456.3) (1,816.0)
------- -------- -------- ------ --------
Operating profit
(loss)................. 374.0 340.6 185.3 (456.3) (271.0)
Share of results of
joint ventures......... 5 (10.1) (16.5) (57.7) -- (57.7)
------- -------- -------- ------ --------
Profit (loss) on
ordinary activities
before interest and
taxation............... 363.9 324.1 127.6 (456.3) (328.7)
Interest receivable and
similar income......... 1.8 3.3 4.2 -- 4.2
Interest payable and
similar charges........ 6 (52.0) (56.5) (59.0) (5.2) (64.2)
------- -------- -------- ------ --------
Profit (loss) on
ordinary activities
before taxation........ 7 313.7 270.9 72.8 (461.5) (388.7)
Taxation................ 9 (25.7) (21.7) (27.9) 131.5 103.6
------- -------- -------- ------ --------
Profit (loss) for the
financial year......... 288.0 249.2 44.9 (330.0) (285.1)
Equity dividends--paid
and proposed........... 10 (102.9) (103.1) (47.3)
------- -------- --------
Transfer to (from)
reserves............... 185.1 146.1 (332.4)
======= ======== ========
Earnings (loss) per
share
--basic and fully
diluted................ 11 16.8p 14.5p 2.6p (19.1p) (16.5p)

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

For the three years ended 30 June 1999

There were no recognised gains or losses other than those included within
the consolidated profit and loss accounts. (1998: none; 1997: none).

See notes to consolidated financial statements.

B-3

CONSOLIDATED BALANCE SHEETS

30 June 30 June
Notes 1998 1999
----- --------- ---------
(Pounds)m (Pounds)m

Fixed assets
Tangible assets.................................... 12 175.4 219.0
Investments
Investments in joint ventures: Share of gross
assets............................................ 35.3 64.0
Investments in joint ventures: Share of gross
liabilities....................................... (26.6) (34.8)
Investments in joint ventures: Transfer to
creditors......................................... 7.3 0.4
-------- --------
Total investment in joint ventures................. 13 16.0 29.6
Other investments.................................. 27.5 91.5
-------- --------
Total investments.................................. 13 43.5 121.1
-------- --------
218.9 340.1
-------- --------
Current assets
Stocks............................................. 14 228.4 288.8
Debtors: Amounts falling due after more than one
year.............................................. 15 122.2 170.6
Debtors: Amounts falling due within one year....... 15 212.8 257.7
Cash at bank and in hand........................... 64.7 50.2
-------- --------
628.1 767.3
Creditors: Amounts falling due within one year
--short term borrowings.......................... 17 (0.1) (0.1)
--other creditors................................ 17 (520.8) (580.7)
-------- --------
17 (520.9) (580.8)
Net current assets................................. 107.2 186.5
-------- --------
Total assets less current liabilities.............. 326.1 526.6
-------- --------
Creditors: Amounts falling due after more than one
year
--long term borrowings........................... 18 (582.9) (715.0)
--other creditors................................ 18 (43.7) (31.1)
-------- --------
18 (626.6) (746.1)
Provisions for liabilities and charges............. 20 -- (405.4)
-------- --------
(300.5) (624.9)
======== ========
Capital and reserves--equity
Called-up share capital
--1,725,987,067 (1998: 1,723,340,524) Ordinary
Shares,
par value 50p................................... 21 861.7 863.0
Share premium...................................... 22 690.6 703.0
Profit and loss account............................ 22 (1,852.8) (2,190.9)
-------- --------
(300.5) (624.9)
======== ========

See notes to consolidated financial statements.

B-4

CONSOLIDATED CASH FLOW STATEMENTS

30 June 30 June 30 June
Notes 1997 1998 1999
----- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Net cash inflow from operating
activities............................... a 258.8 403.6 238.3
----- ------ ------
Returns on investments and servicing of
finance
Interest received and similar income...... 1.8 3.3 4.2
Interest paid and similar charges on
external financing....................... (48.6) (50.6) (54.8)
Interest element of finance lease
payments................................. (0.5) (0.4) (0.5)
----- ------ ------
Net cash outflow from returns on
investments and
servicing of finance..................... (47.3) (47.7) (51.1)
Taxation
ACT paid.................................. (23.6) (25.7) (25.8)
UK corporation tax paid................... -- -- (2.5)
----- ------ ------
Taxation paid............................. (23.6) (25.7) (28.3)
Capital expenditure and financial
investment
Payments to acquire fixed assets.......... (40.1) (82.0) (76.2)
Payments for shares in Manchester United
PLC...................................... -- -- (66.9)
Receipts from sales of fixed assets....... 0.1 -- --
Receipt of government grants.............. 1.2 1.2 1.1
----- ------ ------
Net cash outflow from capital expenditure
and
financial investment..................... (38.8) (80.8) (142.0)
Acquisition and disposals
Funding to joint ventures................. (17.9) (6.2) (22.9)
Payments for shares in joint ventures..... (0.2) (38.9) (45.4)
----- ------ ------
Net cash outflow from acquisitions and
disposals................................ (18.1) (45.1) (68.3)
Equity dividends paid..................... (98.6) (102.9) (103.2)
----- ------ ------
Net cash inflow (outflow) before
financing................................ 32.4 101.4 (154.6)
----- ------ ------
Financing
Proceeds from issue of ordinary shares.... 0.4 8.0 8.0
(Decrease) Increase in total debt......... c (2.6) (104.1) 132.1
----- ------ ------
Net cash (outflow) inflow from financing.. (2.2) (96.1) 140.1
----- ------ ------
Increase (decrease) in cash............... c 30.2 5.3 (14.5)
===== ====== ======
Total reduction (increase) in net debt.... c 31.3 109.4 (146.6)
===== ====== ======

See notes to consolidated financial statements.

B-5

CONSOLIDATED CASH FLOW STATEMENTS--(Continued)
a) Reconciliation of operating profit to net cash inflow from operating
activities

1999
---------------------------------
Before
exceptional Exceptional
1997 1998 items items Total
--------- --------- ----------- ----------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m

Operating profit
(loss)................. 374.0 340.6 185.3 (456.3) (271.0)
Depreciation, net (see
note 12)............... 4.5 16.7 32.5 -- 32.5
Loss on disposal of
fixed assets........... 0.2 -- 0.1 -- 0.1
Amortisation of
government grants...... (1.5) (1.4) (0.2) -- (0.2)
Adjustment to investment
in own shares.......... (7.8) -- 2.9 -- 2.9
(Increase) decrease in
debtors................ (181.6) 13.1 (5.2) -- (5.2)
Increase in creditors... 80.6 49.7 134.2 -- 134.2
Increase in stock....... (5.7) (13.3) (60.4) -- (60.4)
Utilisation of
provisions............. (3.9) (1.8) -- -- --
Transition provision not
utilised............... -- -- -- 405.4 405.4
------ ----- ----- ------ ------
Net cash inflow
(outflow) from
operating activities... 258.8 403.6 289.2 (50.9) 238.3
====== ===== ===== ====== ======

b) Analysis of changes in net debt

As at As at As at
1 July 1 July 30 June
1997 Cash flow 1998 Cash flow 1999
--------- --------- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m

Cash at bank and in hand.... 38.6 (27.3) 11.3 24.1 35.4
Overnight deposits.......... 20.8 32.6 53.4 (38.6) 14.8
------ ----- ------ ------ ------
Short-term investments &
cash....................... 59.4 5.3 64.7 (14.5) 50.2
------ ----- ------ ------ ------
Debt due within one year.... (11.5) 11.4 (0.1) -- (0.1)
Debt due after one year..... (675.6) 92.7 (582.9) (132.1) (715.0)
------ ----- ------ ------ ------
Total debt.................. (687.1) 104.1 (583.0) (132.1) (715.1)
------ ----- ------ ------ ------
Total net debt.............. (627.7) 109.4 (518.3) (146.6) (664.9)
====== ===== ====== ====== ======

c) Reconciliation of net cash flow to movement in net debt

Notes 1997 1998 1999
----- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Increase (decrease) in cash............... 30.2 5.3 (14.5)
Cash outflow (inflow) resulting from
decrease (increase) in debt and lease
financing................................ 2.6 104.1 (132.1)
------ ------ ------
Reduction (increase) in net debt resulting
from cashflows........................... 32.8 109.4 (146.6)
New finance leases........................ (1.5) -- --
------ ------ ------
Reduction (increase) in net debt.......... 31.3 109.4 (146.6)
Net debt at beginning of year............. (659.0) (627.7) (518.3)
------ ------ ------
Net debt at end of year................... b (627.7) (518.3) (664.9)
====== ====== ======

B-6

NOTES TO FINANCIAL INFORMATION

1 Accounting policies

The principal accounting policies, all of which have been applied
consistently throughout the three-year period, are summarised below:

a) Basis of accounting

The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of certain investments, and in
accordance with applicable financial reporting and accounting standards,
including the following Financial Reporting Standards issued by the Accounting
Standards Board which have come into force since the previous year end:

FRS 10--Goodwill and Intangible Assets

Prior to 1 July 1998, goodwill arising on acquisition was eliminated
against reserves. As permitted by FRS 10, this goodwill has not been restated
in the balance sheet. On disposal or closure of a previously acquired
business, the goodwill previously written off to reserves will be included in
calculating the profit or loss on disposal. No goodwill has arisen in the year
to 30 June 1999, as no acquisitions have been made in this period.

FRS 11--Impairment of Fixed Assets and Goodwill and FRS 12--Provisions,
Contingent Liabilities and Contingent Assets

Compliance with FRS 11 and FRS 12 has not given rise to any restatement
of the Group's consolidated balance sheet at 30 June 1998.

FRS 13--Derivatives and Other Financial Instruments: Disclosures

The Group uses a limited number of derivative financial instruments to
hedge its exposures to fluctuations in interest and foreign exchange rates.
Instruments accounted for as hedges are structured so as to reduce the market
risk associated with the underlying transaction being hedged and are
designated as a hedge at the inception of the contract. Receipts and payments
on interest rate instruments are recognised on an accruals basis, over the
life of the instrument. Foreign exchange contracts hedging balance sheet
assets and liabilities are revalued at closing rates and exchange differences
arising are taken to reserves. Gains and losses on contracts hedging forecast
transactional cash flows are recognised in the hedged periods. Cash flows
associated with derivative financial instruments are classified in the cash
flow statement in a manner consistent with those of the transactions being
hedged. If an instrument ceases to be accounted for as a hedge if, for
example, the underlying hedged position is eliminated, the instrument is
marked to market and any resulting gain or loss recognised in the profit and
loss account.

The Group does not hold or issue derivative financial instruments for
speculative purposes.

The additional disclosures required by FRS 13 have been included within
note 19 to the accounts.

FRS 14--Earnings per Share

Compliance with FRS 14 has not changed the published basic earnings per
share figures for the year ended 30 June 1998.

The Group accounts are prepared to the nearest Sunday to 30 June in each
year. In fiscal 1999, this date was June 27, 1999; in fiscal 1998 it was June
28, 1998; in fiscal 1997 it was June 29, 1997. The years ended 30 June 1999,
30 June 1998 and 30 June 1997 were 52 week periods.

B-7

NOTES TO FINANCIAL INFORMATION--(Continued)

b) Basis of consolidation and preparation of financial statements

The financial statements consolidate the accounts of the Company and all
its subsidiary undertakings. All companies are consolidated using acquisition
accounting.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

c) Turnover

Turnover, which excludes value added tax, represents the invoiced value
of advertising, pay channel subscriptions and other revenues derived from
continuing activities.

d) Tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation
and any provision for impairment. Land is not depreciated.

Depreciation is provided to write off the cost, less estimated residual
value, of each asset on a straight-line basis over its estimated useful life.
Principal annual rates used for this purpose are:

Freehold buildings.............................................................4%
Leasehold improvements....Period of lease or life of the asset, whichever is less
Fixtures and fittings(i)..................................................10%-20%
Computer equipment(i).................................................20%-33 1/3%
Technical equipment(i)....................................................10%-20%
Motor vehicles(i).............................................................25%

- --------
(i) Included in equipment, fixtures and fittings in note 12.

e) Investments

The Company's shares held by the Employee Share Ownership Plan ("ESOP")
are included in the consolidated balance sheet as a fixed asset investment
until such time as the interest in the shares is transferred unconditionally to
the employees. In the event that those shares allocated against awards under
the Additional Executive Bonus Scheme are not transferred to the employees on
exercise of their options, the carrying cost is adjusted to the mid-market
price on the date of exercise, with the excess over cost being offset against
the cash cost of the bonus.

A charge is made in the profit and loss account in relation to the shares
held by the ESOP for awards under the Long Term Incentive Plan ("LTIP"), based
on an assessment of the probability of the performance criteria under the LTIP
being met. The charge is allocated on a straight-line basis over the
performance period of the LTIP, currently 3 years.

Provision is made for any permanent diminution in the value of shares
held by the ESOP.

The Group's other fixed asset investments are stated at cost, less any
provision for permanent diminution in value.

B-8

NOTES TO FINANCIAL INFORMATION--(Continued)

f) Interests in joint ventures

Joint ventures are entities in which a consolidated member of the Group
holds a long-term interest and shares control under a contractual arrangement.
These investments are dealt with by the gross equity method of accounting. In
circumstances where the Group's investment in a joint venture has been fully
provided against and where that investment is being funded by another party,
with no recourse to the Group, no further share of losses of that undertaking
is recognised. Provision is made within creditors where the Group's share of a
joint venture's losses exceeds the Group's funding to date.

g) Stocks

Stocks, apart from television programme rights, are stated at the lower of
cost and net realisable value.

Television programme rights are stated at cost (including, where
applicable, estimated escalation payments) less accumulated amortisation.
Provisions are made for any programme rights which are excess to Group
requirements or which will not be shown for any other reason. Direct costs of
own productions are included within the cost of programme rights. Programme
rights, and the related liability, are recorded at cost when the programmes are
available for transmission.

Contractual obligations for programme rights not yet available for
transmission are not included in the cost of television programme rights but
are disclosed as contractual commitments (see Note 23).

Programme payments made in advance of the Group having availability to
transmit the related programmes are treated as prepayments.

Amortisation is provided to write off the cost of television programme
rights as follows:

Sports and current
affairs --100% on first showing
General entertainment --Reducing balance on each transmission at the following rates:
--1 showing planned--100%
--2 showings planned--60%; 40%
--3 showings planned--50%; 30%; 20%

Movies --Straight-line basis over the period of transmission rights.
--Where movie rights provide for a second availability window, 10% of the
cost is allocated to that window.

h) Transponder rentals

Payments made in advance to secure distribution channels on the Astra
satellites have been recorded as prepaid transponder rentals. These payments
are amortised to the profit and loss account over the period from commencement
of broadcasting to the end of the rental period, normally between 5 to 10
years.

i) Taxation

Corporation tax payable is provided at current rates on all taxable
profits.

j) Deferred taxation

Deferred taxation is provided using the liability method at the rates
ruling at the year end. Net deferred tax assets resulting from tax losses and
other timing differences are not recognised except to the extent that it is
assured beyond reasonable doubt that future taxable profits will be sufficient
to recover them. Any deferred tax assets not recognised in the year that they
arise are subsequently only recognised as they are realised.

B-9

NOTES TO FINANCIAL INFORMATION--(Continued)

Unrecovered Advance Corporation Tax on dividends paid or proposed at the
balance sheet date is recognised to the extent it is foreseen that sufficient
corporation tax will be assessed on the profits of succeeding accounting
periods, against which the Advance Corporation Tax is available for offset.

k) Foreign currency

Trading activities denominated in foreign currencies are recorded in
sterling at actual exchange rates as of the date of the transaction or at the
contracted rate, if the transaction is covered by a forward foreign exchange
contract or other hedging instrument. Monetary assets, liabilities and
commitments denominated in foreign currencies at the year end are reported at
the rates of exchange prevailing at the year end or, if hedged, at the
appropriate hedged rate.

The results of the overseas joint ventures are translated at the average
rate of exchange during the period and the balance sheet at the rate ruling at
the balance sheet date. Exchange differences arising on translation of the
opening net assets and results of overseas joint ventures and on foreign
currency borrowings, to the extent that they hedge the Group's investment in
this operation, are dealt with through reserves.

l) Pension costs

The Group provides pensions to eligible employees through the BSkyB
pension plan which is a defined contribution plan. The assets of the plan are
held independently of the Group.

The amount charged to the profit and loss account is based on the
contributions payable for the year.

m) Leases

Assets held under finance leases are treated as tangible fixed assets,
depreciation is provided accordingly and the deemed capital element of future
rentals is included within creditors. Deemed interest, calculated on a sum of
digits basis, is charged as interest payable over the period of the lease.

The rental costs arising from operating leases are charged to the profit
and loss account in the year in which they are incurred.

n) Government grants

Government grants relating to tangible fixed assets are reported as
deferred income and amortised over the expected useful life of the asset
concerned. Other grants are credited to the profit and loss account as the
related expenditure is incurred.

2 Turnover

All turnover is derived from the Group's sole class of business, being
television broadcasting together with certain ancillary functions, and arises
principally within the United Kingdom from activities conducted from the
United Kingdom. Subscription revenue is recognised over the period to which it
relates.

B-10

NOTES TO FINANCIAL INFORMATION--(Continued)

An analysis of turnover by source is shown below:

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Direct-to-home subscribers................... 861.0 967.8 979.3
Cable and DTT subscribers.................... 190.8 227.8 252.6
Advertising.................................. 149.8 195.0 216.5
Other........................................ 47.7 43.5 96.6
------- ------- -------
1,249.3 1,434.1 1,545.0
======= ======= =======

Included in other turnover is (Pounds)nil (1998: (Pounds)nil; 1997:
(Pounds)14 million), relating to the agreement to continue to supply certain
programming to ONdigital (previously British Digital Broadcasting) following
BSkyB's withdrawal from the consortium (see note 18).

Included in other turnover is (Pounds)38.3 million (1998: (Pounds)nil;
1997: (Pounds)nil) representing sales of digital set-top boxes at cost. The
corresponding cost is included within subscriber management costs.

3 Operating expenses, net

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Programming*................................ 568.8 687.5 786.5
Transmission and related functions*......... 46.9 69.8 90.9
Marketing................................... 102.4 167.9 215.5
Subscriber management (see note 2).......... 91.9 92.2 154.4
Administration.............................. 65.3 76.1 112.4
----- ------- -------
875.3 1,093.5 1,359.7
Exceptional operating items (see note 4).... -- -- 456.3
----- ------- -------
875.3 1,093.5 1,816.0
===== ======= =======

- --------
* The above amounts are net of (Pounds)48.2 million (1998: (Pounds)31.6
million; 1997: (Pounds)5.6 million) receivable from the disposal of
programming rights not acquired for use by the Group, and (Pounds)50.6
million (1998: (Pounds)32.3 million; 1997: (Pounds)15.1 million) in respect
of the provision to third party broadcasters of spare transponder capacity.
The amounts for 1997 were previously included within other turnover.

The exceptional operating items comprise principally marketing costs of
(Pounds)450.0 million and administrative costs of (Pounds)6.3 million (see
note 4).

Operating expenses for the year ended 30 June 1999 include (Pounds)270.0
million of amounts denominated in US dollars (1998: (Pounds)268.2 million;
1997: (Pounds)237.4 million). The Group manages its US dollar exchange risk
primarily through forward rate agreements of up to one year (see note 19).

Movie programming costs for the year ended 30 June 1999 were
(Pounds)237.6 million (1998: (Pounds)194.8 million, 1997: (Pounds)203.8
million). Sports programming costs for the year ended 30 June 1999 were
(Pounds)318.4 million (1998: (Pounds)287.1 million; 1997: (Pounds)174.2
million).

The costs of transmission and related functions include transponder
rental costs relating to the Astra satellites and costs of the Group's
transmission uplink and telemetry facilities totalling (Pounds)31.6 million for
the year ended 30 June 1999 (1998: (Pounds)30.5 million; 1997: (Pounds)21.4
million).

B-11

NOTES TO FINANCIAL INFORMATION--(Continued)

4 Exceptional items

1999
-----------------------------------
Before Taxation After
1997 1998 taxation (credit) charge taxation
--------- --------- --------- --------------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m

Estimated cost of
transitioning analogue
customers to digital
service................ -- -- 450.0 (135.0) 315.0
Cost of aborted
Manchester United PLC
bid -- -- 6.3 (1.9) 4.4
--- --- ----- ------ -----
-- -- 456.3 (136.9) 319.4
Finance charges......... -- -- 5.2 (1.6) 3.6
ACT written off......... -- -- -- 7.0 7.0
--- --- ----- ------ -----
-- -- 461.5 (131.5) 330.0
=== === ===== ====== =====

On 5 May 1999 the Group announced a marketing promotion under which it
committed to transitioning its existing analogue subscribers onto its digital
service. The net costs associated with this transition process are estimated at
(Pounds)450 million, before taking account of tax relief of (Pounds)135 million
(see notes 16 and 20).

Following the announcement of the promotion and the booking of the
exceptional transition provision, the Group completed a refinancing of its
borrowings. Immediately subsequent to the year end the (Pounds)1,000 million
revolving credit facility ("RCF") was cancelled and replaced with a (Pounds)750
million RCF. The exceptional finance charges of (Pounds)5.2 million are
comprised of unamortised prepaid fees on the (Pounds)1,000 million RCF and the
mark-to-market of a floating-to-fixed interest rate swap over (Pounds)100
million of the (Pounds)1,000 million RCF which was no longer required.

The decision of the Monopolies and Merger Commission ("MMC") in April
1999 to block the Group's bid for Manchester United PLC resulted in (Pounds)6.3
million of costs associated with the bid being written off.

The exceptional tax credit of (Pounds)131.5 million is after an ACT
write-off of (Pounds)7.0 million previously considered recoverable prior to the
recognition of exceptional charges in the year ended 30 June 1999 (see note 9).

5 Share of operating results of joint ventures

This relates to the Group's equity share of the operating results of the
joint ventures disclosed in note 13.

1997 1998 1999
(Pounds)m (Pounds)m (Pounds)m
--------- --------- ---------

British Interactive Broadcasting............ -- 5.4 44.4
Programming Joint Ventures.................. 10.1 11.1 13.3
---- ---- ----
10.1 16.5 57.7
==== ==== ====

B-12

NOTES TO FINANCIAL INFORMATION--(Continued)

6 Interest payable and similar charges

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

On bank loans, overdrafts and other loans
repayable within five years, not by
installments
-- (Pounds)1,000 million Revolving Credit
Facility..................................... 6.5 38.4 33.3
-- (Pounds)500 million Revolving Credit
Facility..................................... 19.4 -- --
-- (Pounds)400 million Revolving Credit
Facility..................................... 14.4 -- --
US$600 million 6.875% Guaranteed Notes due 2009
(see note 18).................................. -- -- 8.2
US$300 million 7.300% Guaranteed Notes due 2006
(see note 18).................................. 10.1 15.4 15.4
Finance lease interest.......................... 0.8 0.9 0.9
Other interest payable and similar charges...... 0.8 1.8 1.2
---- ---- ----
52.0 56.5 59.0
Exceptional finance charges (see note 4)........ -- -- 5.2
---- ---- ----
52.0 56.5 64.2
==== ==== ====

In April 1997 the (Pounds)500 million and (Pounds)400 million Revolving
Credit Facilities were replaced by the (Pounds)1,000 million Revolving Credit
Facility.

7 Profit (loss) on ordinary activities before taxation

The profit (loss) on ordinary activities before taxation is stated after
charging (crediting):

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Depreciation (see note 12)................ 4.5 16.7 32.5
Auditors' remuneration--audit fees........ 0.3 0.3 0.4
Rentals on operating leases and similar
arrangements............................. 51.8 63.6 88.4
Staff costs (see note 8).................. 119.2 115.9 190.9
Government grants......................... (1.5) (1.4) (1.8)

Amounts paid to the auditors for other services during the year ended 30
June 1999 were (Pounds)2.4 million (1998: (Pounds)1.2 million; 1997:
(Pounds)1.1 million). These amounts relate principally to work associated with
the Group's aborted bid for Manchester United PLC, and its referral to the MMC,
together with other financial advisory work, corporate tax and VAT services.

8 Staff costs

Employee costs for permanent and temporary employees and Executive
Directors, during the year amounted to:

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Wages and salaries........................ 97.1 103.1 170.0
Costs of Additional Executive Bonus
Scheme................................... 10.9 0.4 0.1
Costs of Long Term Incentive Plan......... -- -- 2.9
Social security costs..................... 8.0 8.4 12.5
Other pension costs....................... 3.2 4.0 5.4
----- ----- -----
119.2 115.9 190.9
===== ===== =====

B-13

NOTES TO FINANCIAL INFORMATION--(Continued)

The average monthly number of persons employed by the Group during each
year was as follows:

1997 1998 1999
------ ------ ------
Number Number Number

Programming.......................................... 514 568 751
Transmission and related functions................... 605 707 915
Marketing............................................ 78 84 117
Subscriber management................................ 2,913 2,644 5,701
Administration....................................... 470 631 787
----- ----- -----
4,580 4,634 8,271
===== ===== =====

Directors' emoluments and interests:

1997 1998 1999
----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000

Emoluments
Executive & Alternate Directors
Basic salary/fees (including
benefits in kind).................. 1,317 1,040 1,383
Senior management bonus scheme...... 2,270 1,063 367
Additional executive bonus scheme... 8,284 594 --
Other remuneration.................. -- 148 1,364
Pensions............................ 69 34 43
Non-Executive Directors
Basic salary/fees (including
benefits in kind).................. 191 690 745
Senior management bonus scheme...... -- 1,400 --
Additional executive bonus scheme... -- 118 81
Other remuneration.................. -- 474 2,949
Pensions............................ -- 71 41
------ ----- -----
12,131 5,632 6,973
====== ===== =====

B-14

NOTES TO FINANCIAL INFORMATION--(Continued)

The Directors (including Alternates) during the year ended 30 June 1999,
received the following remuneration (excluding pension contributions) whilst
Directors of the Company:

Bonus
Basic schemes
1997 1998 salary/ (see next Other 1999
Total Total fees page) (viii) Benefits Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000

Executive
Tony Ball (i)........... -- -- 58 42 -- 15 115
Mark Booth (ii)......... -- 1,099 565 -- 1,364 189 2,118
Martin Stewart.......... -- 170 219 175 -- 18 412
Alternate
Elisabeth Murdoch....... 298 498 300 150 -- 19 469
Non--Executive
Philip Bowman........... 30 30 30 -- -- -- 30
David Chance (iii)...... 3,035 981 25 81 95 76 277
Sam Chisholm (iv)....... 6,808 1,548 271 -- 2,854 234 3,359
The Lord Stevenson of
Coddenham.............. 28 29 30 -- -- -- 30
Dame Anne Mueller....... 25 25 25 -- -- -- 25
Lord St John of
Fawsley................ 25 25 25 -- -- -- 25
John Thornton........... 25 25 25 -- -- -- 25
Morton Topfer (v)....... -- -- 4 -- -- -- 4
Michel Crepon........... -- -- -- -- -- -- --
David De Voe............ -- -- -- -- -- -- --
Bruce McWilliam......... -- -- -- -- -- -- --
Letizia Moratti (vi).... -- -- -- -- -- -- --
Rupert Murdoch.......... -- -- -- -- -- -- --
Graham Parrott (vii).... -- -- -- -- -- -- --
Jerome Seydoux.......... -- -- -- -- -- -- --
Arthur Siskind.......... -- -- -- -- -- -- --
Former Directors........ 1,788 1,096 -- -- -- -- --
-- -- -- -- -- -- --
------ ----- ----- --- ----- --- -----
Total emoluments........ 12,062 5,526 1,577 448 4,313 551 6,889
====== ===== ===== === ===== === =====

- --------
(i) Tony Ball was appointed as a Director of the Company on 2 June 1999.
(ii) Mark Booth resigned as a Director of the Company on 31 May 1999.
(iii) David Chance resigned as a Director of the Company on 9 August 1999.
(iv) Sam Chisholm resigned as a Director of the Company on 5 May 1999.
(v) Morton Topfer was appointed as a Director of the Company on 4 May 1999.
(vi) Letizia Moratti was appointed as a Director of the Company on 6 May
1999.
(vii) Graham Parrot resigned as a Director of the Company on 29 October 1998.
(viii) In connection with the termination of Mark Booth's contract of
employment, by mutual consent, in May 1999, and following advice
received from the Company's external advisers, the Company agreed to pay
a total of (Pounds)1,364,000 comprising a bonus in respect of the period
ending on his resignation in recognition of Mark Booth's role in the
successful launch of Sky digital and in respect of the surrender of his
share options, together with a payment for expenses incurred by Mark
Booth relating to the installation of equipment in his home.

David Chance relinquished his role as Deputy Managing Director on 31
December 1997 and from that date provided his services as a consultant to the
Company until 30 June 1999 for a per diem remuneration. In

B-15

NOTES TO FINANCIAL INFORMATION--(Continued)

the year to 30 June 1999, (Pounds)94,760 was paid to David Chance in respect
of the consultancy agreement. No further payments have been made or are due,
up to the period of his resignation from the Board.

Sam Chisholm's employment with the Company was terminated by mutual
consent on 5 May 1999. In connection with the early termination of Sam
Chisholm's contract (which was originally due to expire on 31 December 1999)
and the surrender of his entitlements under the Executive Schemes, Additional
Executive Bonus Scheme and his contractual bonus entitlement, he was paid an
amount of (Pounds)2,853,815.

The amounts received by the Directors under bonus schemes during the
year ended 30 June 1999 were as follows:

Additional Senior
Executive Management
Bonus Scheme Bonus Scheme Total
------------ ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000

Tony Ball........................... -- 42 42
Martin Stewart...................... -- 175 175
Elisabeth Murdoch................... -- 150 150
David Chance........................ 81 -- 81

Additional Executive Bonus Scheme

During the year David Chance exercised his rights over 205,642 notional
shares resulting in a gain of 81,229. David Chance currently has rights over a
further 205,642 notional shares at an option price of 5.675 per share, which
were granted on 15 May 1997. Following David Chance's resignation as a
Director of the Company on 9 August 1999, these options can be exercised at
any time up to 9 August 2000. If they have not been exercised by that date
they will lapse automatically.

Sam Chisholm held the rights over 752,629 notional shares at an option
price of (Pounds)5.675 per share, which were granted on 15 May 1997 and were
surrendered on 5 May 1999, following his resignation as a Director of the
Company.

Senior Management Bonus Scheme

The amounts shown above are those which have been approved by the
Committee for the year ended 30 June 1999.

Long Term Incentive Plan ("LTIP")

Details of outstanding options held under the LTIP are shown below:

Granted on At 30
23 November June
1998 1999
----------- -------

Mark Booth............................................ 1,200,000 --
Martin Stewart........................................ 350,000 350,000
Elisabeth Murdoch..................................... 350,000 350,000

Mark Booth's options lapsed on 31 May 1999.

Awards granted in the year ending 30 June 1999 were in the form of a
combination of options with an exercise price of (Pounds)5.02 and with a cash
bonus of (Pounds)5.02, receivable on exercise of each option.

No amounts were received, or became receivable, by the Directors during
the year under the LTIP.

B-16

NOTES TO FINANCIAL INFORMATION--(Continued)

Share interests

The interests of the Directors in the Ordinary Share capital of the
Company were:

At 30 June At 30 June At 30 June
1997 1998 1999
---------- ---------- ----------
Number Number Number

Dame Anne Mueller........................ 1,953 1,953 1,953
===== ===== =====

The ESOP is interested in 4,842,687 (1998: 4,842,687, 1997: 4,842,687)
Ordinary Shares in which the Directors who are employees are deemed to be
interested by virtue of section 324 of the Companies Act 1985 (see note 13 to
the accounts).

Except as disclosed above no Director held any interest in the share
capital, including options, of the Company, or of any subsidiary of the
Company, during the three year period ended 30 June 1999. All interests at the
date shown are beneficial and there have been no changes between 1 July 1999
and 10 August 1999.

Rupert Murdoch, a Director of the Company and members of his family,
including Elisabeth Murdoch, his daughter and an alternate Director, have a
significant interest in The News Corporation Limited, and therefore in
companies within The News Corporation Group of companies ("The News Corporation
Group"). The News Corporation Group has certain significant transactions with
the Group as set out in note 24.

Pensions

The Company operates a defined contribution pension scheme, contributions
to which are charged to the profit and loss account on an accruals basis. The
pension charge for the year ended 30 June 1999 represents contributions payable
by the Group to the fund and amounted to (Pounds)5.4 million (1998 --
(Pounds)4.0 million, 1997 -- (Pounds)3.2 million).

9 Taxation

In 1999 the Group's UK Corporation Tax charge on ordinary activities (at
30.75%) was fully eliminated by tax credits on exceptional items. These
exceptional tax credits resulted in a write-off of certain Advance Corporation
Tax ("ACT") previously considered recoverable in the year ended 30 June 1999.

In 1998 the Group fully utilised its remaining tax losses and for the
first time incurred a UK Corporation Tax charge (at 31%) which was reduced by
the write-back of some ACT written off in previous years.

B-17

NOTES TO FINANCIAL INFORMATION--(Continued)

Cumulative ACT of (Pounds)71.3 million (1998: (Pounds)62.0 million, 1997:
(Pounds)68.0 million) has been written off and not yet been recovered.

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Tax on profits before exceptional items:
UK corporation tax......................... -- 27.8 39.3
ACT written off (back)..................... 25.7 (6.1) 2.3
Prior year adjustment...................... -- -- (3.9)
Share of joint ventures' tax credit........ -- -- (9.8)
---- ---- ------
25.7 21.7 27.9
---- ---- ------
Tax (credit) charge on exceptional items:
Deferred tax asset......................... -- -- (88.8)
Carry back against prior year.............. -- -- (10.4)
Current year UK corporation tax............ -- -- (39.3)
ACT written off (see note 4)............... -- -- 7.0
---- ---- ------
-- -- (131.5)
---- ---- ------
25.7 21.7 (103.6)
==== ==== ======

The Directors estimate that as at 30 June 1999 the Group had deferred tax
assets of approximately (Pounds)89 million calculated at the current
corporation tax rate of 30% not recognised in the Group's balance sheet in
addition to the (Pounds)88.8 million deferred tax asset recognised (see note
16). These unrecognised deferred tax assets are attributable principally to
deferred ACT ((Pounds)71 million), other provisions ((Pounds)12 million) and
future tax allowances on fixed assets in excess of related future depreciation
((Pounds)6 million).

10 Dividends

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Paid and Proposed per Ordinary Share
Interim paid dividend of 2.75p (1998:
2.75p; 1997: 2.75p)...................... 47.2 47.2 47.3
Final proposed dividend of nil (1998:
3.25p; 1997: 3.25p)...................... 55.7 55.9 --
----- ----- ----
102.9 103.1 47.3
===== ===== ====

The ESOP has waived its rights to dividends.

B-18

NOTES TO FINANCIAL INFORMATION--(Continued)

11 Earnings (loss) per share

Basic earnings per share represents the profit attributable to the equity
shareholders in each year divided by the weighted average number of Ordinary
Shares in issue during the year.

1997 1998 1999
-------------- -------------- ----------------------------------------------
Before After
exceptional Exceptional exceptional
items items items
------------- --------------- ---------------

Profit (loss) on
ordinary activities
after taxation......... (Pounds)288.0m (Pounds)249.2m (Pounds)44.9m ((Pounds)330.0m) ((Pounds)285.1m)
Weighted average number
of Ordinary Shares..... 1,715,236,393 1,716,632,612 1,719,952,745 -- 1,719,952,745
Earnings (loss) per
share--basic and
diluted................ 16.8p 14.5p 2.6p (19.1p) (16.5p)

Diluted earnings per share is calculated on the basis of weighted average
number of shares of 1,721,474,665 (1998: 1,718,250,040; 1997: 1,718,427,796)
which includes the dilution effect of the exercise of share options granted by
the Company.

Earning per share is shown calculated by reference to earnings both
before and after exceptional items and related tax, since the Directors
consider that this gives a useful additional indication of underlying
performance.

12 Tangible fixed assets

The movement in the year was as follows:

Equipment,
Freehold fixtures
land & Leasehold and
buildings improvements fittings Total
--------- ------------ ---------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m

Cost
Beginning of year.............. 22.5 65.6 216.4 304.5
Additions...................... 4.2 7.5 64.5 76.2
Disposals...................... -- -- (0.7) (0.7)
---- ---- ----- -----
End of year.................... 26.7 73.1 280.2 380.0
---- ---- ----- -----
Depreciation
Beginning of year.............. 2.6 28.0 98.5 129.1
Charge......................... 0.7 3.7 28.1 32.5
Disposals...................... -- -- (0.6) (0.6)
---- ---- ----- -----
End of year.................... 3.3 31.7 126.0 161.0
---- ---- ----- -----
Net book value
Beginning of year.............. 19.9 37.6 117.9 175.4
==== ==== ===== =====
End of year.................... 23.4 41.4 154.2 219.0
==== ==== ===== =====

Digital fixed assets were depreciated from 1 October 1999, the launch of
the digital service.

Included in the freehold land and buildings are assets held under finance
leases with a net book value of (Pounds)7.6 million (1998: (Pounds)8.0
million). Depreciation charged during the year on such assets was 0.4 million
(1998: (Pounds)0.3 million).

Depreciation was not charged on (Pounds)4.4 million of land (1998:
(Pounds)4.4 million)

B-19

NOTES TO FINANCIAL INFORMATION--(Continued)

13 Investments

Principal Group investments

The investments of the Group which principally affect the consolidated
results and net assets of the Group are as follows:

Country of Description and
Incorporation/ proportion of
Name Operation shares held (%) Principal activity
- ------------------------ -------------- ----------------------------- ----------------------------

Direct holdings
British Sky Broadcasting England and 10,000,002 ordinary The transmission of the
Limited................ Wales shares of (Pounds)1 each Group's English language
(100%) satellite television
broadcasting services

Sky Television Limited.. England and 13,376,982 ordinary Investment holding company
Wales shares of (Pounds)1 each
(100%)

BSkyB Finance Limited... England and 2 ordinary shares of Finance company
Wales 1 each (100%)

Indirect Holdings
Sky Subscribers Services England and 2 ordinary shares of Providing ancillary
Limited................ Wales 1 each (100%) functions supporting the
satellite television
broadcasting operations of
the Group

Sky In-Home Service England and 1,176,000 ordinary shares The supply, installation and
Limited................ Wales of (Pounds)1 each and 400,000 maintenance of satellite
deferred shares of television receiving
(Pounds)1 each (100%) equipment

Sky Ventures Limited.... England and 912 ordinary shares of Holding company for joint
Wales (Pounds)1 each (100%) ventures

British Sky Broadcasting Luxembourg 12,500 ordinary shares of Digital satellite
SA..................... (Pounds)12 each (100%) transponder leasing company

Joint Ventures
Nickelodeon UK.......... England and 104 B shares of (Pounds)0.01 The transmission of a
Wales each (50%) children's satellite
television service

The History Channel England and 50,000 A shares of (Pounds)1 The transmission of an
(UK)................... Wales each (50%) historical programme channel

Paramount UK (i)........ England and Partnership interest (25%) The transmission of a
Wales general entertainment
channel

Australian News Channel The transmission of a 24
Pty Limited............ Australia 1 ordinary share of hour news
Aus$1 (33.33%) channel.

QVC..................... England and 1 B share of (Pounds)1 (20%) The transmission of a home
Wales shopping channel

Granada Sky Broadcasting
Limited (ii)............ England and 800 B shares of (Pounds)1 The transmission of general
Wales each (80%) entertainment channels

Granada Sky Broadcasting
(DTT)
Limited (iii) .......... England and 200 B shares of The transmission of general
Wales (Pounds)1 each (20%) entertainment channels for
distribution on DTT

British Interactive
Broadcasting
Holdings Limited........ England and 44,655 ordinary shares The transmission of
Wales of (Pounds)1 each (32.5%) interactive services

MUTV.................... The transmission of
England and 100 B shares of (Pounds)1 Manchester United football
Wales each (33.33%) channel

B-20

NOTES TO FINANCIAL INFORMATION--(Continued)

Country of Description and
Incorporation/ proportion of
Name Operation shares held (%) Principal activity
- ------------------------ -------------- --------------------- ----------------------------

National Geographic England and Partnership interest The transmission of a
Channel UK (iv) ....... Wales (50%) natural history channel.

Sky Five Text Limited... England and 1 ordinary share of The transmission of a text
Wales (Pounds)1 (50%) service for Channel 5.

Music Choice Europe England and 2,293,733 A shares The transmission of audio
Limited................ Wales of (Pounds)1 each (49%) music channels.

- --------
(i) The registered address of Paramount UK is 15-18 Rathbone Place, London
W1P 1DF.
(ii) The economic interest held in Granada Sky Broadcasting Limited is 49.5%.
(iii) The economic interest held in Granada Sky Broadcasting DTT Limited is
49.5%.
(iv) The registered address of National Geographic is Grant Way, Isleworth,
Middlesex TW7 5QD.

The following are included in the net book value of fixed asset
investments:

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Joint ventures........................................ 16.0 29.6
Own shares............................................ 27.5 24.6
Investment in Manchester United PLC................... -- 66.9
---- -----
43.5 121.1
==== =====

Investment in joint ventures

The movement in the year was as follows:

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Cost
Beginning of year................................... 32.4 48.0
Loans advanced to joint ventures, net............... 6.2 22.9
Subscriptions for shares in joint ventures.......... 5.9 45.4
Acquisition of additional 9.5% stake in Granada Sky
Broadcasting....................................... 35.8 --
Goodwill on acquisition written off to reserves..... (32.3) --
----- -----
End of year......................................... 48.0 116.3
===== =====
Share of results
Beginning of year................................... (21.9) (32.0)
Share of operating results of joint ventures........ (16.5) (57.7)
Share of interest receivable by joint ventures...... -- 0.8
Share of interest payable by joint ventures......... (0.9) (0.7)
Share of tax credits of joint ventures.............. -- 9.8
Transfer to (from) creditors........................ 7.3 (6.9)
----- -----
End of year......................................... (32.0) (86.7)
===== =====
Net book value
Beginning of year................................... 10.5 16.0
----- -----
End of year......................................... 16.0 29.6
===== =====

B-21

NOTES TO FINANCIAL INFORMATION--(Continued)

The investment in joint ventures excludes cumulative losses of
(Pounds)0.4 million (1998: (Pounds)7.3 million), which represent losses in
excess of the funding provided. The related obligation is recorded within
creditors.

Investment in own shares

Number of
Ordinary Shares Cost
--------------- ---------
(Pounds)m

Beginning of year............................... 4,842,687 27.5
Provision made against LTIP awards.............. -- (2.9)
--------- ----
End of year..................................... 4,842,687 24.6
========= ====

At the beginning of the year the ESOP held Ordinary Shares in the Company
at a value of (Pounds)5.68 per share, primarily to hedge substantially all the
obligations of the Group then outstanding under the Additional Executive Bonus
Scheme against further increases in the Company's share price.

During the year the ESOP subscribed for 2,646,543 new shares which were
then transferred to employees on the exercise of options under the Executive
and Sharesave Schemes.

At the year end 3,696,996 shares are held as a hedge against current
obligations under the Additional Executive Bonus Scheme, the Long Term
Incentive Plan ("LTIP") and Share Option Schemes. The remainder of shares held
by the ESOP are not currently committed.

The carrying value of 1.75 million shares held to hedge against the LTIP
was written down to (Pounds)5.02 on 23 November 1998, the share price on the
date of grant of the LTIP award. The remaining carrying value of (Pounds)5.02
is being provided for over the three year vesting period to 23 November 2001.

The market value of the shares held by the ESOP at 30 June 1999 was
(Pounds)29.2 million (1998: (Pounds)21.4 million), and the nominal value was
(Pounds)2.4 million (1998: (Pounds)2.4 million).

Investment in Manchester United PLC

During the year the Company purchased 28,884,374 shares (11.1%) in
Manchester United PLC at a cost of (Pounds)66.9 million. The market value of
the shares held by the Group at 30 June 1999 was (Pounds)57.5 million.

14 Stocks

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Television programme rights........................... 226.1 271.5
Raw materials and consumables......................... 2.3 17.3
----- -----
228.4 288.8
===== =====

At least 82 per cent of the existing television programme rights at 30
June 1999 (1998: 68 per cent) will be amortised within one year. Included
within raw materials and consumables is (Pounds)10.4 million (1998:
(Pounds)nil) of digital set-top boxes.

B-22

NOTES TO FINANCIAL INFORMATION--(Continued)

15 Debtors

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Amounts falling due within one year
Trade debtors....................................... 89.3 98.5
Amounts owed by joint ventures (see note 24)........ 11.9 7.1
Amounts owed by other related parties (see note
24)................................................ 11.2 1.4
Other debtors....................................... 5.5 2.9
Prepaid programme rights............................ 31.4 39.3
Prepaid transponder rentals......................... 23.1 19.6
Deferred tax (see note 16).......................... -- 29.8
Other prepayments and accrued income................ 40.4 59.1
----- -----
212.8 257.7
===== =====
Amounts falling due after more than one year
Prepaid programme rights............................ 27.4 14.5
Prepaid transponder rentals......................... 75.0 80.2
Advance Corporation Tax............................. 14.0 14.0
Deferred tax (see note 16).......................... -- 59.0
Other prepayments and accrued income................ 5.8 2.9
----- -----
122.2 170.6
===== =====

Trade debtors are shown net of provisions for bad debts of (Pounds)4.5
million (1998: (Pounds)4.2 million). The movement on provisions for bad debts
comprises a charge to operating expenses of (Pounds)0.3 million (1998: 0.4
million).

16 Deferred tax

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Included within debtors due within one year......... -- 29.8
Included within debtors due after more than one
year............................................... -- 59.0
----- -----
-- 88.8
===== =====

The deferred tax asset has arisen as a result of certain exceptional
items booked in the year (see note 4).

B-23

NOTES TO FINANCIAL INFORMATION--(Continued)

17 Creditors: Amounts falling due within one year

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Short term borrowings
Obligations under finance leases...................... 0.1 0.1
----- -----
0.1 0.1

Other
Trade creditors....................................... 171.5 263.9
Amounts due to joint ventures (see note 24)........... 1.7 2.5
Amounts due to related parties (see note 24).......... 53.0 47.5
ACT on paid and proposed dividends.................... 25.8 --
UK Corporation Tax.................................... 9.9 2.4
VAT................................................... 34.1 36.5
Social security and PAYE.............................. 2.8 4.5
Other creditors....................................... 13.2 18.3
Proposed dividends.................................... 55.9 --
Accruals and deferred income.......................... 152.8 204.4
Government grants..................................... 0.1 0.7
----- -----
520.8 580.7
----- -----
520.9 580.8
===== =====

Included within trade creditors are (Pounds)211 million (1998:
(Pounds)147 million) of US dollar denominated programme creditors. At 30 June
1999 at least 90 per cent (1998: 90 per cent) of these were covered by forward
rate currency contracts (see note 23).

18 Creditors: Amounts falling due after more than one year

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Long term borrowings
Bank loans
--(Pounds)1,000 million Revolving Credit Facility........ 385.0 150.0
--AUS$1 million Facility................................. 0.4 0.4
US$600 million of 6.875% Guaranteed Notes repayable 2009... -- 367.2
US$300 million of 7.300% Guaranteed Notes repayable 2006... 189.2 189.2
Obligations under finance leases........................... 8.3 8.2
----- -----
582.9 715.0
Other
Accruals and deferred income............................... 43.1 30.2
Government grants.......................................... 0.6 0.9
----- -----
43.7 31.1
----- -----
626.6 746.1
===== =====

Interest accrued on the (Pounds)1,000 million revolving credit facility
("RCF") at rates varying between 0.225% and 0.75% per annum above LIBOR,
depending on certain conditions, such as the drawn down balance. The Group
repaid a net total of (Pounds)235 million in the year (1998: (Pounds)90
million). (Pounds)100 million of the balance drawn down was swapped into fixed
rate debt until September 2000 bearing an interest rate of 7.385% plus a
margin. Due to the refinancing completed subsequent to the year end this swap
is no longer required (see note 4).

B-24

NOTES TO FINANCIAL INFORMATION--(Continued)

The RCF contains certain financial undertakings, which have been adhered
to throughout the period.

Aus$1 million was drawn down on a facility to fund the Group's ongoing
investment in Australian News Channel Pty Limited. Interest accrues at Aus $
LIBOR per annum. The loan is repayable in full on 30 April 2002.

In February 1999 the Group issued, in the US public debt market, US$600
million of 6.875% Guaranteed Notes repayable in February 2009. The proceeds,
which were used to repay part of the balance on the RCF, have been swapped
into sterling at an average floating rate of 127 basis points above the 6-
month LIBOR rate.

In October 1996 the Group issued, in the US public debt market, US$300
million of 7.300% Guaranteed Notes repayable in October 2006. The Group
subsequently entered into swap transactions to convert the proceeds into
sterling, half of which carries a fixed rate of interest of 8.384% per annum
for the full ten years and the remainder of which is fixed at 7.940% per annum
for five years until April 2002 and thereafter floating at 62 basis points
above the six month LIBOR rate.

Subsequent to the year end, the (Pounds)1,000 million RCF was cancelled
and replaced by a (Pounds)750 million RCF repayable in full on 29 June 2004
and bearing interest at rates varying between 0.50% and 1.40% per annum above
LIBOR, depending on the Group's credit rating. The Group also issued US$650
million and 100 million 10 year global Regulation S/144A bonds with SEC
registration rights. The aggregate proceeds of (Pounds)512 million were used
to repay the drawn down balance on the RCF and provide funding for the roll
out of digital. The US$ 650 million Notes carry a coupon of 8.200% payable
semi-annually and are repayable on 15 July 2009. They have been swapped into
sterling at a fixed rate of 7.653% payable semi-annually. The (Pounds)100
million Notes carry a fixed coupon of 7.750% payable annually and are
repayable on 9 July 2009.

Obligations under the finance leases represent amounts drawn down in
connection with the Subscriber Management Centre in Dunfermline. Repayments of
(Pounds)0.2 million (1998: (Pounds)0.2 million) were made each quarter. A
proportion of these payments is allocated to the capital amount outstanding
based on the sum of digits method. Interest accrues on the finance lease at a
rate of 8.5%.

Following the grant in December 1997 of the three digital terrestrial
television licences to ONdigital, 60 million was received by the Group. This
was credited to accruals and deferred income and is being released to income
to match the associated costs, which include a shortfall arising on the sub-
lease of the Marco Polo property. The net balance is being credited to income
over the 5 year period of programme supply.

The debt falling due after more than one year (apart from obligations
under the finance lease) matures as follows:

Year Ending
---------------------------------------
30 June 30 June 30 June
2002 2007 2009 Total
--------- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m

(Pounds)1,000 million revolving credit
facility............................. 150.0 -- -- 150.0
Aus$1 million facility................ 0.4 -- -- 0.4
US$300 million 7.300% Guaranteed
Notes................................ -- 189.2 -- 189.2
US$600 million 6.875% Guaranteed
Notes................................ -- -- 367.2 367.2
----- ----- ----- -----
150.4 189.2 367.2 706.8
===== ===== ===== =====

B-25

NOTES TO FINANCIAL INFORMATION--(Continued)

Obligations falling due after more than one year under the finance lease
are payable as follows:

1999
---------
(Pounds)m

Amounts payable in the year ended 30 June:
2001........................................................... 0.1
2002........................................................... 0.2
2003........................................................... 0.2
2004........................................................... 0.2
after five years............................................... 7.5
---
8.2
===

19 Derivatives and other financial instruments

The main purpose of the Group's financial instruments is to raise
finance for its operations. In addition, the Group enters into derivative
transactions to manage both interest rate and currency risks arising from the
Group's operations and its sources of finance. It is the Group's policy that
foreign exchange transactions are restricted to fixed price instruments, that
all hedging is to cover known risks and that no trading in financial
instruments is undertaken. The amount of cash that can be placed with any one
institution is restricted according to credit rating and regular and frequent
reporting to management is required for all transactions and exposures.

The Group finances its operations through bank borrowings, the issue of
long-term bonds and share capital. The Group borrows at both fixed and
floating rates of interest and then uses interest rate swaps to manage
exposure to interest rate fluctuations. It is the Group's policy to have an
appropriate mixture of fixed and floating rates.

To ensure continuity of funding, the Group's policy is to ensure that
its borrowings mature over a period of years.

The Group currently manages its US dollar/pound sterling exchange risk
exposure primarily by the purchase of forward rate agreements for
approximately one year. Future foreign exchange liabilities are substantially
hedged up to one year ahead, using forward foreign exchange contracts.
Occasionally, other financial instruments are employed to manage the exposure
where these are more appropriate. All US dollar-denominated forward rate
agreements and similar financial instruments entered into by the Group are in
respect of firm commitments which exceed the value of such agreements and
instruments.

Although these financial instruments can mitigate the effect of short-
term fluctuations in exchange rates, there can be no effective or complete
hedge against long-term currency fluctuations.

The Group's debt exposure is currently denominated in sterling after
taking foreign exchange swaps into account.

As permitted by FRS13, short-term debtors and creditors have been
excluded from the FRS13 disclosures, other than the currency risks
disclosures. Further details of interest rates on long-term borrowings are
given in note 18.

B-26

NOTES TO FINANCIAL INFORMATION--(Continued)

Interest rate risks

After taking into account interest rate swaps and forward foreign
currency contracts entered into by the Group, the interest rate profile of the
Group's financial liabilities at 30 June 1999 (not including the AUS$ 1 million
bank facility drawn down) was:

Fixed Floating Total
----- -------- -----

(Pounds)m........................................ 297.5 417.2 714.7
Weighted average interest rate................... 8.4% 6.4% 7.2%
Weighted average period for which the rate is
fixed (years)................................... 4.2 n/a n/a
Weighted average term (years).................... 6.2 8.8 7.7

In addition, cash at bank and in hand of (Pounds)50.2 million consists
mainly of sterling deposits, in bank accounts or on money markets at call.

Immediately subsequent to the year-end, the Group completed a re-
financing of its borrowing (see note 18). The following table indicates how the
table above would be changed by the re-financing.

Fixed Floating Total
----- -------- -------

(Pounds)m...................................... 810.0 267.2 1,077.2
Weighted average interest rate................. 7.9% 6.5% 7.5%
Weighted average period for which the rate is
fixed (years)................................. 7.9 n/a n/a
Weighted average term (years).................. 8.4 9.6 8.7

Currency risks

The table below shows as at 30 June 1999 the Group's currency exposures
after hedging that give rise to the net currency gains and losses recognised in
the profit and loss account. Such exposures comprise the net monetary assets
and liabilities of the Group that are not denominated in the functional
currency of the operating unit involved, and principally consist of cash
deposits and trade debtors.

Net foreign currency monetary assets
(liabilities) ((Pounds)m)
---------------------------------------------
Functional currency of
Group operating unit USD Irish punts Euros Total
------------------------ --------- -------------- --------- ---------

Sterling................ 0.9 2.6 1.1 4.6

In addition, as at 30 June 1999, the Group has substantial US dollar
commitments, as disclosed in note 23(a).

Liquidity risks

The profile of the Group's financial liabilities, other than short-term
creditors, is shown in note 18.

The Group's undrawn committed bank facilities as at 30 June 1999 were as
follows:

1999
(Pounds)m
---------

Expiring in one year or less................................... --
Expiring in more than 1 year but less than 2 years............. --
Expiring in more than 2 years.................................. 850.0
-----
Total.......................................................... 850.0
=====

B-27

NOTES TO FINANCIAL INFORMATION--(Continued)

Subsequent to the year-end, the Group completed a re-financing of its
borrowings (see note 18), and the undrawn committed bank facilities were
reduced to (Pounds)750 million, expiring in more than 2 years.

Fair values

Set out below is a comparison by category of the book values and the
estimated fair values of the Group's financial assets and financial
liabilities, and associated derivative financial instruments as at 30 June
1999:

Book Fair
value value
--------- ---------
(Pounds)m (Pounds)m

Primary financial instruments held or issued to
finance the Group's operations
Short-term financial liabilities and current portion
of long-term borrowing............................. (0.1) (0.1)
Bank borrowings..................................... (158.6) (158.6)
Quoted bond debt.................................... (556.4) (531.5)
Cash deposits....................................... 50.2 50.2
Derivative financial instruments held to manage the
interest rate and currency profile
Combined interest and exchange rate swaps........... -- (19.1)
Forward foreign currency contracts.................. -- 7.6

The fair values of quoted borrowings are based on period-end mid-market
quoted prices. The fair values of other borrowings and derivative financial
instruments are estimated by discounting the future cash flows to net present
values using appropriate market rates prevailing at the period end.

In addition to the fair value table, the Group held 11.1% of the equity
share capital of Manchester United PLC. See note 13 for disclosure of its book
and fair values.

The difference between book value and fair value reflects unrealised
gains or losses inherent in the instrument, based on valuations as at 30 June
1999. The volatile nature of the markets means that values at any subsequent
date could be significantly different from the values reported above.

Hedges

The Group's policy is to hedge the following exposures:

. interest rate risk, using interest rate swaps

. transactional currency exposures, using forward foreign currency
contracts

. exposures on long term foreign currency debt

B-28

NOTES TO FINANCIAL INFORMATION--(Continued)

Gains and losses on instruments used for hedging are not recognised until
the hedged position is recognised. Unrecognised gains and losses on instruments
used for hedging and the movements therein are as follows:

Total net
Gains Losses (losses) gains
--------- --------- --------------
(Pounds)m (Pounds)m (Pounds)m

Unrecognised gains and losses at 1
July 1998............................ 6.3 (9.2) (2.9)
Gains and losses arising in previous
years that were recognised in the
year to June 1999.................... -- 8.9 8.9
---- ----- -----
Gains and losses arising before 1 July
1998 that were not recognised in the
year to June 1999.................... 6.3 (0.3) 6.0
---- ----- -----
Gains and losses arising in 1999 that
were not recognised in the year to
June 1999............................ 3.8 (21.3) (17.5)
---- ----- -----
Unrecognised gains and losses on
hedges at 30 June 1999............... 10.1 (21.6) (11.5)
---- ----- -----
Of which:
Gains and losses expected to be
recognised in the year to June 2000.. 10.1 (2.5) 7.6
Gains and losses expected to be
recognised in July 2000 or later..... -- (19.1) (19.1)
---- ----- -----

- --------
* Included in the loss is the exceptional costs of marking-to-market the
floating-to-fixed interest rate swap discussed in note 4.

20 Provisions for liabilities and charges

During the year, the Group announced a marketing promotion, effective for
the remainder of its analogue transmission period, which committed to
transition its existing analogue subscribers onto its digital service, and the
expected net costs of this promotion were provided for. The movement during the
year on the provision was as follows:

1999
---------
(Pounds)m

Beginning of year............................................. --
Transition provision established.............................. 450.0
Utilised during the year...................................... (44.6)
-----
End of year................................................... 405.4
=====

These transition costs comprise the cost of the set-top box, installation
costs and various other costs to be incurred to enable a subscriber to use the
digital service less any upfront income received from the subscriber. The
provision is calculated on the basis of the number of analogue subscribers at 5
May 1999 less allowance for churn (i.e. customers ceasing DTH subscriptions).
The provision utilised during the year of (Pounds)44.6 million is net of
(Pounds)5.8 million installation income received from subscribers. It is
assumed that the provision will be fully utilised by 31 December 2002.

B-29

NOTES TO FINANCIAL INFORMATION--(Continued)

21 Called-up share capital

1998 1999
------------- -------------
(Pounds)m (Pounds)m

Authorised
3,000,000,000 Ordinary Shares of 50p......... 1,500,000,000 1,500,000,000
============= =============
Allotted, called-up and fully-paid -- equity
Ordinary Shares -- 1,725,987,067
(1998: 1,723,340,524) of 50p................ 861,670,262 862,993,534
============= =============

Allotted during the year

During the year, 2,623,238 shares were issued in respect of Executive
Share Option exercises and 23,305 shares were issued in respect of Sharesave
Option exercises.

Share option schemes

The British Sky Broadcasting Group Approved and Unapproved Executive
Share Schemes (the "Executive Schemes") and the Sharesave Scheme were
established to provide employees with share based incentives.

Options in existence at 30 June 1999 under these are shown in the table
below.

Options Balance
Balance Granted at
at During Options Options 30 June Option Exercisable
Date of Grant 01-Jul-98 Year Exercised Lapsed 1999 Price From
- ------------- --------- --------- --------- ------- --------- ------ -----------

08-Dec-94 1,953,822 -- 1,340,935 112,382 500,505 256p 08-Dec-97
08-Dec-94(1) 832,363 -- 12,290 171,866 648,207 205p 01-Mar-00
18-Aug-95 278,979 -- 258,690 -- 20,289 345p 18-Aug-98
25-Oct-95(1) 433,850 -- 7,871 61,496 364,483 302p 01-Jan-01
16-May-96 94,301 -- 9,439 -- 84,862 436p 16-May-99
20-Aug-96 13,270 -- -- -- 13,270 535p 20-Aug-99
27-Aug-96 44,636 -- -- -- 44,636 578p 27-Aug-99
18-Sep-96 66,263 -- -- -- 66,263 579.5p 18-Sep-99
04-Nov-96 362,737 -- -- 148,856 213,881 569p 04-Nov-99
04-Nov-96(1) 586,959 -- 1,219 258,662 327,078 462p 01-Jan-00
15-May-97 2,275,205 -- 144,493 752,629 1,378,083 567.5p 15-May-00
10-Jun-97 61,921 -- -- 23,430 38,491 597.5p 10-Jun-00
18-Aug-97 13,728 -- -- -- 13,728 437p 18-Aug-00
18-Aug-97 321,266 -- -- -- 321,266 442p 18-Aug-00
27-Oct-97(1) 592,199 -- 107 112,488 479,604 372p 1-Jan-01
14-Nov-97 7,308 -- -- -- 7,308 410.5p 14-Nov-00
14-Nov-97 166,253 -- -- -- 166,253 403p 14-Nov-00
04-Feb-98 8,298 -- -- -- 8,298 361.5p 04-Feb-01
04-Feb-98 111,261 -- -- -- 111,261 368.5p 04-Feb-01
09-Mar-98 14,050 -- -- -- 14,050 427p 09-Mar-01
09-Mar-98 238,805 -- -- -- 238,805 435.5p 09-Mar-01
28-Sep-98(1) -- 959,812 -- 53,667 906,145 378p 01-Dec-01
01-Dec-98 -- 7,337,076 -- 61,915 7,275,161 501p 01-Dec-01
11-Feb-99 -- 80,042 -- -- 80,042 474.7p 11-Feb-02
25-Mar-99 -- 140,077 -- -- 140,077 514p 25-Mar-02

- --------
Note
(1)Options issued under the Company's Sharesave scheme.

B-30

NOTES TO FINANCIAL INFORMATION--(Continued)

Options under the Executive Schemes will normally only be exercisable after
the expiry of three years from the date of grant, and lapse if not exercised
within ten years under the Approved Scheme and within seven years under the
Unapproved Scheme. Options are exercisable if the performance target over any
three-year period during the life of the option is achieved, and also, options
granted after November 1998 become exercisable in the final year before their
lapsing date, as long as the employee remains in employment with the Group.

22 Reconciliation of movements in shareholders' funds

Movement in shareholders' funds includes all movements on reserves.

Profit Total
Share Share and loss shareholders'
capital premium account funds
--------- --------- --------- -------------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m

As at 1 July 1997.................. 860.1 678.1 (1,960.5) (422.3)
Issue of share capital........... 1.6 12.5 (6.1) 8.0
Goodwill......................... -- -- (32.3) (32.3)
Profit for the financial year.... -- -- 249.2 249.2
Dividends........................ -- -- (103.1) (103.1)
----- ----- -------- ------
As at 1 July 1998.................. 861.7 690.6 (1,852.8) (300.5)
Issue of share capital (see note
21)............................. 1.3 12.4 (5.7) 8.0
Loss for the financial year...... -- -- (285.1) (285.1)
Dividends........................ -- -- (47.3) (47.3)
----- ----- -------- ------
As at 30 June 1999................. 863.0 703.0 (2,190.9) (624.9)
===== ===== ======== ======

At 30 June 1999 the cumulative goodwill written off directly to reserves
amounted to (Pounds)523.8 million (1998: (Pounds)523.8 million). During the
year the Company issued shares with a market value of (Pounds)13.7 million in
respect of the exercise of options awarded under various share option plans
with (Pounds)8.0 million received from employees.

23 Guarantees and other financial commitments

(a) Future expenditure

1998 1999
--------- ---------
(Pounds)m (Pounds)m

Contracted for but not provided for
-- television programme rights...................... 1,678.8 1,940.7
-- capital expenditure.............................. 20.4 5.5
------- -------
1,699.2 1,946.2
======= =======

Of the commitments for television programme rights, some (Pounds)1,237
million (1998: (Pounds)788 million) relates to commitments which are payable in
US dollars and are for periods of up to 8 years. At 30 June 1999 the US dollar
creditors and commitments have been translated at the year end rate of
$1.5897:(Pounds)1 (1998: $1.6679:(Pounds)1), except for US$501 million covered
by forward rate contracts or other hedging instruments, where the average
forward or hedged rate of US$1.6406:(Pounds)1 (1998: $1.6306:(Pounds)1) has
been used.

According to the terms of certain of the movie programme rights contracts,
the minimum contracted amount is subject to price escalation clauses. The
extent of the escalation, and hence of the commitments, is dependent both upon
the number of subscribers to the relevant movie channel and upon the audience
achieved on US theatrical release. If subscriber numbers were to remain at
30 June 1999 levels, the commitment in respect of subscriber escalation would
be some $293 million ((Pounds)185 million) (1998: $449 million ((Pounds)269
million)) and would be in addition to the figures shown above.

B-31

NOTES TO FINANCIAL INFORMATION--(Continued)

Certain contracts may be extended at the licensor's option depending on
subscriber levels to the relevant movie channel.

Under the terms of the completion agreement signed in 1998 for the
British Interactive Broadcasting (BiB) Limited joint venture, the shareholders
agreed to meet a funding requirement of (Pounds)275 million, according to their
shareholdings, of which the Group's share is (Pounds)89.4 million. Since the
agreement was signed the Group has funded (Pounds)55.2 million to BiB and
accordingly is committed to funding a further 34.2 million to this joint
venture.

As at 30 June 1999, the Group had made or contemplated commitments to
manufacturers, in relation to the supply of set-top boxes up to a maximum of
(Pounds)384 million (1998: (Pounds)254 million). This amount includes the
subsidies, which have been committed to by BiB.

(b) Contingent liabilities

The Group has contingent liabilities by virtue of its investments in
unlimited companies, or partnerships, which include Nickelodeon UK, The History
Channel (UK), Paramount UK, QVC and National Geographic Channel UK.

The Directors do not expect any material loss to arise from the above
contingent liabilities.

The Company and certain subsidiaries have given joint and several
guarantees in relation to the 1,000 million Revolving Credit Facility ("RCF")
and subsequent to the year end, in relation to the 750 million RCF which
replaced it (see note 18).

Certain subsidiaries have given joint and several guarantees in relation
to the $300 million of 7.30% Guaranteed notes and $600 million of 6.875%
Guaranteed notes which were issued in the US public debt market.

(d) Lease and similar commitments

The Group leases certain land and buildings on short-term and long-term
leases. The rents payable under these leases are subject to renegotiation at
various intervals specified in the leases. In addition the Group has agreements
for the use of transponders on the Astra satellites.

The minimum annual rentals under these arrangements are as follows:

Transponder,
computer
and technical
Property equipment
--------- -------------
(Pounds)m (Pounds)m

30 June 1999
Operating leases and similar arrangements which
expire
within 1 year.................................. 0.1 1.1
within 2-5 years............................... 0.4 63.5
after 5 years.................................. 6.7 15.9
--- ----
7.2 80.5
=== ====
30 June 1998
Operating leases and similar arrangements which
expire
within 1 year.................................. 0.1 1.0
within 2-5 years............................... 0.4 38.5
after 5 years.................................. 4.8 18.0
--- ----
5.3 57.5
=== ====

B-32

NOTES TO FINANCIAL INFORMATION--(Continued)

In addition to the above amounts, the Company remains liable for leases,
which have periods up to 16 years, in respect of certain of its former premises
which have been sublet and for the use of two transponders which have been
fully sublet on similar terms to those entered into by the Group. The Group's
additional commitment should the sub-lessee default in respect of the premises
amounts to some (Pounds)1.3 million and in respect of the transponder
(Pounds)7.0 million per annum.

The Group has forward rate contracts to purchase 57 million Euros and 431
million Belgian Francs ("BEF"), covering certain commitments in relation to
transponder rental costs, at average rates of Euros 1.4614 and BEF 56.0550
respectively to (Pounds)1.

Summarised below as at 30 June 1999 are the minimum lease rentals payable
for non-cancellable operating leases and similar arrangements:

Operating
leases and
similar
arrangements
------------
(Pounds)m

Year ending 30 June
2000........................................................ 87.7
2001........................................................ 92.6
2002........................................................ 73.6
2003........................................................ 43.6
2004........................................................ 36.5
After 2004.................................................. 131.6
-----
465.6
=====

Payments made under non-cancellable operating leases and similar
arrangements in the year ended 30 June 1999 totalled (Pounds)4.4 million (1998:
(Pounds)3.6 million, 1997: (Pounds)3.7 million) in respect of property and 84.0
million (1998: (Pounds)60.0 million, 1997: (Pounds)48.1 million) in respect of
transponders, computer and technical equipment.

24 Transactions with related parties and major shareholders

a) Transactions with major shareholders

The Group conducts business transactions on a normal commercial basis
with, and receives a number of services from, shareholder companies or members
of their groups and associated undertakings.

A number of transactions are conducted with members of The News
Corporation Group. These companies include 20th Century Fox, News Digital
Systems Limited ("NDS") and Broadsystems Limited with which the Group has
significant contracts. 20th Century Fox supplied programming with a total value
of (Pounds)27.6 million in the year (1998: (Pounds)28.7 million), the majority
of which is supplied under arrangements which have been extended to December
2004, with a variable annual value dependent on the number of films supplied.
NDS supplied smart cards and encryption services with a value of (Pounds)26.6
million in the year (1998: (Pounds)24.7 million) under a contract extending to
2004. The Group also has a number of contracts with NDS for the supply of
digital equipment of which (Pounds)5.7 million (1998: (Pounds)13.2 million) was
paid during the year. The Group also purchased sports rights from subsidiaries
of the News Corporation for (Pounds)6.8 million during the year (1998:
(Pounds)8.2 million). During the year (Pounds)8.2 million (1998: (Pounds)7.1
million) was earned from Fox Kids Europe Limited and ZeeTV (a channel aimed at
Asian consumers) for the provision of transponder capacity and subscriber and
support services respectively. Carriage fees of (Pounds)6.4 million were paid
to Ventura Film Distributors B.V. (the supplier of Fox Kids, a children's
television channel) (1998: 6.4 million).

B-33

NOTES TO FINANCIAL INFORMATION--(Continued)

Certain other related party transactions are entered into with
shareholders, also in the normal course of business. These include advertising
by the Group in media owned by shareholders of (Pounds)4.6 million (1998:
(Pounds)3.1 million) and revenue earned by the Group for the sale of airtime to
shareholders of (Pounds)1.1 million (1998: (Pounds)2.4 million). The
acquisition of programmes from Guild, a subsidiary of Pathe, cost (Pounds)4.3
million (1998: (Pounds)3.6 million).

Balances as at 30 June 1999 payable to members of the News Corporation
Group, a major Shareholder, are analysed by activity as follows:

(Pounds)m
---------

Programming.................................................... 31.2
Encryption services............................................ 12.6
Capital expenditure............................................ 0.6
Other.......................................................... 3.1
----
47.5
====

Balances as at 30 June 1999 receivable from members of The News
Corporation Group, a major shareholder are analysed by activity as follows:

(Pounds)m
---------

Transponders................................................... 0.2
Other.......................................................... 1.2
---
1.4
===

b) Transactions with joint ventures

All transactions with joint ventures are in the normal course of
business.

(Pounds)m
---------

Revenue........................................................ 20.1
Operating costs................................................ 29.6

Revenues are primarily generated from the provision of transponder
capacity, marketing and support services together with commissions receivable.
Operating costs represents fees payable for channel carriage.

(Pounds)m
---------

Funding to joint ventures (see note 13)........................ 116.3
Amounts owed by joint ventures (see note 15)................... 7.1
Amounts due to joint ventures (see note 17).................... 2.5

During the year BiB offered customers acquiring digital set-top boxes and
dishes the benefit of an "interactive discount" if the customer agreed to enter
into an interactive discount contract with BiB and to connect his set-top box
to an operational telephone line for a minimum period of 12 months. The
interactive discount reduced the price of the set-top box and dish to new and
transition customers. Interactive discounts payable by BiB for fiscal 1999 were
(Pounds)109.6 million (fiscal 1998: (Pounds)nil)

c) Other transactions with related parties

John Thornton is a Non-Executive Director of BSkyB Group plc and is also
President and Co-Chief Operating Officer of the Goldman Sachs Group Inc. and a
member of their Board of Directors. Fees and expenses totalling (Pounds)1.6
million were paid to the Goldman Sachs Group Inc. relating to BSkyB's bid for
Manchester United PLC.

B-34

NOTES TO FINANCIAL INFORMATION--(Continued)

25 Financing arrangements

At 30 June 1999 the Group's balance sheet showed net liabilities of
(Pounds)624.9 million (1998: (Pounds)300.5 million). The Directors consider
that the operating cash flows of the Group, together with its own bank
facilities, will be sufficient to cover the Group's projected operating
requirements and to settle or refinance the Group's other liabilities as they
fall due. Accordingly the accounts are prepared on a going concern basis.

26 Summary of differences between United Kingdom and United States Generally
Accepted Accounting Principles

(i) Differences giving rise to accounting adjustments

The Group's accounts are prepared in accordance with generally accepted
accounting principles ("GAAP") applicable in the United Kingdom, which differ
in certain significant respects from those applicable in the United States. The
main differences relate principally to the following items and the effects of
the adjustments on operating profits, net income and shareholders' deficit, and
on certain balance sheet items are set out below.

a. Goodwill

Under UK GAAP, goodwill was eliminated against reserves prior to
July 1, 1998. From this date the UK Financial Reporting Standard FRS 10
requires future goodwill to be capitalised, although goodwill previously
written off will not be restated in the balance sheet. On disposal or
closure of a previously acquired business, the goodwill previously
written off to reserves will be included in calculating the profit or
loss on disposal. No goodwill has arisen in the year to June 30, 1999,
as no acquisitions have been made in this period. Under US GAAP,
goodwill is recognised in the balance sheet and amortised by charges
against income over its useful life which is not to exceed 40 years. The
Company considered various factors in determining its amortisation
period, including competitive, legal, regulatory, and other factors. As
required by APB No. 17, the Company limited its amortisation period to
the specified maximum life of 40 years. For US GAAP purposes, goodwill
has been accounted for at the lower of amortised cost or fair value.
Fair value has been determined by reference to a non-discounted cash
flow analysis over the remaining amortisation period. Any goodwill
amount not expected to be recoverable as a result of this review would
be accounted for as impairment of value. No such impairment of value has
occurred.

b. Taxes on income

Under UK GAAP, deferred tax is provided using the liability method
at the rates ruling at each year end. Timing differences are recognised
to the extent that the Directors consider such differences will reverse
in the foreseeable future. Net debit balances resulting from tax losses
or other timing differences are not recognised except to the extent that
it is assured beyond reasonable doubt that future taxable profits will
be sufficient to offset the losses or reversal of timing differences
during the prescribed carry forward period. Any amounts not so
recognised are subsequently only recognised as they are realised. Under
SFAS No. 109 deferred tax liabilities related to timing differences are
fully provided and future taxation benefits are recognised as deferred
tax assets to the extent that their realisation is more likely than not.

c. Interest on shareholder financing

A loan due to a shareholder, which was repaid in fiscal 1998, was
non-interest bearing. Under UK GAAP disclosure is made of this
arrangement but no adjustment is recorded to account for the

B-35

NOTES TO FINANCIAL INFORMATION--(Continued)

fact that this loan did not carry a market rate of interest. However, US
GAAP required that the loan was recorded at the fair value of the
instrument on the date of issuance, determined by discounting all future
payments using an imputed rate of interest. Interest was then accounted
for on this balance at an appropriate market rate, and was recognised in
the income statement.

d. Proposed dividends

Proposed dividends are accrued under UK GAAP in the period to
which they relate. For US GAAP purposes proposed dividends are accounted
for when they are formally approved. The related Advance Corporation Tax
("ACT") is treated in the same manner.

e. ESOP

Shares held by an ESOP are classified within investments under UK
GAAP. For US GAAP purposes they are accounted for as "shares in
employees trusts" within shareholders' funds. If the Company settles
amounts due under the Additional Executive Bonus Scheme in cash rather
than through the transfer of shares from the ESOP, under US GAAP the
liability which arises due to the increase in the value of shares
between the establishment of the ESOP and exercise date is recognised in
the profit and loss account. In addition, under UK GAAP, the shares held
by the ESOP are excluded from the calculation of basic earnings per
share; under US GAAP the ESOP shares are included in the basic earnings
per share calculation.

f. Capitalised interest

Under UK GAAP the capitalisation of interest is not required and
the Company expenses interest charges to the profit and loss account in
the year in which they are incurred. For US GAAP purposes, interest
charges on funds invested in the construction of major capital assets
are capitalised and amortised on the average life of the assets
concerned.

g. Employee stock based compensation

Under UK GAAP the excess between the market price of the option at
the exercise date and the exercise price is taken directly to
shareholders' funds when options are exercised by employees. There is no
movement in shareholders' funds for options which have not yet been
exercised. Under US GAAP, for performance related options, the excess
between the market price of the option and the exercise price is charged
against income during the periods up to the date the performance
criteria are satisfied.

h. Provisions for liabilities and charges

Under UK GAAP (namely FRS 12) a provision is recognised when a
legal or constructive obligation exists as a result of a past event or
action and it is probable that a transfer of economic benefit will be
required to settle the obligation. Under US GAAP a provision should only
be recognised when the Company has a legal commitment under the
guidelines of EITF 94-3.

i. Fixed asset investments

Under UK GAAP a fixed asset investment in a publicly-traded
entity, which is not equity accounted or consolidated on a group basis,
may be held at cost or valuation, less any provision for permanent
diminution in value. Under US GAAP such an investment is classified as
an "available for sale" asset and marked-to-market, with any movements
in the carrying value being taken to equity through shareholders' funds.

B-36

NOTES TO FINANCIAL INFORMATION--(Continued)

j. Consolidated Balance Sheet presentation

The Consolidated Balance Sheet prepared in accordance with UK GAAP
differs in certain respects from US GAAP. For example, under UK GAAP
current assets are presented after fixed assets; current assets include
amounts which fall due after more than one year (see Note 15) and
creditors falling due after one year are deducted from current assets to
present net current assets (liabilities).

k. Consolidated Statement of Cash Flows

The Consolidated Statement of Cash Flows prepared in accordance with
FRS 1 (Revised) presents substantially the same information as that
required under US GAAP. Under US GAAP however, there are certain
differences from UK GAAP with regard to classification of items within the
cash flow statement and with regard to the definition of cash and cash
equivalents.

Under UK GAAP, cash flows are presented separately for operating
activities; returns on investments and servicing of finance; taxation;
capital expenditure and financial investment, acquisitions and disposals,
equity dividends and financing activities. Under US GAAP however, only
three categories of cash flow activity are reported, being operating
activities; investing activities and financing activities. Cash flows from
taxation and returns on investments and servicing of finance would, with
the exception of servicing of shareholder financing, be included as
operating activities under US GAAP. The servicing of shareholder financing
would be included under financing activities under US GAAP.

The following is a summary of the approximate effects on operating profit,
net income, shareholders' equity and on certain other balance sheet items if US
GAAP were to be applied instead of UK GAAP. A translation of amounts for the
year ended 30 June 1999 from pounds sterling to US dollars at (Pounds)1:
$1.5897 (the noon buying rate in New York on 25 June 1999) has been included
solely for the convenience of the reader.

Year ended 30 June Convenience
----------------------------- translation
1997 1998 1999 1999
--------- --------- --------- -----------
(Pounds)m (Pounds)m (Pounds)m $m

Operating Profit:
Operating profit (loss) under UK
GAAP............................... 374 341 (271) (431)
Adjustments:
Amortisation of goodwill(1)........ (11) (11) (12) (20)
ESOP(2)............................ (7) -- 1 2
Transition provision(3)............ -- -- 405 645
Employee stock based
compensation(4)................... -- (10) (5) (7)
---- --- ---- ----
Approximate operating profit under
US GAAP............................ 356 320 118 189
==== === ==== ====
Net Income:
Profit (loss) after tax ("net income
(loss)") under UK GAAP............. 288 249 (285) (453)
Adjustments:
Amortisation of goodwill(1)........ (11) (11) (12) (20)
Imputation of interest on
shareholder financing(5).......... (2) (1) -- --
ESOP(2)............................ (7) -- 1 2
Transition provision(3)............ -- -- 405 645
Employee stock based
compensation(4)................... -- (10) (5) (7)
Capitalised interest(6)............ -- 10 1 1
ACT on proposed dividends(7)....... 14 -- -- --
Deferred taxation--ACT on interim
dividends(7,8).................... 12 -- -- --
-- Release of valuation
allowance(8)..................... 138 -- -- --
-- Other(8)....................... (121) (64) (119) (190)
---- --- ---- ----
Approximate net income (loss) under
US GAAP............................ 311 173 (14) (22)
==== === ==== ====

B-37

NOTES TO FINANCIAL INFORMATION--(Continued)

Year ended 30 June Convenience
----------------------------- translation
1997 1998 1999 1999
--------- --------- --------- -----------
(Pounds)m (Pounds)m (Pounds)m $m

Basic and fully diluted earnings Per
Share under US GAAP(9)............. 18.1p 10.0p (0.8p) (1.3c)
====== ====== ====== ======
Earnings Per ADS under US GAAP(9)... 108.6p 60.0p (4.8p) (7.8c)
====== ====== ====== ======
Shareholders' Deficit:
Capital and reserves under UK GAAP.. (422) (301) (625) (994)
Adjustments:
Goodwill(1)......................... 363 385 373 592
Imputation of interest on
shareholder financing(5)........... 1 -- -- --
ESOP(2)............................. (27) (27) (25) (39)
Transition provision(3)............. -- -- 405 645
Fixed asset investments(10)......... -- -- (9) (14)
Capitalised interest(6)............. -- 10 11 17
Deferred taxation(8)................ 140 90 (29) (47)
Proposed dividends(7)............... 55 56 -- --
ACT on proposed dividends(7)........ 14 -- -- --
------ ------ ------ ------
Approximate shareholders' (deficit)
funds under US GAAP................ 124 213 101 160
====== ====== ====== ======
Total Assets:
Under UK GAAP....................... 759 847 1,107 1,760
Adjustments:
Goodwill(1)......................... 363 385 373 592
ESOP(2)............................ (27) (27) (25) (39)
Fixed asset investments(10)........ -- -- (9) (14)
Capitalised interest(6)............ -- 10 11 17
ACT payable on proposed
dividend(7)........................ -- (14) -- --
Deferred taxation(8)............... 140 90 (29) (47)
------ ------ ------ ------
Under US GAAP....................... 1,235 1,291 1,428 2,269
====== ====== ====== ======
Total Liabilities:
Under UK GAAP....................... (1,181) (1,148) (1,732) (2,754)
Adjustments:
Transition provision(3)............ -- -- 405 645
Imputation of interest on
shareholder financing(5).......... 1 -- -- --
Proposed dividends(7).............. 55 56 -- --
ACT on proposed dividends(7)....... 14 14 -- --
------ ------ ------ ------
Under US GAAP....................... (1,111) (1,078) (1,327) (2,109)
====== ====== ====== ======

- --------
Notes
(1) The goodwill adjustment relates to the acquisition of Sky Television
Limited (Sky) on November 3, 1990 and the acquisition of an additional 9.5%
economic interest in Granada Sky Broadcasting in March 1998. The goodwill
arising of (Pounds)491 million on the acquisition of Sky (reduced by
(Pounds)20 million for the restatement of a shareholder loan to fair value
as at the date of the acquisition (see note 5) and by (Pounds)33 million
from July 1, 1993 for the SFAS No. 109 treatment of acquisition
adjustments) is being amortised under US GAAP on a straight-line basis over
40 years, from November 4, 1990. Goodwill arising on the acquisition of
Granada Sky Broadcasting of (Pounds)32 million is being amortised over a 20
year period from July 1, 1998.

B-38

NOTES TO FINANCIAL INFORMATION--(Continued)

(2) As at June 30, 1998 and June 30, 1999 the Group's ESOP held some 4.8
million Ordinary Shares of the Company, for which it subscribed on January
2, 1996 at (Pounds)4.06 per share. Under US GAAP this is classified as
"Shares in Employee Trusts" within Shareholders' Funds rather than within
Investments under UK GAAP.

During the year ended June 30, 1997 the Company opted to settle amounts due
under the Additional Executive Bonus Scheme in cash rather than through
transfer of shares from the ESOP. As a result, US GAAP required the
liability which arose due to the increase in value of shares between
establishment of the ESOP and exercise date to be recognised in the profit
and loss account. Under UK GAAP, the settlement of the Additional Executive
Bonus Scheme in cash resulted in the carrying value of the shares held
within investments being increased to (Pounds)5.71 per share. During the
year ended June 30, 1998 no such increase was made to the carrying value of
shares in the ESOP. In fiscal 1999, 1.75 million of these shares were used
to hedge the Long-Term Incentive Plan ("LTIP") awards, and were revalued to
(Pounds)5.02 per share, which was included in the profit and loss account
for the year under UK GAAP, and in the profit and loss reserve under US
GAAP. The remaining carrying value is being provided for over the 3 year
vesting period of the LTIP. This was included in the profit and loss for
the year under both UK and US GAAP.

(3) Under UK GAAP, a provision of (Pounds)450 million was recognised during the
1999 fiscal year, in respect of the net costs of the marketing promotion
committed to by the Group, to transition its existing analog subscribers to
its digital service, and of this amount, (Pounds)45 million was utilised
during the year. The unutilised element of the transition provision of
(Pounds)405 million is not recognised under US GAAP.

(4) In accordance with US GAAP, the cost of compensatory stock options is
charged against income. The charge for the year ended June 30, 1999 amounts
to (Pounds)6 million (1998: (Pounds)6 million, 1997: (Pounds) nil) for
options exercised during the year and (Pounds)1 million credit (1998:
charge of (Pounds)4 million, 1997: (Pounds) nil) for options outstanding at
the year end.

(5) A loan of (Pounds)60.5 million issued by a related party on November 3
1990, repayable in eight equal annual instalments commencing May 1991, is
non-interest bearing. The principal value at November 3, 1990 has been
restated under US GAAP at a fair value at that date and interest has been
imputed on the loan and recorded in the reconciliation. As at June 30, 1998
the loan had been fully repaid.

(6) Capitalised interest on the construction of digital assets as at June 30,
1999 amounted to (Pounds)11 million (1998: (Pounds)10 million, 1997:
(Pounds) nil) and is being amortised over a seven year period commencing
October 1, 1998.

(7) There are no proposed dividends as at June 30, 1999. The dividends proposed
as at June 30, 1998 of (Pounds)56 million (1997: (Pounds)55 million) were
reversed under US GAAP and have been recognised in the following year when
formally approved. ACT payable of (Pounds)14 million (1997: (Pounds)14
million) and ACT recoverable of (Pounds)14 million (1997: (Pounds)nil) in
respect of these proposed dividends was treated in the same manner.

ACT of (Pounds)12 million on the fiscal 1997 interim dividend, which was
unpaid at June 30, 1997 and was expensed under UK GAAP, was written back
and was held as an asset under US GAAP. As at June 30, 1998 ACT on the
fiscal 1998 interim dividend was unpaid and was held as both a liability
and an asset under both UK and US GAAP.

(8) As at June 30, 1999, there is a UK deferred tax asset of (Pounds)89 million
(1998: (Pounds)nil; 1997: (Pounds)nil), arising as a result of tax relief
on the transition provision recognised during the year under UK GAAP (see
note 3).

Under US GAAP at June 30, 1999 there is a net deferred tax asset of
(Pounds)74 million (1998: (Pounds)90 million; 1997: (Pounds)140 million).
This is comprised of deferred ACT of (Pounds)85 million (including the
(Pounds)14 million asset referred to in note 7) (1998: (Pounds)62 million;
1997: (Pounds)54 million), and future tax depreciation of (Pounds)6 million
(1998: (Pounds)15 million; 1997: (Pounds)13 million) less other timings
differences of (Pounds)17 million including a deferred tax liability of
(Pounds)26 million relating to the reduction in the current year UK
corporation tax charge resulting from the UK accounting for the transition
provision (see note 4) (1998: asset of (Pounds)13 million;

B-39

NOTES TO FINANCIAL INFORMATION--(Continued)

1997: asset of (Pounds)73 million). The Company had utilised its remaining
tax losses during the year ended June 30, 1998.

The valuation allowance was released during the year ended June 30, 1997
due to the greater certainty as to the quantification of losses available
for relief.

The US GAAP tax charge, which wholly relates to continuing operations,
comprises:

1998 1999
----- --------
% %

UK corporation tax rate................................. 31.0 30.8
Permanent differences................................... 6.2 187.7
Charges relating to prior periods....................... (4.2) 336.8
Temporary timing differences relating to fixed assets... 1.5 (473.7)
Temporary timing differences relating to provisions..... -- (1,594.7)
Temporary timing differences relating to ACT............ -- 489.5
Losses utilised......................................... (19.6) --
Deferred tax charge re above four items................. 18.1 1,578.9
Joint venture losses.................................... -- 418.0
Other................................................... -- (152.6)
----- --------
US GAAP income tax charge............................... 33.0 820.7
===== ========

(9) Earnings per share under UK GAAP for the year ended June 30, 1999 is
calculated using the weighted average number of Ordinary Shares in issue
during the year of 1,719,952,745 (1998: 1,716,632,612; 1997:
1,715,236,393); The weighted average number of shares under UK GAAP
excludes Ordinary Shares held by the British Sky Broadcasting Employee
Share Ownership Plan (ESOP). Earnings per share under US GAAP for the year
ended June 30, 1999 is calculated using the weighted average number of
Ordinary Shares (not adjusted to exclude the shares held by the ESOP) of
1,724,795,432 (1998: 1,721,475,299 1997: 1,720,081,895). Fully diluted
earnings per share under US GAAP is based upon a loss of (Pounds)14
million (1998: earnings of (Pounds)174 million; 1997: earnings of
(Pounds)312 million) and weighted average number of shares of
1,724,795,432 (1998: 1,728,165,063; 1997: 1,729,817,647).

Earnings per ADS has been calculated for each year using the weighted
average number of ADRs outstanding on the basis of 1 ADR for 6 Ordinary
Shares and making the same assumptions for Ordinary Shares as described
above.

(10) Under UK GAAP, the Group held 11.1% of Manchester United PLC as a fixed
asset investment in the balance sheet at cost as at June 30, 1999 (1998:
nil). Under US GAAP this investment is deemed to be available for sale,
and is stated at fair value, with unrealised gains and losses included in
shareholders' funds.

(ii) Additional US GAAP Disclosures

a. Disclosures about fair values of financial instruments

SFAS No. 107 requires the disclosure of estimated fair values for all
financial instruments for which it is practicable to estimate that value.

Except as detailed below, with regard to cash, short term deposits, short
term debt, non-trade receivables and payables, lease obligations and other non-
current liabilities, including shareholder financing, the terms of these
financial instruments approximate those available in the current market.
Accordingly carrying values approximate fair value.

B-40

NOTES TO FINANCIAL INFORMATION--(Continued)

The transponder loan had been valued by a discounted cash flow analysis
from the date of creation of the loan, using available market rates for similar
types of arrangement. On this basis, the fair value at June 30, 1997 was not
materially different from the carrying value. As at June 30, 1998 the loan had
been fully repaid.

b. Accounting for share options

The Company has established three share option schemes ("Share Schemes")
to provide employees with share-based incentives, and an additional option
scheme to provide cash-based incentives, although the Directors may satisfy the
liability to pay cash on the exercise of the options, by a transfer of shares
out of the employee share trust. The Share Schemes are: the British Sky
Broadcasting Group Approved Executive Share Option Scheme (the "Approved
Scheme"), the British Sky Broadcasting Group Unapproved Executive Share Option
Scheme (the "Unapproved Scheme"), and the British Sky Broadcasting Group
Sharesave Scheme (the "Sharesave Scheme"). The additional option scheme is
called the British Sky Broadcasting Group Additional Executive Bonus Scheme
(the "Additional Executive Bonus Scheme"). Additionally, share option grants
were made at flotation outside the schemes described above, and the Company
also introduced a Long-Term Incentive Plan ("LTIP") for senior executives in
fiscal 1999.

With respect to the Approved, Unapproved Schemes (the "Executive
Schemes") and the Additional Executive Bonus Scheme, options are only normally
exercisable after the expiry of three years from the date of grant and only if
certain performance targets are met. The performance target is real growth in
the Company's earnings per share over any three year period during the life of
the option, although the Directors may vary the target if they consider it fair
and reasonable to do so. Options granted under the Executive Schemes expire
after seven and ten years respectively. Options granted under the Executive
Schemes after November 1998 may also be exercised in the final year before they
lapse irrespective of any of the performance criteria, provided that the
employee remains in employment with the Group.

With respect to the LTIP, Awards are made in a variety of forms, with
equivalent values, and normally vest in full or part after the expiry of three
years from the date of grant. The forms available include the grant of options
with an exercise price of nil, the grant of a combination of options with an
exercise price equal to the market value of the Shares under option on the day
immediately preceding the date of grant and a cash bonus for an equivalent
amount receivable on exercise of the options, and a contingent right to acquire
Shares at no cost. The performance targets are based on a combination of long-
range business measures and the Company's relative total shareholder return
relative to the UK media and telecommunications sectors.

Under the Sharesave Scheme participants enter into savings contracts for
either three, five or seven years. Alternatively, if the Directors so allow
prior to the grant of options, participants saving for five years may leave
their savings for a further two years to qualify for a higher bonus. The
proceeds can then be used to acquire Shares under option. At the end of the
contract an additional bonus is received which together with the savings can be
used to acquire Shares under option.

The limit on the number of Shares which may be issued under the Share
Schemes over any ten-year period is in aggregate 5% of the issued share capital
for the time being. Under the Additional Executive Bonus Scheme, there is no
limit on the number of notional shares over which options may be granted. Under
the LTIP, the number of new issue Shares, when aggregated with the Shares
issued or issuable under the LTIP or any of the other Share Schemes operated by
the Company, may not exceed 5% of the Ordinary Share Capital of the Company in
issue immediately prior to the day of issue.

The Company has granted options over 7,557,195 shares under the
Unapproved Scheme, 959,812 shares under the Sharesave Scheme, 1,950,000 shares
under the LTIP, and no options or shares under the Approved Scheme or the
Additional Executive Bonus Scheme in the year of June 30, 1999.

B-41

NOTES TO FINANCIAL INFORMATION--(Continued)

In October 1995, FASB Statement 123 "Accounting for Stock-Based
Compensation" was issued. The Company adopted the disclosure provisions of FASB
Statement 123 in 1997, but opted to remain under the expense recognition
provisions of Accounting Principles Board (APB) Opinion No 25, "Accounting for
Stock Issued to Employees" in accounting for options granted under the share
option schemes. The charge included in the Statement of Income for all the
share option schemes was (Pounds)5 million (1998: (Pounds)10 million, 1997:
nil). Had compensation expense for share options granted under these schemes
been determined based on fair value at the grant dates consistent with the
method required in accordance with FASB Statement 123, the Company's net income
and earnings per share for 1997, 1998 and 1999 would have been reduced to the
pro-forma amounts shown below:

1997 1998 1999
------------ ------------ -----------

Approximate net income (loss)
under US GAAP:
As reported.................. (Pounds)311m (Pounds)173m (Pounds)(14)m
Pro Forma.................... (Pounds)310m (Pounds)173m (Pounds)(14)m
Earnings (loss) per share per
US GAAP:
As reported.................. 18.1p 10.0p (0.8)p
Pro Forma.................... 18.1p 10.0p (0.8)p

The movement in options outstanding during the two years ended June 30,
1999 is summarised in the following table:

Number of shares
subject to Weighted average
option exercise price
---------------- ----------------

Outstanding at June 30, 1997............ 11,729,933 (Pounds)3.59
Granted during fiscal 1998.............. 2,078,843 (Pounds)4.14
Lapsed during fiscal 1998............... (1,121,879) (Pounds)3.42
Exercised during fiscal 1998............ (3,141,705) (Pounds)2.56
---------- ------------
Outstanding at June 30, 1998............ 9,545,192 (Pounds)4.05
Granted during fiscal 1999.............. 11,467,007 (Pounds)4.92
Lapsed during fiscal 1999............... (3,168,048) (Pounds)4.95
Exercised during fiscal 1999............ (2,426,463) (Pounds)3.35
---------- ------------
Outstanding at June 30, 1999............ 15,417,688 (Pounds)4.68

Included within the total options outstanding as at June 30, 1999, were
7,495,280 options (1998: nil) granted under the Executive Schemes, which may be
exercised in the final year before their lapsing date, regardless of meeting
performance criteria, provided that the employee remains in employment with the
Group. There were also 2,725,517 Sharesave Scheme options outstanding as at
June 30, 1999 (1998: 2,445,371) to which no performance criteria attached.

The weighted average fair value of options granted in 1999 was estimated
at (Pounds)1.50 over the exercise price as of the date of grant using the
Black-Scholes stock option pricing model, based on the following weighted
average assumptions: no annual dividend; annual standard deviation (volatility)
of 32%; risk free interest rate of 5.13% and expected term of 3.1 years.

Additionally, the weighted average exercise price and fair value for
options granted in 1999 with an exercise price below the market price at grant
were estimated at (Pounds)4.01 and (Pounds)2.28 respectively. There were no
options granted in 1999 with an exercise price above the market price at grant
date. For options granted in 1999 with an exercise price equal to market price
at grant date, the weighted average exercise price and fair value at grant date
were estimated at (Pounds)5.02 and (Pounds)1.41 respectively.

B-42

NOTES TO FINANCIAL INFORMATION--(Continued)

The exercise prices for options outstanding at the end of the year
ranged from (Pounds)2.05 to (Pounds)5.975, with a weighted average exercise
price of (Pounds)4.68 and a remaining contractual life of 5.8 years.

The following table summarises information about the stock options
outstanding at June 30, 1999:

Options outstanding Options currently exercisable
---------------------------------------- -----------------------------
Weighted Weighted
average average Weighted
remaining exercise average
Range of exercise prices Number contractual life price Number exercise price
- ------------------------ ---------- ---------------- ------------ ------- ----------------------

(Pounds)2.00-
(Pounds)3.00........... 1,148,712 5.4 years (Pounds)2.27 500,505 (Pounds)2.56
(Pounds)3.00-
(Pounds)4.00........... 1,890,080 4.4 years (Pounds)3.61 20,289 (Pounds)3.45
(Pounds)4.00-
(Pounds)5.00........... 1,253,392 5.1 years (Pounds)4.42 84,862 (Pounds)4.36
(Pounds)5.00-
(Pounds)6.00........... 11,125,504 6.2 years (Pounds)5.14 205,642 (Pounds)5.68

c. Disclosure of derivative financial instruments

We enter into derivative instruments to manage exposure to fluctuations
in interest rates and foreign exchange rates. We do not hold or issue
derivative financial instruments for trading purposes and are not party to
leveraged instruments.

d. Interest rate swaps

In October 1996 we issued, in the US public debt market, US$300 million
of 7.30% Guaranteed Notes repayable in 2006. We subsequently entered into swap
transactions to convert the $300 million liability to sterling, half of which
carries a fixed rate of interest of 8.384% per annum with the remainder
carrying a fixed rate of interest of 7.94% per annum for five years from April
1997 and thereafter floating at 62 basis points over six month LIBOR. An
average interest rate of 7.589% was incurred in the period to April 1997,
during which half of the Notes carried a floating rate of interest.

In February 1999 we issued, in the US public debt market, US$600 million
of 6.875% Guaranteed Notes repayable in February 2009. The proceeds were
swapped into sterling at an average floating rate of 127 basis points above
the 6 month UK LIBOR rate.

Subsequent to the year end, we issued US$650 million 10 year global
Regulation S/144A bonds with SEC registration rights, which carry a coupon of
8.200% payable semi-annually and are repayable on 15 July 2009. They have been
swapped into sterling at a fixed rate of 7.653% payable semi-annually.

The interest rate differential on these swaps is reflected as an
adjustment to interest expense over the life of the swaps.

As at the fiscal 1999 year end, (Pounds)100 million of the balance drawn
down on our (Pounds)1000 million Revolving Credit Facility ("RCF"), which has
interest rates carrying between 0.225% and 0.75% per annum above UK LIBOR, was
swapped into fixed rate debt until September 2000 bearing an interest rate of
7.385% plus a margin. Due to the refinancing completed after the year end the
balance on the RCF was repaid and this swap was no longer required and was
consequently marked-to-market in fiscal 1999.

e. Foreign exchange forward hedges--programming

It is our policy to hedge in excess of 80% of the US dollar programme
creditor payments to which we are contractually committed in the next twelve
months.

B-43

NOTES TO FINANCIAL INFORMATION--(Continued)

As at June 30, 1999, we had entered into some 51 forward contracts for a
total value of some $501 million, with a maturity of one year or less, to cover
contracted commitments for the supply of programming. These contracts, which
are individually for less than $20 million, are with different banks and are at
an average rate of $1.6406 per (Pounds)1.00. Some $347 million of these are to
hedge liabilities in respect of available programming and hence these
liabilities are recorded on the balance sheet at hedged rate (see note 17). The
remainder are to hedge liabilities in respect of programmes which have yet to
become available and hence are off-balance sheet (see note 23(a)). If these
off-balance sheet hedges had been marked-to-market at June 30, 1999, a loss of
approximately (Pounds)2.0 million would have been recorded.

Our policy is to record programme creditors at the exchange rate ruling
on the day that particular programmes become available or, to the extent
hedged, at the hedged rate.

f. Foreign exchange forward hedges--transponders

It is our policy to hedge the majority of US dollar, Belgian Franc and
Euro payments in respect of transponder rentals to which we are contractually
committed in the next twelve months.

As at June 30, 1999, we had entered into some 14 forward contracts for a
total value of some 431 million BEF and 57 million Euros, with a maturity of
one year or less, to cover transponder rental, at average rates of BEF 56.0550
and 1.4614 Euros respectively per (Pounds)1.00. Since these contracts hedge
amounts which are currently off-balance sheet (see note 23(d)), any profit or
loss will be recorded over the period of the related transponder rental. Had
these contracts been marked-to-market at June 30, 1999, a loss of approximately
(Pounds)2.2 million would have been recorded.

g. Statement of comprehensive income

1997 1998 1999
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m

Net income in accordance with U.S. GAAP... 311 173 (14)
Other comprehensive income, net of tax
Unrealised losses on certain fixed asset
investments.............................. -- -- (6)
--- --- ---
Net comprehensive income in accordance
with U.S. GAAP........................... 311 173 (20)
=== === ===

h. Adoption of new standards

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133, which was subsequently amended by Statement 137 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivatives' fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows derivatives' gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 as
amended by SFAS No. 137 is effective for fiscal years beginning after June 15,
2000 and cannot be applied retroactively. We have not yet quantified the
impacts of adopting SFAS No. 133 on the financial statements and have not
determined the timing of or method of our adoption of SFAS No. 133.

B-44

NOTES TO FINANCIAL INFORMATION--(Continued)

In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued the Statement of
Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", which provides guidance on accounting
for the costs of computer software developed or obtained for internal use. This
SOP requires computer software costs that are incurred in the preliminary
project stage to be expensed as incurred. Once the capitalization criteria of
the SOP have been met, directly attributable development costs should be
capitalised. It also provides guidance on the treatment of upgrade and
maintenance expenditures. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998. Costs incurred prior to initial application of this
SOP, whether capitalized or not, should not be adjusted to the amounts that
would have been capitalized had this SOP been in effect when those costs were
incurred. We have not determined the impact that this SOP will have on our
consolidated financial statements.

In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued the Statement of
Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities",
which generally requires that costs for start-up activities and organization
costs should be expensed as incurred. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998 and initial
adoption is required to be reflected as a cumulative effect of accounting
change. We have not determined the impact that this SOP will have on our
consolidated financial statements.

i. Concentration of credit risk

The Company does not have any significant concentrations of credit risk.

27 Description of Business

British Sky Broadcasting Group plc is one of the leading providers of
pay-television broadcasting services in the UK and Ireland, with 7.4 million
paying subscribers. Its operations include the operation and distribution of 12
wholly-owned television channels in digital and 10 wholly-owned channels in
analog, as well as direct-to-home marketing of 45 channels owned by third
parties in digital (25 in analog).

28 Supplemental Guarantor Information

From time to time the Company may issue debt securities which are
guaranteed, on a full and unconditional basis, by the Company's two main wholly
owned operating subsidiaries, British Sky Broadcasting Limited and Sky
Subscribers Services Limited. The Company has issued in the US public debt
market in October 1996 US$300 million of 7.300% Guaranteed Notes repayable in
October 2006, and in February 1999 US$600 million of 6.875% Guaranteed Notes
repayable in February 2009. In July 1999 the Company issued $US650 million and
(Pounds)100 million of Regulation S/144A bonds with SEC registration rights
repayable in July 2009 at rates of 8.200% and 7.750% respectively. Supplemental
condensed combining financial information for the guarantors is presented below
prepared in accordance with the Company's accounting policies set out on pages
B-6 to B-9, except to the extent that investments in subsidiaries have been
accounted for by the equity method as required by the Securities and Exchange
Commission. The Company's accounting policies are in accordance with UK GAAP.
This supplemental financial information should be read in conjunction with the
Consolidated Financial Statements.

B-45

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

As at June 30, 1997(2)
((Pounds) millions)

(3)
British Sky (1)(3) BSkyB Group
Broadcasting Guarantor Non-Guarantor Reclassifications and
Group plc Subsidiaries Subsidiaries and eliminations Subsidiaries
------------ ------------ ------------- ----------------- ------------

Fixed assets
Tangible fixed assets... 3 96 11 -- 110
Investments
--Joint ventures...... -- 6 5 -- 11
--Own shares.......... -- 27 -- -- 27
--Subsidiary
undertakings
--Shares............ 1,398 -- -- (1,398) --
--Loans............. 126 4 2,637 (2,767) --
------ ----- ----- ------ ------
1,527 133 2,653 (4,165) 148
------ ----- ----- ------ ------
Current assets
Stocks.................. -- 214 1 -- 215
Intragroup debtors...... 1,314 500 328 (2,142) --
Third party debtors..... 1 283 52 -- 336
Cash at bank and in
hand................... -- 58 1 -- 59
------ ----- ----- ------ ------
1,315 1,055 382 (2,142) 610
------ ----- ----- ------ ------
Creditors Amounts
falling due within one
year
Short term borrowings... -- (2) (9) -- (11)
Intragroup creditors.... (712) (515) (915) 2,142 --
Third party creditors... (81) (385) (17) -- (483)
------ ----- ----- ------ ------
(793) (902) (941) 2,142 (494)
------ ----- ----- ------ ------
Net current assets
(liabilities).......... 522 153 (559) -- 116
------ ----- ----- ------ ------
Total assets less
current liabilities.... 2,049 286 2,094 (4,165) 264
------ ----- ----- ------ ------
Creditors Amounts
falling due after one
year
Intragroup borrowings... (2,283) -- (484) 2,767 --
Third party borrowings.. (189) (8) (478) -- (675)
Other................... -- (1) -- -- (1)
------ ----- ----- ------ ------
(2,472) (9) (962) 2,767 (676)
------ ----- ----- ------ ------
Provisions for
liabilities and
charges................ -- (11) -- -- (11)
------ ----- ----- ------ ------
(423) 266 1,132 (1,398) (423)
------ ----- ----- ------ ------
Capital and reserves--
equity
Called-up share
capital................ 860 10 15 (25) 860
Share premium account... 678 242 328 (570) 678
Profit and loss
account................ (1,961) 14 (121) 107 (1,961)
Other reserves.......... -- -- 910 (910) --
------ ----- ----- ------ ------
TOTAL CAPITAL AND
RESERVES............... (423) 266 1,132 (1,398) (423)
====== ===== ===== ====== ======

See notes to supplemental guarantor information.

B-46

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

As at June 30, 1998(2)
((Pounds) millions)

(3)
British Sky (1)(3) Reclassifications BSkyB
Broadcasting Guarantor Non-Guarantor and Group and
Group plc Subsidiaries Subsidiaries eliminations Subsidiaries
------------ ------------ ------------- ----------------- ------------

Fixed assets
Tangible fixed assets... 2 171 3 -- 176
Investments
--Joint ventures...... -- -- 16 -- 16
--Own shares.......... -- 27 -- -- 27
--Subsidiary
undertakings
--Shares.............. 1,508 -- -- (1,508) --
--Loans............... 126 13 1,438 (1,577) --
------ ---- ----- ------ ------
1,636 211 1,457 (3,085) 219
------ ---- ----- ------ ------
Current assets
Stocks.................. -- 226 2 -- 228
Debtors: Amounts due
after
one year
Third party debtors..... 14 54 54 -- 122
Debtors: Amounts due
within
one year
Intragroup debtors...... 227 434 453 (1,114) --
Third party debtors..... 1 192 20 -- 213
Cash at bank and in
hand................... -- 64 1 -- 65
------ ---- ----- ------ ------
242 970 530 (1,114) 628
------ ---- ----- ------ ------
Creditors Amounts
falling due within one
year
Intragroup creditors.... (464) (434) (229) 1,127 --
Third party creditors... (85) (419) (17) -- (521)
------ ---- ----- ------ ------
(549) (853) (246) 1,127 (521)
------ ---- ----- ------ ------
Net current
(liabilities) assets... (307) 117 284 13 107
------ ---- ----- ------ ------
Total assets less
current liabilities.... 1,329 328 1,741 (3,072) 326
------ ---- ----- ------ ------
Creditors Amounts
falling due after one
year
Intragroup borrowings... (1,441) -- (123) 1,564 --
Third party borrowings.. (189) (9) (385) -- (583)
Other................... -- (41) (3) -- (44)
------ ---- ----- ------ ------
(1,630) (50) (511) 1,564 (627)
------ ---- ----- ------ ------
(301) 278 1,230 (1,508) (301)
------ ---- ----- ------ ------
Capital and reserves--
equity
Called-up share
capital................ 862 10 15 (25) 862
Share premium account... 690 242 328 (570) 690
Profit and loss
account................ (1,853) 26 (23) (3) (1,853)
Other reserves.......... -- -- 910 (910) --
------ ---- ----- ------ ------
TOTAL CAPITAL AND
RESERVES............... (301) 278 1,230 (1,508) (301)
====== ==== ===== ====== ======

See notes to supplemental guarantor information.

B-47

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEET

As at June 30, 1999(2)
((Pounds) millions)

(3)
British Sky (1)(3) Non- BSkyB Group
Broadcasting Guarantor Guarantor Reclassifications and
Group plc Subsidiaries Subsidiaries and eliminations Subsidiaries
------------ ------------ ------------ ----------------- ------------

Fixed assets
Tangible fixed assets... 2 211 6 -- 219
Investments
--Joint ventures...... -- 16 13 -- 29
--Own shares.......... -- 25 -- -- 25
--Investment in
Manchester United
PLC.................. 67 -- -- -- 67
--Subsidiary
undertakings
--Shares............ 1,220 -- -- (1,220) --
--Loans............. 126 27 1,441 (1,594) --
------ ---- ----- ------ ------
1,415 279 1,460 (2,814) 340
------ ---- ----- ------ ------
Current assets
Stocks.................. -- 273 16 -- 289
Debtors: Amounts due
after one year
Third party debtors..... 14 90 66 -- 170
Debtors: Amounts due
within one year
Intragroup debtors...... 422 299 498 (1,219) --
Third party debtors..... 3 235 20 -- 258
Cash at bank and in
hand................... -- 50 -- -- 50
------ ---- ----- ------ ------
439 947 600 (1,219) 767
------ ---- ----- ------ ------
Creditors Amounts
falling due within one
year
Intragroup creditors.... (470) (236) (513) 1,219 --
Third party creditors... (12) (515) (54) -- (581)
------ ---- ----- ------ ------
(482) (751) (567) 1,219 (581)
------ ---- ----- ------ ------
Net current
(liabilities) assets... (43) 196 33 -- 186
------ ---- ----- ------ ------
Total assets less
current liabilities.... 1,372 475 1,493 (2,814) 526
------ ---- ----- ------ ------
Creditors Amounts
falling due after one
year
Intragroup borrowings... (1,441) -- (153) 1,594 --
Third party borrowings.. (556) (8) (151) -- (715)
Other................... -- (31) -- -- (31)
------ ---- ----- ------ ------
(1,997) (39) (304) 1,594 (746)
------ ---- ----- ------ ------
Provisions for
liabilities and
charges................ -- (405) -- -- (405)
------ ---- ----- ------ ------
(625) 31 1,189 (1,220) (625)
------ ---- ----- ------ ------
Capital and reserves--
equity
Called-up share
capital................ 863 10 15 (25) 863
Share premium account... 703 242 339 (581) 703
Profit and loss
account................ (2,191) (221) (75) 296 (2,191)
Other reserves.......... -- -- 910 (910) --
------ ---- ----- ------ ------
TOTAL CAPITAL AND
RESERVES............... (625) 31 1,189 (1,220) (625)
====== ==== ===== ====== ======

See notes to supplemental guarantor information.

B-48

SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS

For the year ended June 30, 1997(2)
((Pounds) millions)

(3)
British Sky (1)(3) Non- Reclassifications BSkyB Group
Broadcasting Guarantor Guarantor and and
Group plc Subsidiaries Subsidiaries eliminations Subsidiaries
------------ ------------ ------------ ----------------- ------------

Turnover................ -- 1,235 51 (37) 1,249
Operating expenses,
net.................... -- (856) (56) 37 (875)
---- ----- --- ---- -----
Operating profit........ -- 379 (5) -- 374
Share of results of
joint ventures......... -- (9) (4) 3 (10)
Share of retained
profits of subsidiary
undertakings........... 18 -- -- (18) --
---- ----- --- ---- -----
Profit on ordinary
activities before
interest and taxation.. 18 370 (9) (15) 364
Investment income....... 389 -- -- (389) --
Interest receivable and
similar income......... -- 1 1 -- 2
Interest payable and
similar charges
- --on external
financing............... (10) (1) (41) -- (52)
- --intragroup interest... (58) -- 58 -- --
Amounts written off
investments............ (25) -- -- 25 --
---- ----- --- ---- -----
Profit (loss) on
ordinary activities
before taxation........ 314 370 9 (379) 314
Taxation................ (26) -- -- -- (26)
---- ----- --- ---- -----
Profit (loss) for the
financial year......... 288 370 9 (379) 288
Dividends............... (103) (340) (49) 389 (103)
---- ----- --- ---- -----
Transfer to (from)
reserves............... 185 30 (40) 10 185
==== ===== === ==== =====

See notes to supplemental guarantor information.

B-49

SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS

For the year ended June 30, 1998(2)
((Pounds) millions)

Turnover................ -- 1,419 21 (6) 1,434
Operating expenses,
net.................... (1) (1,086) (18) 12 (1,093)
---- ------ --- ---- ------
Operating (loss)
profit................. (1) 333 3 6 341
Share of results of
joint ventures......... -- (17) (6) 6 (17)
Share of retained
profits of subsidiary
undertakings........... 91 -- -- (91) --
---- ------ --- ---- ------
Profit (loss) on
ordinary activities
before interest and
taxation............... 90 316 (3) (79) 324
Investment income....... 289 -- -- (289) --
Interest receivable and
similar income......... -- 4 186 (187) 3
Interest payable and
similar charges
--on external
financing (14) (1) (41) -- (56)
--intragroup
interest............. (186) -- (1) 187 --
Amounts written off
investments............ 64 (32) -- (32) --
---- ------ --- ---- ------
Profit (loss) on
ordinary activities
before taxation........ 243 287 141 (400) 271
Taxation................ 6 (28) -- -- (22)
---- ------ --- ---- ------
Profit (loss) for the
financial year......... 249 259 141 (400) 249
Dividends............... (103) (248) (41) 289 (103)
---- ------ --- ---- ------
Transfer to (from)
reserves............... 146 11 100 (111) 146
==== ====== === ==== ======

See notes to supplemental guarantor information.

B-50

SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF OPERATIONS

For the year ended June 30, 1999(2)
((Pounds) millions)

(3)
British Sky (1)(3) BSkyB
Broadcasting Guarantor Non-Guarantor Reclassifications Group and
Group plc Subsidiaries Subsidiaries and eliminations Subsidiaries
------------ ------------ ------------- ----------------- ------------

Turnover................ -- 1,504 57 (16) 1,545
Operating expenses,
net.................... (6) (1,765) (64) 19 (1,816)
---- ------ ---- ---- ------
Operating profit
(loss)................. (6) (261) (7) 3 (271)
Share of results of
joint ventures......... -- (44) (22) 8 (58)
Share of retained
(losses) of subsidiary
undertakings........... (316) -- -- 316 --
---- ------ ---- ---- ------
Profit (loss) on
ordinary activities
before interest and
taxation............... (322) (305) (29) 327 (329)
Investment income....... 107 2 -- (109) --
Interest receivable and
similar income......... 50 2 122 (170) 4
Interest payable and
similar charges........
--on external
financing............ (24) (1) (39) -- (64)
--intragroup
interest............. (121) (49) -- 170 --
Amounts written off
investments............ 34 -- -- (34) --
---- ------ ---- ---- ------
Profit (loss) on
ordinary activities
before taxation........ (276) (351) 54 184 (389)
Taxation................ (9) 109 4 -- 104
---- ------ ---- ---- ------
Profit (loss) for the
financial year......... (285) (242) 58 184 (285)
Dividends............... (47) -- (109) 109 (47)
---- ------ ---- ---- ------
Transfer to (from)
reserves............... (332) (242) (51) 293 (332)
==== ====== ==== ==== ======

See notes to supplemental guarantor information.

B-51

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

For the year ended June 30, 1997(2)
((Pounds) millions)

British Sky (1) Non- BSkyB
Broadcasting Guarantor Guarantor Reclassifications Group and
Group plc Subsidiaries Subsidiaries and eliminations Subsidiaries
------------ ------------ ------------ ----------------- ------------

Operating activities
Operating profit
(loss)................. -- 379 (5) -- 374
Depreciation charges.... -- 3 2 -- 5
Adjustment to investment
in own shares.......... -- (8) -- -- (8)
Increase in debtors..... -- (166) (16) -- (182)
Increase in creditors... -- 80 1 -- 81
(Increase) decrease in
stock.................. -- (7) 1 -- (6)
Amortization of
government grants...... -- (1) -- -- (1)
Movement on provisions.. -- (4) -- -- (4)
---- ---- ---- ---- ----
Net cash inflow
(outflow) from
operating activities... -- 276 (17) -- 259
---- ---- ---- ---- ----
Returns on investments
and servicing of
finance
Interest paid and
similar charges......... (10) (1) (38) -- (49)
Interest received and
similar income......... -- 2 -- -- 2
Dividends received...... 389 -- -- (389) --
---- ---- ---- ---- ----
Net cash inflow
(outflow) from returns
on investments and
servicing of finance... 379 1 (38) (389) (47)
Taxation
ACT paid................ (24) -- -- -- (24)
Capital expenditure and
financial investment
Payments to acquire
fixed assets............ -- (39) (1) -- (40)
Receipt of Government
Grants.................. -- 1 -- -- 1
---- ---- ---- ---- ----
Net cash outflow from
capital expenditure and
financial investment... -- (38) (1) -- (39)
Acquisitions and
disposals
Funding to associated
undertakings............ -- (18) -- -- (18)
---- ---- ---- ---- ----
Net cash outflow from
acquisitions............ -- (18) -- -- (18)
Equity dividends paid... (99) (340) (49) 389 (99)
---- ---- ---- ---- ----
Net cash inflow
(outflow) before
financing.............. 256 (119) (105) -- 32
---- ---- ---- ---- ----
Financing
Net proceeds from issue
of ordinary shares..... 1 -- -- -- 1
Increase (decrease) in
total external debt.... 189 -- (192) -- (3)
Loans from (to) group
companies.............. (446) 150 296 -- --
---- ---- ---- ---- ----
Net cash (outflow)
inflow from financing.. (256) 150 104 -- (2)
---- ---- ---- ---- ----
Increase (decrease) in
cash................... -- 31 (1) -- 30
Cash outflow (inflow)
resulting from change
in debt and lease
financing.............. 256 (150) (104) -- 2
New finance leases...... -- (1) -- -- (1)
---- ---- ---- ---- ----
Reduction (increase) in
net debt............... 256 (120) (105) -- 31
==== ==== ==== ==== ====

See notes to supplemental guarantor information.

B-52

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

For the year ended June 30, 1998(2)
((Pounds) millions)

Operating activities
Operating (loss)
profit................. (1) 333 3 6 341
Depreciation charges.... -- 15 2 -- 17
Decrease (increase) in
debtors................ -- 37 (24) -- 13
Increase (decrease) in
creditors.............. 16 35 (2) -- 49
Increase in stock....... -- (12) (1) -- (13)
Amortization of
government grants...... -- (1) -- -- (1)
Movement on provisions.. -- (2) -- -- (2)
---- ---- ---- ---- ----
Net cash inflow
(outflow) from
operating activities... 15 405 (22) 6 404
Returns on investments
and servicing of
finance
Interest paid and
similar charges........ (15) (1) (35) -- (51)
Interest received and
similar income......... -- 3 -- -- 3
Dividends received...... 289 -- -- (289) --
---- ---- ---- ---- ----
Net cash inflow
(outflow) from returns
on investments and
servicing of finance... 274 2 (35) (289) (48)
Taxation
ACT paid................ (26) -- -- -- (26)
---- ---- ---- ---- ----
Capital expenditure and
financial investment
Payments to acquire
fixed assets........... -- (80) (2) -- (82)
Receipt of Government
Grant.................. -- 1 -- -- 1
---- ---- ---- ---- ----
Net cash outflow from
capital expenditure and
financial investment... -- (79) (2) -- (81)
Acquisitions and
disposals
Funding to joint
ventures............... -- (45) -- -- (45)
---- ---- ---- ---- ----
Net cash outflow from
acquisitions........... -- (45) -- -- (45)
Equity dividends paid... (103) (248) (41) 289 (103)
---- ---- ---- ---- ----
Net cash inflow
(outflow) before
financing.............. 160 35 (100) 6 101
---- ---- ---- ---- ----
Financing
Proceeds from issue of
ordinary shares........ 8 -- -- -- 8
Decrease in total
external debt.......... -- (2) (102) -- (104)
Loans from (to) group
companies.............. (168) (28) 202 (6) --
---- ---- ---- ---- ----
Net cash (outflow)
inflow from financing.. (160) (30) 100 (6) (96)
Increase in cash........ -- 5 -- -- 5
Cash outflow (inflow)
resulting from change
in debt................ 168 30 (100) 6 104
---- ---- ---- ---- ----
Reduction (increase) in
net debt............... 168 35 (100) 6 109
==== ==== ==== ==== ====

See notes to supplemental guarantor information.

B-53

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW

For the year ended June 30, 1999(2)
((Pounds) millions)

British Sky (1) Non- BSkyB Group
Broadcasting Guarantor Guarantor Reclassifications and
Group plc Subsidiaries Subsidiaries and eliminations Subsidiaries
------------ ------------ ------------ ----------------- ------------

Operating activities
Operating loss.......... (6) (261) (7) 3 (271)
Depreciation charges.... -- 32 1 -- 33
Provision made against
LTIP awards............ -- 3 -- -- 3
(Increase) decrease in
debtors................ (2) 9 (12) -- (5)
Increase in creditors... 9 91 34 -- 134
Increase in stock....... -- (47) (14) -- (61)
Transition provision not
utilised............... -- 405 -- -- 405
---- ---- ---- ---- ----
Net cash inflow
(outflow) from
operating activities... 1 232 2 3 238
Returns on investments
and servicing of
finance
Interest paid and
similar charges........ (22) (1) (32) -- (55)
Interest received and
similar income......... -- 4 -- -- 4
Dividends received...... 107 2 -- (109) --
---- ---- ---- ---- ----
Net cash inflow
(outflow) from returns
on investments and
servicing of finance... 85 5 (32) (109) (51)
Taxation
ACT paid................ (26) -- -- -- (26)
UK Corporation tax
paid................... -- (3) -- -- (3)
---- ---- ---- ---- ----
Taxation paid........... (26) (3) -- -- (29)
Capital expenditure and
financial investment
Payments to acquire
fixed assets........... -- (73) (3) -- (76)
Payment for shares in
Manchester United PLC.. (67) -- -- -- (67)
Receipt of Government
Grant.................. -- 1 -- -- 1
---- ---- ---- ---- ----
Net cash outflow from
capital expenditure and
financial investment... (67) (72) (3) -- (142)
Acquisitions
Funding to joint
ventures............... -- (23) -- -- (23)
Payments for shares in
joint ventures......... -- (45) -- -- (45)
---- ---- ---- ---- ----
Net cash outflow from
acquisitions........... -- (68) -- -- (68)
Equity dividends paid... (103) -- (109) 109 (103)
---- ---- ---- ---- ----
Net cash (outflow)
inflow before
financing.............. (110) 94 (142) 3 (155)
---- ---- ---- ---- ----
Financing
Proceeds from issue of
ordinary shares........ 8 -- -- -- 8
Increase (decrease) in
total external debt.... 367 -- (235) -- 132
Loans from (to) group
companies.............. (265) (108) 376 (3) --
---- ---- ---- ---- ----
Net cash inflow
(outflow) from
financing.............. 110 (108) 141 (3) 140
---- ---- ---- ---- ----
Decrease in cash........ -- (14) (1) -- (15)
Cash (inflow) outflow
from change in debt.... (102) 108 (141) 3 (132)
---- ---- ---- ---- ----
(Increase) reduction in
net debt............... (102) 94 (142) 3 (147)
==== ==== ==== ==== ====

See notes to supplemental guarantor information.

B-54

Notes to Supplemental Guarantor Information

(1) The Guarantors are:

British Sky Broadcasting Limited.... Operates and distributes the Sky
Channels and markets the Sky
Distributed Channels to DTH viewers.

Sky Subscribers Services Limited.... Provides ancillary functions supporting
the DTH broadcasting operations of its
parent company, British Sky
Broadcasting Limited, and others.

(2) Certain reclassifications were made to conform all of the financial
information to the financial presentation of the Group. The principal
elimination entries relate to investments in subsidiaries and intercompany
balances.

(3) Investments in Group subsidiaries are accounted for by their parent company
under the equity method of accounting for the purposes of the supplemental
combining presentation only. Under the equity method, earnings of
subsidiary undertakings are reflected in the parent company's investment
account and earnings. Where all or part of loans to loss making subsidiary
undertakings have been written off, the effect of accounting by the equity
method has been to reverse these write-offs.

(4) The Group believes all material US GAAP reconciling items set forth in note
26 to the consolidated financial statements relate to British Sky
Broadcasting Group plc and the Guarantors. There are no material US GAAP
reconciling items which relate to the Non-Guarantor Subsidiaries.

(5) Separate financial statements of the subsidiary guarantors are not included
herein because the Company has determined that such financial statements
are not material to investors.

B-55

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of KirchPayTV GmbH & Co. KGaA

Page
----

Independent Auditors' Report............................................. K-2

Consolidated Statements of Operations for the years ended December 31,
1998 and 1999........................................................... K-3

Consolidated Balance Sheets as of December 31, 1998 and 1999............. K-4

Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1999........................................................... K-5

Consolidated Statements of Partner's and Share Capital (Deficit) for the
years ended December 31, 1998 and 1999.................................. K-6

Notes to Consolidated Financial Statements............................... K-7

K-1

INDEPENDENT AUDITORS' REPORT

The Supervisory Board and the General Partner and Shareholder of
KirchPayTV GmbH & Co. KGaA:

We have audited the accompanying consolidated balance sheets of
KirchPayTV GmbH & Co. KGaA ("KirchPayTV"), as of December 31, 1998 and 1999 and
the related consolidated statements of operations, statements of partner's and
share capital (deficit), and cash flows for each of the years then ended. These
consolidated financial statements are the responsibility of KirchPayTV's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KirchPayTV
as of December 31, 1998 and 1999, and the results of its operations and its
cash flows for each of the years then ended in conformity with accounting
principles generally accepted in the United States of America.

KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft

Munich
March 15, 2000
except for note 24,
which is as of May 4, 2000

K-2

KirchPayTV GmbH & Co. KGaA

CONSOLIDATED STATEMENT OF OPERATIONS
(Deutsche mark, in thousands)

Year Ended December
31,
--------------------
1998 1999
-------- ----------

Revenues.................................................. 129,120 826,923

Operating expenses
Film and programming costs.............................. (347,463) (835,742)
Decoder costs........................................... (13,626) (106,868)
Transmission costs...................................... (189,672) (183,807)
Subscriber costs and other direct costs................. (22,265) (128,714)
Selling expenses........................................ (90,122) (426,935)
General and administrative expenses..................... (17,260) (81,394)
Amortization of goodwill and other intangible assets.... -- (83,439)
-------- ----------
Total operating expenses.............................. (680,408) (1,846,899)
-------- ----------
Operating loss........................................ (551,288) (1,019,976)
======== ==========
Equity in loss of affiliates, net......................... (130,067) (3,376)
Interest income........................................... 3,178 3,075
Interest expense.......................................... (8,944) (139,764)
Other income, net......................................... 7,442 26,498
-------- ----------
Loss before income taxes.............................. (679,679) (1,133,543)
======== ==========
Income taxes.............................................. 6,747 8,826
-------- ----------
Net loss.............................................. (672,932) (1,124,717)
======== ==========

K-3

KirchPayTV GmbH & Co. KGaA

CONSOLIDATED BALANCE SHEETS
(Deutsche mark, in thousands)

December 31,
--------------------
1998 1999
--------- ---------

Assets
Currents assets
Cash and cash equivalents............................... 7,115 75,547
Trade receivables less allowance for doubtful accounts
of DM 8,739 in 1998 and DM 56,720 in 1999.............. 21,381 212,791
Amounts due from related parties........................ 32,326 51,864
Film and programming rights............................. 4,061 102,035
Other current assets and prepaid expenses............... 13,240 146,034
--------- ---------
Total current assets.................................. 78,123 588,271
Noncurrent assets
Advance payments on acquisitions........................ 663,261 --
Deferred tax asset...................................... 6,895 15,721
Film and programming rights, net........................ 598,687 607,998
Decoders for rental, net................................ 114,979 907,114
Property and equipment, net............................. 60,458 79,361
Intangible assets, net.................................. 8,349 2,317,327
Other noncurrent assets................................. 7,756 106,662
--------- ---------
Total assets.......................................... 1,538,508 4,622,454
========= =========
Liabilities and partner's and share capital
Current liabilities.....................................
Liabilities for film and programming rights............. 241,344 151,444
Other trade payables.................................... 139,737 555,395
Short-term borrowings................................... 80,000 1,001,486
Amounts due to related parties.......................... 860,001 1,741,496
Current portion of lease liabilities.................... -- 121,777
Deposits from subscribers, current portion.............. 4,973 71,742
Note payable on Premiere acquisition.................... -- 169,132
Other current liabilities............................... 28,391 77,686
--------- ---------
Total current liabilities............................. 1,354,446 3,890,158
Noncurrent liabilities
Deposits from subscribers, net of current portion....... 24,280 226,958
Liabilities for film and programming rights............. 223,600 208,305
Lease liabilities, net of current portion............... -- 420,584
Other noncurrent liabilities............................ -- 64,824
Commitments and contingencies (Note 18).................
--------- ---------
Total liabilities..................................... 1,602,326 4,810,829
========= =========
Partner's and share capital (deficit)...................
General partner......................................... -- 180,154
Shareholder (20.000 shares of common stock at 5 DM par
issued and outstanding)................................ -- 100
Accumulated unallocated deficit......................... -- (368,789)
Accumulated other comprehensive income.................. -- 160
Combined net deficit.................................... (63,818) --
--------- ---------
Total partner's and share capital..................... (63,818) (188,375)
Total liabilities and partner's and share capital
(deficit)............................................ 1,538,508 4,622,454
========= =========

K-4

KirchPayTV GmbH & Co. KGaA

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Deutsche mark, in thousands)

Year Ended December
31,
--------------------
1998 1999
-------- ----------

Cash flows from operating activities:
Net loss................................................ (672,932) (1,124,717)

Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization......................... 115,974 349,201
(Gain) Loss on sale of property and equipment......... (1,869) 9,708
Equity in losses of investees......................... 130,067 3,376
Unrealized gains on foreign currency forward
contracts............................................ -- (33,126)
Deferred taxes........................................ (6,895) (8,826)

Increase in trade receivables........................... (14,927) (18,976)
Increase in current film rights and other inventories... -- (15,547)
Decrease (increase) in other assets and deferred
charges................................................ 73,956 (2,071)
Increase in amounts due to or due from related parties--
operating portion...................................... 18,753 89,522
Decrease in long-term liabilities excluding lease
obligations and long term debt......................... (37,396) (10,043)
Increase in film and programming and other trade
payables............................................... 114,791 85,184
Increase (decrease) in other liabilities, accrued
liabilities and deferred income........................ 25,197 (6,113)
Other................................................... -- 2,581
-------- ----------
Net cash used in operating activities................... (255,281) (679,847)
======== ==========

Cash flow from investing activities:
Payments made for Premiere acquisition, net of cash ac-
quired................................................ (663,261) (1,486,128)
Capital spending on property and equipment and intangi-
ble assets............................................ (131,388) (123,713)
Proceeds from sale of decoders for subsequent lease-
back.................................................. -- 58,260
Purchase of Decoders for subsequent sale-leaseback..... -- (151,764)
Advances to affiliates................................. (147,500) --
Proceeds from sale of property and equipment........... 2,005 22,655
Change in investments.................................. -- (5,336)
--------- ----------
Net cash used in investing activities.................. (940,144) (1,686,026)
========= ==========
Cash flow from financing activities:
Proceeds from third-party borrowings................... -- 1,899,076
Repayments of third-party borrowings................... (463) (982,207)
Advances from related parties--non-operating........... 1,214,484 1,624,181
Principal payments under capital lease obligations..... -- (106,745)
Net activity with Kirch Group.......................... (15,605) --

Net cash provided by financing activities.............. 1,198,416 2,434,305
========= ==========
Net change in cash..................................... 2,991 68,432
Cash at beginning of Year.............................. 4,124 7,115
--------- ----------
Cash at End of Year.................................... 7,115 75,547
========= ==========

K-5

KirchPayTV GmbH & Co. KGaA

CONSOLIDATED STATEMENTS OF PARTNER'S AND SHARE CAPITAL (DEFICIT)

Years ended December 31, 1998 and 1999
(Deutsche mark, in thousands)

Accumu-
General Partner Shareholder lated
-------------------- ----------- Accumu- other
Additional lated compre- Combined
contribution unallo- hensive net
Stated and variable Subscribed cated income assets
capital capital capital deficit (loss) (deficit) Total
------- ------------ ----------- ---------- ------- --------- ----------

Balance as of December
31, 1997............... 492,339 492,339

Comprehensive loss
Net loss................ (672,932)
Other comprehensive loss
Foreign currency
translation............ (27)
------- --------- --- ---------- --- -------- ----------
Comprehensive loss...... (672,959) (672,959)

Net activity with Kirch
Group.................. 116,802 116,802
Balance as of December
31, 1998............... (63,818) (63,818)
Contribution of
interests in combined
operations upon
formation of KirchPayTV
GmbH & Co. KGaA........ 729,183 (793,101) 100 63,818 0

Contribution from
general partner by
forgiveness of loans... 1,000,000 1,000,000

Comprehensive loss
Net loss............... (1,124,717)
Other comprehensive
loss
Unrealized gains on
available-for-sale
securities.......... 211
Foreign currency
translation......... (51)
------- --------- --- ---------- ---
Total comprehensive
income (loss)....... (1,124,717) 160 (1,124,557)
Loss allocated to
general partner........ (755,928) 755,928 0
Balance as of December
31, 1999............... 729,183 (549,029) 100 (368,789) 160 (188,375)

K-6

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Deutsche mark, in thousands)

1. Organization and formation of KirchPayTV GmbH & Co. KGaA and description of
business

In 1998, the KirchGroup, representing media-related entities controlled
directly or indirectly by Dr. Leo Kirch and The Kirch Foundation, commenced a
program to reorganize its media interests by separating the different business
activities into three divisions.

In the process of separating the pay television operations from other
media businesses of the KirchGroup, the following principal operations and
assets were combined and are treated, for purposes of these financial
statements, as the historical operations of KirchPayTV GmbH & Co. KGaA and its
subsidiaries (collectively referred to as "KirchPayTV"):

. a 100% interest in DF1 Digitales Fernsehen GmbH & Co. KG ("DF1")
providing multichannel digital pay television services in Germany and
Austria;

. a 100% interest in BetaDigital Gesellschaft fur digitale Fernsehdienste
mbH ("Beta Digital") operating the platform for digital television in
Germany and the decoder network;

. a 100% interest in Teleclub GmbH, an entity holding a 25% interest in
PREMIERE Medien GmbH & Co. KG ("Premiere"), a premium digital and analog
pay television station with operations in German-speaking Europe
cofounded by KirchGroup in 1989;

. a 100% interest in Multichannel GmbH which owns a 50% interest in each
of three joint ventures, Discovery Channel Betriebs GmbH ("Discovery"),
Krimitel GmbH & Co. KG ("Krimitel"), and Goldstar TV GmbH & Co. KG
("Goldstar") operating broadcasting channels distributed through
KirchPayTV's pay television stations;

. a 40% interest in Teleclub AG, operating a pay television service in
German-speaking regions of Switzerland; and

. a 100% interest in PayTV Rechtehandel GmbH & Co. KG ("Rechtehandel")
which holds a portfolio of film and programming rights related to pay
television based on license agreements between KirchGroup and film
studios, producers and distributors (the "library").

As of January 1, 1999, these principal operations and assets were
contributed by Kirch Group, the owner, to KirchPayTV as the new divisional
holding company.

On May 4, 1999, KirchPayTV consummated the acquisition of additional
combined interests of 70% in Premiere which resulted in a controlling financial
interest of 95% in Premiere.

2. Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying consolidated financial statements of KirchPayTV, have
been prepared in accordance with generally accepted accounting principles in
the United States of America ("U.S. GAAP").

The consolidated financial statements of KirchPayTV include all entities
in which KirchPayTV GmbH & Co. KGaA has legal or effective control. The
accompanying consolidated financial statements include the combined results of
operations, financial position, cash flows and changes in combined partner's
and share capital (deficit) for the year ended December 31, 1998 of all
entities that were transferred to KirchPayTV as of January 1, 1999.

K-7

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

All balances and transactions between consolidated businesses have been
eliminated for purposes of the consolidated financial statements.

Investments in affiliated entities over which KirchPayTV has a
significant influence evidenced by ownership of more than 20% but less than or
equal to 50% of the voting rights are accounted for under the equity method.

These consolidated financial statements have been prepared on a going
concern basis which contemplates the continuation and expansion of operations
as well as the realization of assets and liquidation of liabilities in the
ordinary course of business.

Classification

Certain items in prior years' consolidated financial statements have been
reclassified to conform with the current year presentation.

Film and programming rights

KirchPayTV licenses film and programming rights for subsequent broadcast.
The rights acquired are recorded at cost with the corresponding obligation
incurred under a license agreement being recorded at the gross amount of the
liability when the license period begins, the cost of the program is
determinable and the program is accepted and available for airing. Payments
made to acquire broadcasting rights with license periods beginning after the
balance sheet date are reported as current or noncurrent film and programming
rights depending on the beginning of the license periods of the related rights.

The cost of rights capitalized depends on the type of contract involved.
Certain contracts involve a fixed price at the inception of the contract. The
price of other contracts is based on the number of subscribers at the end of
the licensing period or a specified period other than the licensing period. The
estimated number of subscribers at the end of the applicable reporting period
is used as a basis for capitalization of costs on these contracts and the
related liability.

The cost of premium movie and sports rights that have limited showings
within a short license period is amortized based on the estimated number of
showings or upon the first showing if this is the most valuable showing of such
rights.

Fixed price library rights with long-term or unlimited license periods
and fixed cost are amortized straight-line over the license period on an
individual basis or as a package, if amortization as a package approximates
amortization that would have been provided on an individual basis.

Film rights are stated at the lower of unamortized cost or estimated net
realizable value.

Advertising

KirchPayTV expenses all selling expenses, including advertising costs, as
incurred. The amount of advertising expensed in 1998 and 1999 was DM 74,432 and
DM 186,620, respectively.

Cash and cash equivalents

Cash equivalents consist of financial instruments that are readily
convertible into cash and have original maturities of three months or less.

K-8

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Use of estimates

Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the combined financial statements and the reported
amounts of revenues and expenses during the reporting period to prepare these
consolidated financial statements in conformity with U.S. GAAP. Actual results
could differ from those estimates.

Revenue recognition

Revenue is primarily derived from providing digital and analog pay
television services to subscribers. Revenue from subscription fees and decoder
rental are recognized on a monthly basis as the service is provided. Revenues
on services related to the analog and digital platform are recognized when
services are performed. Revenues on decoders sold to customers are recognized
upon transfer of title. Revenues recognized on such sales amounted to DM 14,837
and DM 631 in 1998 and 1999, respectively.

Installation fee revenues, which are received for the connection to the
cable and satellite television systems, are recognized in income to the extent
of related direct selling costs incurred. Deferred installation fees are
amortized over the expected subscription period.

Marketable securities and investments

Marketable securities are classified as available-for-sale and are
recorded at fair value with realized gains and losses being included in
earnings (losses) from operations and unrealized gains and losses being
included in other comprehensive income (loss) within net assets (deficit) or
partner's and share capital (deficit). Other equity investments are
insignificant in amount and are accounted for using the cost method.

Property and equipment

Property and equipment is stated at cost. Depreciation and amortization
are computed principally using the straight-line method over the following
estimated useful lives:

Useful life
-----------

Leasehold improvements......................... Duration of lease contract
Technical equipment and machinery.............. 3-10 years
Office and other equipment..................... 3-5 years

Intangible assets

Capitalized software costs consist primarily of costs incurred to
purchase software licenses for internal use. These costs are amortized on a
straight-line basis over the expected periods to be benefited, generally three
years. Trademarks and similar television rights relate primarily to costs
incurred to purchase brand names of various channels aired on KirchPayTV's
digital platform. These amounts are amortized on a straight-line basis over the
expected periods to be benefited, generally five years. The subscriber base
acquired in the Premiere acquisition is amortized over a useful life of twelve
years. The Premiere trademark name as well as the goodwill resulting from the
Premiere acquisition are amortized over a period of twenty years.

K-9

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Impairment

KirchPayTV assesses long-lived assets and certain identifiable
intangibles for impairment whenever there is an indication that the carrying
amount of the asset may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted cash flows generated by
those assets to the assets' carrying amount. The amount of impairment loss, if
any, will be measured by the difference between the net book value and the
estimated fair value of the respective assets.

Foreign currencies

Foreign currency transactions are recorded at the exchange rate
prevailing at the date of the transaction. Receivables and payables denominated
in foreign currencies are remeasured at rates of exchange at balance sheet
date. Gains of DM 2,559 in 1998 and losses of DM 39,190 in 1999 on foreign
currency transactions are included in the consolidated statements of operations
under "Other income, net."

For the purposes of these consolidated financial statements, the Deutsche
mark ("DM") has been used as the reporting currency. Substantially all assets
and liabilities of KirchPayTV are held by operations whose functional currency
is the reporting currency. Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates, while revenues and expenses are
translated using average exchange rates during the year. Adjustments for
foreign currency translation fluctuations are excluded from operations and are
included as a separate component of the consolidated partner's and share
capital (deficit) in 1999.

Fair value of financial instruments

The fair value of financial instruments is generally determined by
reference either to broker quotes, quoted market prices, rates for the same or
similar financial instruments, present value or other valuation techniques.
Short-term nonderivative financial instruments as well as cash and cash
equivalents are valued at their carrying amounts on the balance sheet which are
reasonable estimates taking into account the short period of time until
maturity. The fair value of deposits from subscribers equals the amount that is
payable on demand at the balance sheet date. The fair value of foreign
currency-forward contracts is determined based on the prevailing forward rate
at the balance sheet date. The fair value of the noncurrent portion of
liabilities for film and programming rights equals the present value of the
payments to be made for settlement of these liabilities at the balance sheet
date.

Impact of new accounting standards not yet adopted

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 2000, as amended by Statement of Financial Accounting Standards No.
137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement
No. 133". Management is still in the process of assessing the effects of the
implementation of this standard.

K-10

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

3. Acquisition of Premiere

On May 4, 1999, through a series of transactions KirchPayTV consummated
its acquisition of an additional 70% ownership interest in Premiere for a total
purchase price of DM 2,356,661 from Canal Plus S.A. (37.5%) and CLT-UFA (32.5%)
to increase its ownership interest to 95%. At present, CLT-UFA holds a minority
stake of 5% in Premiere. As of December 31, 1998, KirchPayTV had made advance
payments of DM 663,261 including interest accruing to the sellers during the
contingency period. The remaining installment of DM 155,430 plus interest
thereon was due and paid in April 2000. As of December 31, 1999, interest of DM
13,702 has been accrued on this installment.

KirchPayTV and CLT-UFA are obligated to fund Premiere's losses as
determined under partnership agreement in proportion to their relative interest
in Premiere. CLT-UFA has a put option to sell its remaining interest to
KirchPayTV at a price of DM 173,900 plus interest and reimbursement for loss
funding provided for the period subsequent to March 1, 1999.

The acquisition has been accounted for under the purchase method and is
included in the operations from the date of acquisition.

Had the acquisitions been consummated at January 1, 1998 or 1999,
unaudited pro forma consolidated revenues of KirchPayTV would have been DM
957,678 and DM 1,121,694 for 1998 and 1999, respectively. Unaudited pro forma
consolidated loss would have been DM (1,121,866) and DM (1,164,169) for 1998
and 1999, respectively.

4. Trade receivables

Trade receivables consist primarily of monthly service fees due from
customers and balances due from retailers. In addition, receivables of DM
150,001 resulting from the sale-leaseback of decoder equipment are included in
the balance as of December 31, 1999.

Activity in the allowance for doubtful accounts in 1998 and 1999 was as
follows:

Balance as of Balance as of
January 1, Write-offs Reversals Additions December 31,
------------- ---------- --------- --------- -------------

1998.......... 4,382 402 336 5,095 8,739
1999.......... 8,739 -- -- 47,981 56,720

Additions for 1999 include allowances of DM 13,091 that have been
acquired as a result of the Premiere acquisition.

5. Film and programming rights

At December 31, 1998 and 1999, KirchPayTV owned current broadcasting
rights with an unamortized cost of DM 4,061 and DM 55,858 respectively. In
addition, prepayments of DM 33,226 on broadcasting rights with license periods
beginning in the year 2000 are included in current film and broadcasting
rights.

As of December 31, 1999, DM 12,951 and DM 70,416 are included in current
and noncurrent film and programming rights for advances under output deals,
respectively.

K-11

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Unamortized costs of noncurrent film and programming rights including
library rights amounted to DM 761,834 and DM 767,116 as of December 31, 1998
and 1999, respectively. Accumulated amortization on film and programming rights
was DM 163,147 and DM 229,534 as of December 31, 1998 and 1999, respectively.
Film and programming costs included in operating expenses include amortization
charges for the library of DM 64,157 and DM 66,387 for 1998 and 1999,
respectively.

6. Other current assets and prepaid expenses

Other current assets are comprised of the following:

December 31,
--------------
1998 1999
------ -------

VAT and other tax receivables.............................. 2,786 40,946
Refund from Canal Plus S.A................................. -- 22,474
Prepaid expenses........................................... 10,155 15,335
Fair value of foreign currency forward contracts........... -- 53,230
Other current assets....................................... 299 14,049
------ -------
13,240 146,034
====== =======

7. Decoders for rental, net

KirchPayTV leases decoders to its subscribers. The decoders are owned by
Premiere or are sold to a third party and then leased back under capital
leases. Gains arising from the sales of decoders that are subsequently leased
back are deferred and amortized over the term of the leaseback. Losses
resulting from sale-leaseback transactions are also deferred unless the
carrying amount of the sold items exceeds the fair value. Owned decoders are
depreciated over an estimated useful life of seven years, beginning at the date
when the title has been transferred to Premiere. Leased decoders are generally
depreciated over the lease term.

Due to a decision by KirchPayTV to effect an accelerated phase-out of the
analog platform until December 31, 2001, the depreciation period for owned and
leased analog decoders has been adjusted from seven years to the remaining
period of time ending on December 31, 2001. As a result, depreciation expense
in 1999 increased by DM 8,343 compared to the depreciation expense that would
have been charged had the accelerated phase-out not been considered.

As of December 31, decoder balances were as follows:

1998 1999
------- ---------

Owned decoders........................................ 133,409 419,163
Decoders under capital lease.......................... 0 615,848
---------
133,409 1,035,011
Less accumulated depreciation......................... (18,430) (127,897)
------- ---------
114,979 907,114
======= =========

Depreciation expense regarding decoders was DM 16,961 and DM 104,297 in
1998 and 1999, respectively. Depreciation expense of leased decoders was DM
84,176 in 1999.

K-12

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

8. Property and equipment, net

Property and equipment consists of:

December 31,
---------------
1998 1999
------- -------

Leasehold improvements.................................... 1,718 17,027
Technical equipment and machinery......................... 94,437 100,735
Office and other equipment................................ 15,764 86,419
Construction in progress.................................. 2,646 5,585
------- -------
114,565 209,766
Less accumulated depreciation............................. 54,107 130,405
------- -------
60,458 79,361
======= =======

Depreciation expense on property and equipment was DM 22,460 and DM
86,599 in 1998 and 1999, respectively.

9. Intangible assets

As of December 31, intangible assets are comprised of the following:

1998 1999
------ ---------

Goodwill................................................. -- 1,705,979
Trademarks acquired...................................... -- 523,541
Subscriber base acquired................................. -- 164,183
Software licences........................................ 15,951 27,202
Other intangible assets.................................. 48 33
------ ---------
15,999 2,420,938
Less accumulated depreciation............................ 7,650 103,611
------ ---------
8,349 2,317,327
====== =========

Amortization expense for intangible assets amounted to DM 4,120 and DM
95,961 for 1998 and 1999, respectively.

10. Other noncurrent assets

Other noncurrent assets are comprised of the following as of December 31:

1998 1999
----- -------

Fair value of foreign currency forward contracts............ -- 38,549
Deferred subscriber incentives.............................. -- 35,197
Marketable securities....................................... -- 13,668
Investments in equity investees............................. 7,601 12,034
Deferred loss on sale-leaseback transaction................. -- 7,214
Other....................................................... 155 --
----- -------
7,756 106,662
===== =======

K-13

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Marketable securities consist of investments in publicly traded mutual
funds, which invest mainly in debt securities.

Investments in affiliates are accounted for under the equity method,
including the 25% interest in Premiere held prior to the date of acquisition of
a controlling interest as of May 4, 1999. Due to its commitment under the
partnership agreement, KirchPayTV contributed DM 90,395 and DM 0 to fund
Premiere's losses in 1998 and in 1999 for the period prior to the acquisition.

The following is the aggregate summarized financial information of the
equity investees for the year 1998. Due to the acquisition of a controlling
financial interest in Premiere by KirchPayTV in 1999 and the subsequent
consolidation, the financial position and result of operations of the equity
investees has become immaterial with respect to the year 1999.

1998
Results of operations: ----

Revenues................................................... 857,813
Operating loss............................................. (299,205)
Net loss................................................... (374,366)

December 31,
1998
Financial position: ------------

Current assets............................................. 335,964
Noncurrent assets.......................................... 693,876
Current liabilities........................................ 508,278
Noncurrent liabilities..................................... 607,079
Equity (deficit)........................................... (85,517)

11. Short-term borrowings

As of December 31, 1998, KirchPayTV had a short-term debt totaling DM
80,000 at an interest rate of 4.56% annually. As collateral for the loan,
KirchPayTV pledged its then 25% interest in Premiere. The loan plus accrued
interest thereon was repaid on June 30, 1999 and the interest in Premiere was
released from the pledge.

On April 29,1999, KirchPayTV entered into a credit facility agreement
with Bayerische Landesbank for an amount of DM 1,565,000 maturing on December
31,1999. Loans under this facility bore interest at Euribor plus a margin of
150 base points. The loan was paid out in three tranches of DM 300,000 each on
April 30, July 1, and October 1, 1999. The loans plus accrued interest thereon
were repaid by KirchPayTV on December 22, 1999.

On December 21, 1999 KirchPayTV entered into a Senior Credit Facility
agreement (the "Credit Facility") with The Chase Manhattan Bank for an amount
of DM 1,506,000. Loans under this Credit Facility mature on December 31, 2000
and bear interest at Euribor plus an applicable margin starting at 2.5% per
annum. On December 22, 1999, a first tranche of DM 1,000,000 less an discount
of 2.25% was paid out to KirchPayTV.

As collateral for the Credit Facility KirchPayTV has pledged
substantially all shares of Premiere, Rechtehandel, Beta Digital and other
subsidiaries. In addition to the above mentioned pledges, KirchPayTV has
pledged substantially all assets to the extent permitted by German law.

K-14

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

In the first two months of 2000 additional tranches of cumulative DM
175,000 were paid out to KirchPayTV.

On December 27, 1999, a short-term loan of DM 25,000 was paid out to
KirchPayTV for the acquisition of decoders. The loan bears interest at 4.5%.
The loan must be repaid when KirchPayTV enters into a sale-leaseback agreement
for these decoders.

12. Other current liabilities

As of December 31, accrued expenses and other current liabilities consist
of the following:

1998 1999
------ ------

VAT and other tax liabilities............................... 6,434 31,188
Deferred gains on sale-leaseback transactions............... 0 10,816
Amounts due to employees.................................... 252 5,332
Deferred subscriber revenues................................ 6,982 4,374
Restructuring charges....................................... 0 1,537
Other....................................................... 14,723 24,439
------ ------
28,391 77,686
====== ======

KirchPayTV has accrued approximately DM 23 million for aggressive tax
positions for which it has a contractual claim for reimbursement from Canal
Plus S.A. The refund is reported as a current asset. Another exposure of DM
12.8 million regarding tax positions for which no reimbursement by a third
party is available has not been accrued.

In connection with the acquisition of a controlling financial interest in
Premiere, KirchPayTV implemented a reorganization plan with expected costs of
DM 42,700 due to the termination of lease agreements for idle Premiere office
space and the termination of 400 Premiere employees located at Hamburg. As of
December 31, 1999 390 were terminated under this plan. The changes in the
provisions for 1999 are summarized as follows:

Balance as of
date of Balance as of
Acquisition Additions Utilizations Reductions December 31,
------------- --------- ------------ ---------- -------------

Termination benefits to
employees.............. 17,700 0 16,163 0 1,537
Termination penalties
for leases............. 25,000 0 22,160 2,840 0
------ --- ------- ------ -----
Total................... 42,700 0 38,323 2,840 1,537
====== === ======= ====== =====

The reversal of DM 2,840 has been accounted as an adjustment of the
goodwill resulting from the Premiere acquisition.

K-15

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

13. Other noncurrent liabilities

As of December 31, other noncurrent liabilities are comprised of the
following:

1998 1999
---- ------

Deferred gains on sale-leaseback transactions................. 0 31,502
Contract termination fees..................................... 0 12,223
Pension accrual............................................... 0 8,033
Other......................................................... 0 13,066
--- ------
0 64,824
=== ======

As a result of the Premiere acquisition, KirchPayTV assumed pension
rights granted to substantially all of Premiere's domestic hourly and salaried
employees. Plan benefits are principally based upon years of service as well as
upon the salary earned during the service period. Premiere's pension plan is
unfunded.

Change in projected benefit obligations for the year ended December 31,
1999:

Projected benefit obligation at date of Premiere-acquisition..... 6,971
Service cost..................................................... 765
Interest cost.................................................... 316
Actuarial losses................................................. 856
Benefits paid.................................................... (19)
-----
Projected benefit obligation at end of year...................... 8,889
=====

Due to the reorganization following the acquisition of Premiere, the
projected benefit obligation at the date of the Premiere-acquisition has been
adjusted by a curtailment net gain of DM 1,379 resulting from the termination
of employees with unvested pension benefits.

A reconciliation of the funded status to the amounts recognized in the
consolidated balance sheets as of December 31, 1999, is as follows:

Funded status................................................... (8,889)
Unrecognized actuarial net losses............................... 856
------
Accrued pension liability, net.................................. (8,033)
======

The assumed discount rates and the rates of increase in remuneration used
in calculating the projected benefit obligations are based on the economic
environment in Germany. The weighted-average assumptions used in calculating
the actuarial values for the pension plan were as follows as of December 31,
1999:

1999
-------
Percent

Discount rate.................................................... 5.5%
Salary increase rate............................................. 2.0%
Post-retirement pension increases................................ 1.5%

K-16

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

The components of net periodic pension cost for the years ended December
31 were as follows:

1999
-----

Service cost....................................................... 765
Interest cost...................................................... 316
Amortization of unrecognized net actuarial gains................... --
-----
Net periodic pension cost.......................................... 1,081
=====

14. Partner's and share capital (deficit)

On August 4, 1999, PayCo Holding GmbH & Co. KG ("PayCo Holding"), the
general partner and shareholder of Kirch PayTV, forgave a balance due by
KirchPayTV of DM 65,000. Another balance due by KirchPayTV of DM 935,000 was
forgiven on November 25, 1999. Both transactions were treated as contributions
to KirchPayTV.

PayCo Holding is not commited to fund cash flow deficits of KirchPayTV
and does not hold any assets other than its investment in KirchPayTV and the
balance due from KirchPayTV. The only general partner of PayCo Holding is a
nonsubstantive corporation. KirchGroup provided financing to PayCo Holding in
the past, but does not have any commitments to continue funding.

15. Leasing

KirchPayTV has entered into various long-term lease commitments,
primarily for decoders, transponders, cable lines, buildings, and technical
machinery and production equipment.

As of December 31, 1999, aggregate minimum rental payments under
noncancelable leases are as follows:

Operating Capital
leases leases
--------- -------

2000................................................... 181,165 142,355
2001................................................... 156,152 129,594
2002................................................... 147,683 116,681
2003................................................... 147,429 122,691
2004................................................... 147,432 90,249
2005 and thereafter.................................... 412,873 11,364
--------- -------
Total minimum lease payments........................... 1,192,734 612,934
=========
Less amounts representing interest..................... (75,836)
-------
Present value of net minimum payments.................. 537,098
=======

Total future minimum capital lease payments have not been reduced by
future minimum sublease rentals of DM 241,247.

Rent expense on operating leases was DM 110,718 and DM 157,903 in 1998
and 1999, respectively. Minimum payments amounted to DM 108,718 in 1998 and DM
154,903 in 1999, and contingent payments were DM 2,000 and DM 3,000 in 1998
and 1999, respectively.

K-17

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Decoder lease obligations

Capital lease obligations mainly relate to decoders under capital leases.
In most leases, the lease term is five or seven years with a termination option
available to the lessee. Upon termination prior to the end of the lease term, a
termination penalty equal to the unamortized residual value of the decoder
becomes due. In general, the contracts are not terminated early.

Transponder leases

KirchPayTV is party to certain operating leases pursuant to which it is
liable for charges associated with each of 11.5 transponders on the Astra
satellites, which amount to a maximum of DM 106,429 per year for all
transponders. In addition to the minimum fees, the lease also requires
contingent payments based on the number of households having access to
satellite transmission and use of the transponder capacity. The future minimum
lease payments applicable to the transponders approximate DM 78,184 in 2000 and
an aggregate of DM 548,419 for the years from 2001 through 2007 and are
included in the table above.

Total rent expense associated with the transponder leases for the years
1998 and 1999 was DM 75,167 and DM 81,243, respectively, before reduction for
sublease income of DM 8,670 in 1998, and DM 9,832 in 1999.

Leased cable capacity

KirchPayTV leases analog and digital cable capacity from two cable
operators under a noncancelable operating lease arrangement. The leases expire
between December 31, 2000 and 2008 and contain renewal options. Some leases
involve rental payments in excess of minimum lease payments contingent upon the
number of subscribers.

16. Derivative financial instruments

Foreign Exchange Risk Management

A significant portion of the cost of programming and transmission is
charged in U.S. dollars or is dependent on exchange rate fluctuations between
the U.S. dollar and Deutsche mark (Euro) and is therefore subject to risks
associated with changing foreign currency exchange rates, especially in
connection with the U.S. dollar. As a result of the acquisition of a
controlling interest in Premiere, KirchPayTV has become party to various
foreign currency forward contracts whose fair values change as foreign exchange
rates change to hedge the value of recorded receivables and payables and
anticipated transactions. The original maturity of these contracts is up to 48
months.

The foreign currency forward transactions entered into with the objective
of hedging against risks in connection with anticipated transactions are not
deemed to be hedges under current accounting pronouncements and are,
accordingly, marked to market with the related gain or loss recorded as other
income in the consolidated statement of operations. As a result of these
foreign exchange risk management activities, KirchPayTV recognized a gain of DM
33,867 in 1999.

K-18

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

At December 31, 1999, the notional amounts of KirchPayTV's foreign
currency forward contracts and fair values are as follows:

1999
---------------
Notional Fair
amount value
-------- ------

U.S. dollar contracts................................... 632,759 91,779

KirchPayTV's foreign exchange contracts involve credit risks to the
extent that counter parties may be unable to fulfil their duties under the
agreements. Management believes that the potential risk from this type of
credit loss is remote because Premiere only contracts with banks that have an
excellent credit rating.

17. Fair value of financial instruments

At December 31, 1998 and 1999, the estimated fair values of financial
instruments approximate their respective carrying amount except for the
following items:

1998 1999
---------------- ----------------
Carrying Fair Carrying Fair
Amount value amount value
-------- ------- -------- -------

Liabilities for film and programming rights,
noncurrent portion......................... 223,600 200,149 208,306 191,244

18. Commitments and contingencies

Obligations to purchase film and programming rights

KirchPayTV has entered into long-term contracts relating to for the
purchase of certain film and programming rights. The contracts have terms which
range from five to ten years and require that license fees be paid based on the
number of subscribers, subject however, to a guaranteed minimum fee. KirchPayTV
has an aggregate minimum commitment as of December 31, 1999 as follows:

License fee
commitments
-----------

2000......................................................... 896,000
2001......................................................... 721,000
2002......................................................... 584,000
2003......................................................... 567,000
2004......................................................... 553,000
2005 and thereafter.......................................... 1,315,000
---------
4,636,000
=========

A majority of these contracts involve KirchMedia GmbH&Co. KGaA, an entity
under control of KirchGroup ("KirchMedia"; see note 20).

Litigation

There are various lawsuits and claims pending against KirchPayTV
including the Universal counterclaim discussed below. Management believes that
the resulting liability, if any, should not materially affect KirchPayTV's
results of operations, financial position or liquidity.

K-19

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

On January 25, 2000 KirchMedia filed a complaint vs. Universal Studios
Inc. and Universal Studios International b.v. and other parties related to the
defendant (together "Universal") claiming breach of contract and breach of
fiduciary duty and seeking termination of contracts and recovery of
compensatory and punitive damages in excess of USD 1.5 billion with respect to
various agreements between KirchMedia and Universal concerning film and
programming rights, channel carriage, a related guarantee agreement and other
agreements.

Universal filed cross-complaints against KirchMedia and KirchPayTV for
breach of contract and payment by sureties on the guarantee agreement between
KirchMedia and Universal seeking unspecified damages on February 3, 2000.

KirchMedia will bear all costs of the suit including attorneys' fees
associated with pursuing the claims and defending against the cross-complaints.
KirchMedia is pursuing prosecution of its complaint and defending the cross-
complaint.

19. Concentrations of business risks and uncertainties

Decoders

KirchPayTV purchases its decoders which are needed to unscramble the
signal of the program broadcast to subscribers from one supplier. From time to
time, this supplier may extend lead times, limit supply or increase prices due
to capacity constraints or other factors.

Foreign exchange rate expenses

A significant portion of film and programming rights are charged in U.S.
dollars, while essentially all revenues are generated in Deutsche mark.
KirchPayTV is therefore exposed to changes in the exchange rate between
Deutsche mark (Euro) and U.S. dollar.

Access to financing

KirchPayTV's operations will require significant amounts of financing to
further develop its business. In order to continue to operate in accordance
with KirchPayTVs business plans, KirchPayTV will need to obtain sufficient
funding from the partners or obtain access to third-party financing.

20. Related party transactions

Transactions with owner and entities under control of common owner

All entities discussed in this section of the note have common ownership
and, unless otherwise noted, the amounts charged by the entities to KirchPayTV
approximate the cost of providing such products and services.

KirchPayTV obtains most of its programming from KirchMedia based on the
terms of a service agreement, a licensing option agreement and specific license
agreements. Under the terms of the agreements, KirchMedia is committed to
provide content for digital television channels and to offer its current and
future film and programming rights related to digital pay television
broadcasting in German speaking regions in Europe to KirchPayTV. Under these
agreements, KirchMedia provides KirchPayTV with content for channels that will
be broadcast on its digital pay television platform. The content will comprise
licensed programming, own productions, on-air promotion and advertising. With
respect to licensed programming, KirchPayTV holds

K-20

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

the right to use any of the film rights related to German speaking pay
television markets owned by KirchMedia. KirchPayTV is required to reimburse
KirchMedia for all production cost incurred and cost of licensed programming
plus a five percent handling fee. Cost is based on the exchange rate between DM
and USD as of the date of the transfer of the program material. This commitment
relates to license agreements between KirchMedia and producers and involves
guaranteed minimum payments and contingent license fees based on numbers of
subscribers and other variables. Kirch Media and the Company have entered into
several new license agreements. In these licences agreements all material
conditions of the original license agreements between Kirch Media and the
respective major studio.

KirchPayTV entered into numerous license agreements with KirchMedia to
acquire rights to broadcast sports events. Under these agreements KirchMedia or
provides KirchPayTV with rights that it has acquired from various licensors.
The agreements have terms ranging from twelve months to an unlimited period.

KirchPayTV engaged Deutsches Sport Fernsehen GmbH ("DSF") to provide
sport contents primarily in German-speaking Europe that will be broadcast on
its digital pay television platform. While KirchPayTV is responsible for
ensuring that the appropriate licenses are available for unedited sports
coverage, DSF is responsible for producing sports programs covering primarily
Formula One Grand Prix races, soccer, golf and boxing which can be shown on the
pay-television stations. Annual amounts paid are based on approved budgets
established each year including a five percent handling fee which approximates
DSF's cost. The contract runs until March 31, 2003 unless DSF exercises its
option to take over the sports channel.

KirchPayTV engaged Unitel Film- und Fernseh- Produktionsgesellschaft mbH
& Co. ("Unitel") to produce material and provide licenses for the CLASSICA
channel. The production costs and license fees incurred by Unitel are
reimbursed by KirchPayTV. The contract has an unlimited term, and is cancelable
by either party upon twelve months notice of cancellation. License fees and
production costs are included in "film and programming costs" in the combined
statements of operations.

As of December 31, 1998, KirchMedia contributed to PayTV Rechtehandel the
library consisting of film and programming rights with long-term or unlimited
license periods relating to pay television for broadcasting in German-speaking
Europe and related liabilities of DM 50,310. On January 1, 1999, Rechtehandel
was transferred to KirchPayTV. Although the library was legally contributed as
of January 1, 1999, it is included in the accounts of KirchPayTV for all
periods during which the library was owned by an entity under control of a
common owner. Additions to the library prior to January 1, 1999, the date of
the transfer of title to KirchPayTV, are reported as contributions to
KirchPayTV net of related liabilities. License fees charged by KirchMedia for
the use of library materials prior to the contribution of the library to
KirchPayTV on January 1, 1999 are reported as distributions to the owner by
KirchPayTV.

In 1998, KirchMedia forgave an amount due from KirchPayTV of DM 449,957
and KirchPayTV, in turn, assumed an obligation of KirchMedia to an unrelated
third party of DM 414,633. The difference between the carrying amount of the
amount forgiven and the liability assumed is treated as a capital transaction.

In 1999 PayCo Holding forgave a balance due by KirchPayTV of DM
1,000,000. The amount forgiven was treated as a capital transaction.

Prior to January 1, 1999, Taurus Beteiligung GmbH & Co. KG ("Taurus
Beteiligung") owned all shares in Teleclub GmbH, an entity that now is part of
the KirchPayTV. Taurus Beteiligung had entered into a profit and loss
absorption agreement with Teleclub GmbH by which Taurus Beteiligung was
required to assume losses incurred by the subsidiary. The amount of loss to be
absorbed was determined in accordance with the

K-21

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

German GAAP accounts of Teleclub GmbH. For the year 1998, Taurus Beteiligung
absorbed losses incurred by Teleclub GmbH of DM 119,074 which are reported as
capital contributions in the accompanying combined financial statements of
1998. The profit and loss absorption was terminated effective December 31,
1998.

BetaResearch-Gesellschaft fur Entwicklung und Vermarktung digitaler
Infrastruktur mbH ("BetaResearch") has granted a nontransferable license
regarding subscriber management software and conditional access encryption and
network management software to KirchPayTV. The license agreement includes
installation, support and similar services related to the licensed software.
The license agreements expire in 2006 with a ten-year renewal option held by
KirchPayTV and are noncancelable except in a default situation. The license
fees are contingent upon the number of television channels, subscribers and
transactions.

TAURUSMediaTechnik provides KirchPayTV with broadcasting tape capacity.
TAURUSMediaTechnik also provides services with respect to handling and
administration of transmission lines. The noncancelable contract runs until
December 31, 2000 and contains an annual option to renew for additional one-
year periods.

As of January 1, 1998, KirchPayTV assumed the transponder leases from
KirchMedia. In 1999 the lessor released KirchMedia of the duties and accepted
KirchPayTV as party to the lease agreement while KirchMedia guarantees
performance of KirchPayTV under the transponder lease to the lessor. In
connection with becoming party to the transponder lease, KirchPayTV assumed
KirchMedia obligation to make deferred payments to the lessor which are
reported as accrued expenses on the combined balance sheets and in turn
obtained a corresponding receivable due from KirchMedia totaling DM 38,905.

KirchPayTV had incurred a balance due to KirchVermogensVerwaltungs GmbH &
Co. KG, of DM 859,251 at December 31, 1998 and of DM 592,496 at December 31,
1999. This balance results from a series of agreements concluded in 1998 and
1999 to offset amounts due to and from KirchPayTV with respect to various
entities under common control of the KirchGroup in order to create a separate
legal structure for KirchPayTV. The total balance bears interest at 5.5%
annually. The entire balance is reported as current.

An addition balance of DM 989,070 is due to PayCo Holding. This balance
results from a shareholder loan in 1999. The balance bears interest at Euribor
plus a margin of 2.0% annually. The entire balance is reported as current.
Additional tranches of cumulative DM 175,000 were paid out during the first two
months of 2000.

The remaining balance at December 31, 1999 results from mainly from
operating activities with entities under common control and bears no interest.

In addition, KirchPayTV is party to a variety of other contractual
agreements with entities under common control, including building leases,
purchases of rights, management and service contracts.

Transactions with investees

KirchPayTV provided broadcasting services including playout, encryption
and satellite uplink services to Premiere in 1998. The charges are based on the
terms of a service contract which can be terminated at three months notice by
either party. The receivable due from Premiere at December 31, 1998 was DM
30,789. This balance is resulting mainly from loans given to Premiere in order
to fund losses of Premiere in excess of KirchPayTV's proportionate equity.
KirchPayTV engaged Discovery and Krimitel, each a 50% owned joint venture of
KirchPayTV, to produce and deliver program services effectively giving
KirchPayTV an exclusive license to distribute such programming to subscribers
in German-speaking Europe. The agreements cannot be

K-22

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

cancelled until 2006 and include renewal options. License fees are fixed with a
contingent fee portion dependent upon the number of subscribers. Furthermore
KirchPayTV engaged Goldstar TV to start "GalaWorld" including the channels
GOLDSTAR, HEIMATKANAL and FILMPALAST, which is targeted at senior citizens.

Transactions with entities under control of immediate family of KirchPayTV's
founder Dr. Leo Kirch

KirchPayTV provides analog and digital broadcasting services to Pro
Sieben Media AG and its subsidiary Kabel 1 K 1 Fernsehen GmbH (together
ProSieben) which are controlled by Thomas Kirch, a son of Dr. Leo Kirch. The
noncancelable term of the service agreement expires in June 2002. KirchPayTV
engaged Starwatch Navigation, an entity owned by Thomas Kirch, to edit
KirchPayTV's web site.

K-23

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Transactions with management

KirchPayTV engaged a law firm to render legal advice in which a member of
the supervisory board is a partner. Fees charged by Norr, Stiefenhofer Lutz in
1998 and 1999 are DM 25 and DM 5,714 respectively.

The following table summarizes the transactions and balances with related
parties:

Year Ended
December 31,
---------------
1998 1999
------- -------

Statements of Operations:
Revenues
from KirchGroup......................................... 1,200 17,375
from investees.......................................... 7,713 10,079
from Pro Sieben......................................... 1,964 --
------- -------
10,877 27,454
Film and programming costs
to KirchGroup........................................... 282,820 345,720
to investees............................................ 2,590 8,060
------- -------
285,410 353,780
======= =======
Decoder costs
to KirchGroup........................................... 17,824 2,832
======= =======
Transmission costs
to KirchGroup........................................... 73,250 0
to other related parties................................ 53 0
------- -------
73,303 0
======= =======
Selling and general and administrative expenses
to KirchGroup........................................... 2,935 2,168
to Pro Sieben........................................... 539 --
to management........................................... 25 5,714
------- -------
3,499 7,882
======= =======
Interest expense
to KirchGroup........................................... 4,312 45,420
======= =======

December 31,
-----------------
1998 1999
------- ---------

Balance Sheets:
Amounts due from KirchGroup........................... 80 27,947
Amounts due from investees............................ 30,789 20,597
Amounts due from other related parties................ 1,457 3,319
------- ---------
Amounts due from related parties.................... 32,326 51,863
======= =========
Amounts due to KirchGroup............................. 859,656 1,739,355
Amounts due to investees.............................. 345 2,141
------- ---------
Amounts due to related parties...................... 860,001 1,741,496
======= =========

K-24

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

December 31,
----------------------
1998 1999
-------- ------------

Capital Transactions:
Contributions in cash........................... 123,291 0
Contributions of film and programming rights.... 93,534 0
Charges for use of library...................... (138,896) 0
Forgiveness of loans............................ 38,873 1,000,000
-------- ---------
116,802 1,000,000
======== =========

December 31,
1999
------------

Commitments from film and programming rights
2000.............................................. 767,191
2001.............................................. 613,744
2002.............................................. 538,241
2003.............................................. 551,364
2004.............................................. 545,872
2005 and thereafter............................... 1,313,072
---------
4,329,484
=========

21. Income taxes

KirchPayTV GmbH & Co. KGaA is a limited partnership by shares
(Kommanditgesellschaft auf Aktien) under German law. A limited partnership by
shares is a corporation with at least one general partner and shareholders.
Currently, there are no outside shareholders and all outstanding shares of
KirchPayTV GmbH & Co. KGaA are held by PayCo Holding, the general partner.

The entity will not be subject to federal income taxes
(Korperschaftsteuer) to the extent that taxable income is allocated to the
general partner. However, it will be subject to such taxes with respect to all
other income. Pursuant to the articles of association of KirchPayTV GmbH & Co.
KGaA and a shareholder agreement, approximately 99% of the taxable income after
deduction of local trade tax on income are currently allocated to the general
partner.

In addition, KirchPayTV is subject to a local trade tax on income
(Gewerbeertragsteuer) which is levied based on a local tax rate of 14.9%.
Certain subsidiaries are subject to local and federal income taxes. Income tax
benefit (expense) consists of:

1998 1999
----- -----

Domestic:
Current.................................................... (58) 0
Deferred................................................... 6,804 8,826
----- -----
6,746 8,826
===== =====

Loss before income taxes is attributable to the following geographic
locations:

1998 1999
-------- ----------

Germany............................................. (672,045) (1,102,209)
Other............................................... (7,634) (31,334)
-------- ----------
(679,679) (1,133,543)
======== ==========

K-25

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

Income tax benefit (expense) differed from the amounts computed by
applying the local trade tax rate of 14.9% as follows:

1998 1999
------- --------

Computed "expected" tax benefit........................ 100,267 168,898
Increase (decrease) in income tax expense due to:
Change in valuation allowance........................ (99,137) (167,217)
Tax rate differential................................ 5,633 13,120
Non-taxable gains.................................... -- 2,868
Non-deductible expenses.............................. (17) (8,761)
Other................................................ (82)
------- --------
Income tax benefit..................................... 6,746 8,826
======= ========

The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:

December 31,
-----------------
1998 1999
------- --------

Deferred tax assets:
Net operating loss carryforwards..................... 14,868 332,991
Film and programming rights.......................... 6,774 11,253
Leases............................................... -- 1,737
Trade receivables.................................... 3,619 --
Current liabilities.................................. 1,265 2,049
Pension obligation................................... -- 242
Deferred income...................................... -- 7,267
Other................................................ 17,241 19,059
------- --------
Total gross deferred tax assets........................ 43,767 374,598
Less valuation allowance............................... (34,654) (239,533)
======= ========
Net deferred tax assets................................ 9,113 135,065

Deferred tax liabilities:
Decoders and property and equipment.................. (2,218) (4,766)
Intangible assets.................................... -- (89,416)
Trade receivables.................................... -- (6,787)
Other current assets and prepaid expenses............ -- (8,200)
Other noncurrent assets.............................. -- (3,560)
Other current liabilities............................ -- (4,468)
Other noncurrent liabilities......................... -- (2,147)
------- --------
Total gross deferred liabilities....................... (2,218) (119,344)
------- --------
Net deferred tax asset................................. 6,895 15,721
======= ========

At December 31, 1998 and 1999, gross deferred tax assets arising from net
operating loss carryforwards amount to DM 14,868 and DM 332,991, respectively,
including DM 1,619 and DM 284,347 in relation to German trade tax net operating
loss carryforwards. These net operating losses have an unlimited carryforward
period. In the course of finalizing the legal reorganizations of KirchPayTV,
management is contemplaning options that may make a portion of these loss
carryforwards unavailable.

K-26

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management also
considers historical operating results and projections for future taxable
income over the periods for which the deferred tax assets are deductible.
Management believes it is more likely than not KirchPayTV will realize the
benefits of these deductible differences, net of the existing valuation
allowances.

Realization of net operating loss carryforwards will depend mainly on
KirchPayTV's ability to grow the subscriber base over the future years.
KirchPayTV's principal subsidiaries have not generated taxable income since
inception of operations and have not yet reached and do not expect to reach a
level of subscribers to generate taxable income for a number of years.
Management therefore assessed that a valuation allowance is required for tax
benefits whose realization is contingent upon achievement of growth in the
subscriber base and other income generating activities.

22. Supplemental cash flow information

Year ended
December 31,
----------------
1998 1999
------ ---------

Cash paid for income taxes.............................. 57 42
Cash paid for interest.................................. 5,766 86,788

Non-cash investing and financing activities:
Contribution by KirchGroup of film rights............. 93,534 --
Capital lease obligations incurred.................... -- 215,076
Forgiveness of loans.................................. 38,873 1,000,000
Issuance of notes for acquisitions.................... -- 156,129
Details for acquisition of Premiere:
Assets acquired....................................... -- 3,377,574
Liabilities assumed................................... -- 1,046,271
Net liabilities not acquired.......................... -- (25,358)
Notes issued in connection with acquisition........... -- 156,129
Cash paid............................................. -- 2,200,532
Less cash acquired.................................... -- (51,143)
------ ---------
Net cash paid for acquisition......................... -- 2,149,389
Less advance payments in prior years.................. -- (663,261)
------ ---------
Net cash paid in 1999................................. -- 1,486,128
====== =========

23. Segments and geographic information

KirchPayTV operates pay television stations on analog and digital
platforms in Germany and Austria. Revenues generated through provision of
technical platform services to related parties outside of KirchPayTV are
insignificant during the reporting periods.

Due to the anticipated discontinuation of analog services and the focus
on the digital platform, management is assessing the performance of
KirchPayTV's operations during the launch phase of its Premiere World platform
by the development in the number of subscribers as reflected by revenue.
Information about contributions of the analog and digital platforms to
KirchPayTV's operating performance is not captured at this stage while
KirchPayTV operates in only one segment.

K-27

KirchPayTV GmbH & Co. KGaA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Deutsche mark, in thousands)

More than 95% (1998: 94%) of revenues were generated and more than 99% of
all long-lived assets are located in Germany as of December 31, 1998 and 1999.

24. Subsequent events

At December 3, 1999, Kirch Group entered into shareholder and investment
agreements with British Sky Broadcasting Group plc ("BSkyB"), a publicly traded
company incorporated in the United Kingdom. The agreements were contingent upon
certain events, primarily an approval by European antitrust authorities
responsible for a ruling on the proposed transactions. As of December 31, 1999,
consummation of the transactions had not yet occurred.

The agreements involve the following:

--BSkyB invests DM 1.0 billion in cash and about 78 million new shares of
BSkyB (representing a 4.3% interest in BSkyB) in KirchPayTV in exchange
for a 24% general partner interest to be issued by KirchPayTV and
acquires 24% of the shares (limited partner interest) from PayCO Holding
in exchange for DM 24, the nominal amount of those shares. In case
KirchPayTV intends to sell the BSkyB shares, BSkyB a right of first
refusal;

--BSkyB was granted certain rights including veto rights for material
transactions which are not included in a business plan of KirchPayTV and
incurrence of debt as well as related party transactions involving Kirch
Group, representation on the Supervisory Board at one third of the
members appointed, restrictions on dispositions of Kirch Group's interest
in Kirch Pay TV as well as other Kirch interests, approval of significant
investment decisions and other rights;

--BSkyB holds various rights of first refusal regarding issuance of stock
to new partners or shareholders as well as sale of interests in Kirch Pay
TV currently held by Kirch Group with the exception of the issuance of
additional interest up to 10% of Kirch Pay TV to strategic investors at a
price at least equal to the price paid by BSkyB prior to an initial
public offering of KirchPayTV;

--If BSkyB does not recover its investment in an initial public offering
of Kirch Pay TV, there is a make-whole arrangement whereby Kirch Group
would have to transfer additional interests in Kirch Pay TV or cash to
BSkyB ("fair value guarantee").

BSkyB holds a put option regarding its 24% interest in Kirch Pay TV
whereby it could tender the interest in KirchPayTV to Kirch Group for cash in
case of a shortfall of EBITDA or actual subscriber numbers compared to
projections or lack of occurrence of an initial public offering. If Kirch Group
defaulted under the terms of that put option, BSkyB would obtain control over
Kirch Pay TV.

The Commission of the European Communities' competition directorate
general decided on March 21, 2000 not to oppose the transaction subject to full
compliance by KirchGroup and BSkyB with commitments given by the applicants.
These commitments include KirchPayTV's agreement to provide access to its
technical platform and the decoder network to interested third parties. In
addition, KirchGroup, BSkyB and News Corporation agreed to refrain from joint
bidding for the television rights for multinational sports events and to
observe other restrictions relating to their rights acquisitions.

The contribution by BSkyB and issuance of the additional general partner
interest occurred on May 4, 2000.

K-28

NET SAT SERVICOS LTDA.

CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 1998, 1997 and 1996

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report of Independent Accountants.......................................... N-2
Consolidated Balance Sheet................................................. N-3
Consolidated Statement of Operations....................................... N-4
Consolidated Statement of Cash Flows....................................... N-5
Statement of Changes in Partnership Interest............................... N-6
Notes to the Consolidated Financial Statements............................. N-7

N-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Partners
Net Sat Servicos Ltda.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
partnership interest present fairly, in all material respects, the financial
position of Net Sat Servicos Ltda. and its subsidiaries at December 31, 1996,
1997 and 1998, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the management of Net Sat Servicos Ltda.; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

PricewaterhouseCoopers
Auditores Independentes

Sao Paulo, Brazil
January 22, 1999

N-2

NET SAT SERVICOS LTDA.

CONSOLIDATED BALANCE SHEET
(Expressed in U.S. dollars, unless otherwise stated)

December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------

Assets
Current assets
Cash and cash equivalents......... 5,036,334 65,767,868 138,790,834
Accounts receivable, net.......... 4,789,661 946,052 1,109,715
Inventories....................... 9,023,111 3,017,113 102,647
Investments in debt securities.... 12,687,971 24,665,752 23,222,742
Advances to suppliers............. 1,001,735 7,787,208
Tax recoverable................... 3,949,645 2,894,110 2,528,002
Other............................. 4,688,900 1,521,988
------------ ------------ ------------
41,177,357 106,600,091 165,753,940
------------ ------------ ------------
Deferred income tax................. 111,927,205 42,803,599 6,736,445
Equipment and other fixed assets,
net................................ 275,632,651 254,440,563 122,430,182
Debt issuance costs, net............ 2,654,870 4,247,238 5,734,047
Other assets........................ 1,247,886 1,073,230 636,679
Investments in debt securities...... 12,316,226 36,706,805
------------ ------------ ------------
391,462,612 314,880,856 172,244,158
------------ ------------ ------------
Total assets..................... 432,639,969 421,480,947 337,998,098
============ ============ ============

Liabilities and partnership interest
Current liabilities
Short-term debt................... 4,119,374 7,401,135 14,042,426
Suppliers, programmers and
payroll.......................... 19,472,807 7,443,516 11,329,628
Interest payable.................. 11,287,644 10,270,835 10,270,833
Deferred income tax............... 1,046,968 1,017,535 202,712
Other taxes payable............... 3,090,682 672,267 2,602,356
Due to related parties............ 12,139,076 9,049,418 2,761,968
Deferred hook-up fee revenue,
net.............................. 772,148 869,458 691,562
Advanced subscription payments.... 2,090,521 2,241,256 1,784,621
------------ ------------ ------------
54,019,220 38,965,420 43,686,106
------------ ------------ ------------

Long-term liabilities
Long-term debt.................... 425,434,764 410,993,396 269,763,128
Deferred hook-up fee revenue,
net.............................. 64,346 941,913 1,720,798
Other taxes payable............... 2,738,816 2,874,592 761,831
------------ ------------ ------------
428,237,926 414,809,901 272,245,757
------------ ------------ ------------
Total liabilities................ 482,257,146 453,775,321 315,931,863
------------ ------------ ------------

Commitments and contingencies (Note
11)

Partnership interest
Capital........................... 211,107,944 69,107,944 36,607,944
Cumulative translation
adjustment....................... 5,323,004
Accumulated deficit............... (266,048,125) (101,402,318) (14,541,709)
------------ ------------ ------------
(49,617,177) (32,294,374) 22,066,235
------------ ------------ ------------
Total liabilities and partnership
interest........................ 432,639,969 421,480,947 337,998,098
============ ============ ============

The accompanying notes are an integral part of these consolidated financial
statements.

N-3

NET SAT SERVICOS LTDA.

CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in U.S. dollars, unless otherwise stated)

Years ended December 31,
---------------------------------------
1998 1997 1996
------------ ------------ -----------

Revenue
Subscriptions........... 117,411,085 47,925,565 38,666,522
Equipment sales and
other.................. 7,968,595 3,066,299 976,294
------------ ------------ -----------
125,379,680 50,991,864 39,642,816
Value-added sales and
other taxes............ (10,477,407) (3,734,103) (3,065,545)
------------ ------------ -----------
Net revenue............. 114,902,273 47,257,761 36,577,271
------------ ------------ -----------
Operating expenses
Direct operating
expenses............... (96,195,968) (39,824,907) (20,578,795)
Selling, general and
administrative......... (162,675,742) (89,347,549) (20,142,947)
Depreciation and
amortization........... (18,873,599) (12,674,062) (1,792,247)
------------ ------------ -----------
(277,745,309) (141,846,518) (42,513,989)
------------ ------------ -----------
Operating income (loss)... (162,843,036) (94,588,757) (5,936,718)
------------ ------------ -----------
Non-operating income
(expenses)
Gain (loss) on
translation, net....... (12,147,572) (3,209,744)
Financial expense, net.. (74,940,187) (15,451,792) (3,803,056)
Other, net.............. (16,597) 75,181 161,482
------------ ------------ -----------
(74,956,784) (27,524,183) (6,851,318)
------------ ------------ -----------
Loss before income tax.... (237,799,820) (122,112,940) (12,788,036)
Income tax benefit
(charge)
Current................. (104,627)
Deferred................ 73,154,013 35,252,331 4,722,858
------------ ------------ -----------
Net loss for the year..... (164,645,807) (86,860,609) (8,169,805)
============ ============ ===========

The accompanying notes are an integral part of these consolidated financial
statements.

N-4

NET SAT SERVICOS LTDA.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. dollars, unless otherwise stated)

Years ended December 31,
---------------------------------------
1998 1997 1996
------------ ----------- ------------

Cash flows from operating activities
Loss for the year.................. (164,645,807) (86,860,609) (8,169,805)
Adjustments to reconcile net income
(loss) to cash from operating
activities
Non-cash items
Deferred hookup fee revenue....... (869,764) (450,106) (146,140)
Loss (gain) on translation........ 12,147,572 3,209,744
Depreciation and amortization..... 18,598,451 12,674,062 1,792,247
Exchange variation on loans....... 38,929,037
Amortization of debt issuance
costs............................ 1,320,215 1,387,500 500,000
Reduction (increase) in accrued
interest on investments in debt
securities....................... (1,205,993) (2,552,431) (568,547)
Accrued premium on senior notes... 4,457,517 4,442,849 1,789,480
Amortization of discount on
transponder financing............ 2,727,274 1,902,728 835,812
Write-off of fixed assets......... (16,597) 120,046 71,092
Deferred income tax............... (73,154,013) (35,252,331) (4,722,858)
Increase in assets
Accounts receivable, net.......... (4,338,100) (407,370) (1,209,870)
Advances to suppliers............. (7,787,208)
Other assets...................... (3,157,734) (5,331,927) (1,443,784)
Increase in liabilities
Accounts payable to suppliers and
programmers...................... 15,910,882 3,286,804 2,970,134
Payroll and related charges....... 1,452,114 29,851 568,106
Income and other taxes payable.... 2,654,854 1,164,084 1,279,033
Advanced subscription payments.... 21,225 600,402 1,626,040
Interest payable.................. 1,016,809 2 10,270,833
Other liabilities................. 14,294,747 2,571,618 810,795
------------ ----------- ------------
Net cash provided by (used in)
operating activities.............. (146,004,883) (98,314,464) 9,462,312
------------ ----------- ------------
Cash flows from investing activities
Acquisition of equipment........... (57,122,532) (9,601,270) (44,967,353)
Acquisition of debt securities..... (59,361,000)
Redemption of investments in debt
securities........................ 25,500,000 25,500,000
------------ ----------- ------------
Net cash provided by (used in)
investing activities.............. (31,622,532) 15,898,730 (104,328,353)
------------ ----------- ------------
Cash flows from financing activities
Short term borrowings, net......... (9,989,789) 11,486,369
Long term borrowings, net of
issuance costs.................... 9,034,165 192,565,953
Capital contribution............... 142,000,000 32,500,000 32,488,281
------------ ----------- ------------
Net cash provided by (used in)
financing activities.............. 151,034,165 22,510,211 236,540,603
------------ ----------- ------------
Effect of exchange rate changes on
cash.............................. (34,138,284) (13,117,443) (4,002,272)
------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents.................. (60,731,534) (73,022,966) 137,672,290
Cash and cash equivalents,
beginning of year................. 65,767,868 138,790,834 1,118,544
------------ ----------- ------------
Cash and cash equivalents, end of
year.............................. 5,036,334 65,767,868 138,790,834
============ =========== ============
Supplemental cash flow information
Income tax paid.................... 1,334,344
============ =========== ============
Interest paid...................... 37,908,861 33,133,978 4,346,308
============ =========== ============
Non cash investing and financing
activities
Financing of satellite
transponders' purchase........... 19,512,441 145,688,191 73,984,375
============ =========== ============
Property acquisitions included in
accounts payable................. 8,255,765
============ =========== ============

The accompanying notes are an integral part of these consolidated financial
statements.

N-5

NET SAT SERVICOS LTDA.

STATEMENT OF CHANGES IN PARTNERSHIP INTEREST
(Expressed in U.S. dollars, unless otherwise stated)

Cumulative
translation Accumulated
Capital adjustment deficit Total
----------- ----------- ------------ ------------

At December 31, 1995....... 4,119,663 (6,371,904) (2,252,241)
----------- ---------- ------------ ------------
Capital increase on May
30, 1996................ 11,491,398 11,491,398
Capital increase on
August 31, 1996......... 20,996,883 20,996,883
Loss for the year........ (8,169,805) (8,169,805)
----------- ------------ ------------
At December 31, 1996....... 36,607,944 (14,541,709) 22,066,235
----------- ---------- ------------ ------------
Capital increase on
August 5, 1997.......... 32,500,000 32,500,000
Loss for the year........ (86,860,609) (86,860,609)
----------- ---------- ------------ ------------
At December 31, 1997....... 69,107,944 (101,402,318) (32,294,374)
----------- ---------- ------------ ------------
Capital increase in April
1998.................... 40,100,000 40,100,000
Capital increase in May
1998.................... 2,900,000 2,900,000
Capital increase in June
1998.................... 16,000,000 16,000,000
Capital increase in July
1998.................... 25,000,000 25,000,000
Capital increase in
August 1998............. 11,000,000 11,000,000
Capital increase in
September 1998.......... 18,000,000 18,000,000
Capital increase in
October 1998............ 13,000,000 13,000,000
Capital increase in
November 1998........... 9,000,000 9,000,000
Capital increase in
December 1998........... 7,000,000 7,000,000
Cumulative translation
adjustment
Initial................ (4,215,289) (4,215,289)
For the period......... 9,538,293 9,538,293
Loss for the period...... (164,645,807) (164,645,807)
------------
Comprehensive income
(loss).................. (159,322,803)
----------- ---------- ------------ ------------
At December 31, 1998....... 211,107,944 5,323,004 (266,048,125) (49,617,177)
=========== ========== ============ ============

The accompanying notes are an integral part of these consolidated financial
statements.

N-6

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

1 The Company and its Principal Operations

Net Sat Servicos Ltda. ("Net Sat" or the "Company"), a Brazilian limited
liability partnership -"limitada"--was formed on September 3, 1993.

Its current shareholders are DTH Comercio e Partipacoes Ltda. (a
subsidiary of Globo Comunicacoes e Participacoes S.A. (Globopar)), News DTH do
Brasil Comercio e Participacoes Ltda. (a subsidiary of News Corporation, a
South Australia corporation (News Corp.)), and TCI International Brasil Ltda.
(a subsidiary of Tele-Communications International, Inc. (TINTA)), with 54%,
36% and 10%, respectively, of the Company's equity.

Net Sat's objective is to develop, own and operate a direct broadcast
satellite (DBS) system for residential and non-residential subscribers in
Brazil. The Company operates through a non-exclusive permit obtained by
Globopar, ratified by the Minister of the State for Communication and valid
until December 22, 2009.

As of the date of the issuance of these financial statements, the Company
utilizes four transponders on the PAS-3R satellite and five transponders on the
PAS-6 satellite for its Ku-band DBS service. Satellite transponders receive
transmissions from earth and relay them back to earth. Each transponder is
capable of handling up to two analog channels or up to 15 digital channels.
Following the launch of the PAS-6 satellite, an anomaly was detected in the
solar arrays of PAS-6 that led to several circuit failures.

Nonetheless, the Company successfully began utilizing five transponders
on PAS-6 which resulted in immediate improvements in both signal quality and
reliability, and enabled the Company to increase the number of channels offered
to its customers. In March 1998, the Company entered into an amendment to its
agreement with PanAmSat pursuant to which PanAmSat built a new satellite,
designated as PAS-6B, which has 14 transponders which will be available for use
by the Company. As of the date of the issuance of these financial statements,
the Company is exploring its options with respect to the use of the
transponders on the PAS-6B satellite, which will either replace or supplement
the use of the PAS-6 satellite. PAS-6B was successfully launched into the same
orbital location as PAS-6 by Arianespace in December 1998 and management
expects to commence service by the first quarter of 1999. Upon successful
deployment of PAS-6B, the Company's long-term liabilities to PanAmSat for
purchased transponders will increase by approximately US$28 million.

Since 1995, the Company has made significant investments in the
construction and installation of its facilities and expended significant funds
to obtain new subscribers. This expenditure has been substantially financed by
the issuance of Senior Notes in 1996 as well as by capital contributions by the
partners. Delays in the launch of PAS-6 significantly delayed the build-up of
the Ku-band DBS service, and largely as a result of this, the operating cash
flows have been below those initially projected. Based on the Company's
business plan of cash requirements through December 1999, the partners
committed to cash capital increases of up to US$86 million, if necessary.

On March 6, 1996, Net Sat acquired for a nominal amount the capital of a
Uruguayan shell company, Promancor S.A. (Promancor) to be used as a temporary
vehicle for financing and settlement of overseas commitments. On June 5, 1996,
Net Sat USA Inc. (Net Sat USA), a wholly-owned Delaware corporation, was formed
with a nominal capital; this company has no current activities.

N-7

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

2 Summary of Significant Accounting Policies

Significant policies adopted in the preparation of the accompanying
consolidated financial statements are described below:

(a) Basis of presentation

The consolidated financial statements are presented in U.S. dollars and
have been prepared in accordance with accounting principles generally accepted
in the United States of America (US GAAP), which differ in certain respects
from accounting principles applied by the Company in its local currency
financial statements which are prepared in accordance with accounting
principles generally accepted in Brazil (Brazilian GAAP). The preparation of
financial statements requires the use of management estimates; actual results
could differ from these estimates.

For the three years ended June 30, 1997, the cumulative inflation rate in
Brazil, as measured by the Market General Price Index of the Fundacao Getulio
Vargas, was less than 100%. Consequently, Brazil is no longer considered a
highly inflationary economy as defined by SFAS No. 52, and Net Sat adopted the
Brazilian real as its functional currency on January 1, 1998. From this date,
the procedures for recognizing foreign currency transactions changed and the
net gain or loss on translation of the financial statements from the real to
the U.S. dollar is no longer recorded as a component of net income (loss) but
rather as a separate component of partnership interest, referred to as the
cumulative translation adjustment (CTA). The Company plans to continue to use
the U.S. dollar as its financial reporting currency.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of
Net Sat and its wholly-owned subsidiaries, Promancor and Net Sat USA.

The activity of Net Sat is the distribution of television programs to
subscribers by means of DBS. Income is determined on the accrual basis, with
revenue from subscriptions being recorded in the month the service is rendered.
Hook-up fees charged during certain periods (between January 1995 and April
1996), net of related direct taxes, are deferred and amortized over the period
in which the subscriber is expected to remain connected to the system.

(d) Cash and cash equivalents

Cash and cash equivalents are carried at cost plus accrued interest and
include cash on hand, bank accounts and highly liquid financial investments
with original maturities of 90 days or less.

(e) Accounts receivable

Accounts receivable are stated at estimated realizable values. An
allowance for doubtful accounts is provided, when necessary, in an amount
considered by management to be sufficient to meet specific future losses
related to uncollectible accounts.

N-8

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

(f) Inventories

Inventories, substantially comprising decoders and antennas, are stated
at the average cost of purchase. Allowances are recorded, when applicable, to
reduce inventory balances to replacement or realizable values.

(g) Investments in debt securities

The Company's investments in US Treasury securities have been classified
as held-to-maturity and are recorded at cost, adjusted for amortized discounts
and premiums and accrued interest.

(h) Equipment and other fixed assets

Depreciation of equipment and other fixed assets is computed on the
straight line method, at rates which take into consideration the economic
useful life of the assets as follows: equipment--10 years; transponders--15 to
20 years; furniture, fixtures and installations--10 years; computer equipment
and software--5 years; and vehicles--5 years.

Management reviews long-lived assets, primarily equipment to be held and
used in the business, for the purpose of determining and measuring impairment
on a recurring basis or when events or changes in circumstances indicate that
the carrying value of an asset or group of assets may not be recoverable;
impairment is assessed in accordance with Statement of Financial Accounting
Standards (SFAS) no. 121, on the basis of the estimated operating profitability
of the business over the remaining lives of the assets.

No impairment losses have been recorded for any of the periods presented.
Write-down of the carrying value of assets or groups of assets will be made if
and when appropriate.

(i) Current and long-term liabilities

These are stated at the amounts at which they could be settled at each
balance sheet date, including charges accrued in accordance with contractual
conditions.

(j) Income tax

Pursuant to SFAS 109 "Accounting for Income Taxes" the net tax charges or
benefits related to (a) tax loss carryforwards available to be offset against
future taxable income and (b) tax effects of temporary differences between tax
results and financial reporting results (principally hook-up revenue, the
capitalization of the cost of subscribers list, the financing discount on
transponders and preoperating expenses capitalized for tax purposes only), are
recorded at the enacted composite tax rates at each balance sheet date.

Prior to the adoption of the Brazilian real as the Company's functional
currency on January 1, 1998, in accordance with paragraph 9(f) of SFAS 109,
deferred tax effects were not recognized for differences related to assets and
liabilities that, under SFAS 52, are remeasured from Brazilian reais into U.S.
dollars at historical exchange rates and that result from changes in exchange
rates or indexing for Brazilian tax purposes. However, as of the date of
adoption of the Brazilian real as its functional currency, the Company was
required to recognize a deferred tax liability of US$4,215,289 for such
temporary differences, which was recorded through a charge to the (CTA)
account.

N-9

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

(k) Vacations and other employee benefits

The liabilities for vacations and year-end "thirteenth-month" salaries
are accrued as these benefits are earned. The Company does not provide a
pension plan or other post-retirement benefits.

Net Sat does not maintain a private pension plan for its employees but
makes monthly contributions based on payroll to the government pension, social
security and severance indemnity plans. Such payments are expensed as incurred.

(l) Company segment

The Company's only line of business is as an operator of the direct
broadcast satellite (DBS) system. The Company adopted, as from 1998, SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
application of which did not change the information presented.

(m) Comprehensive income

Comprehensive income (loss), as defined by SFAS No. 130, "Reporting
Comprehensive Income," includes net income (loss) and the change in the CTA
account during the year.

(n) Recently issued accounting standards

SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Earlier application is encouraged
but only at the beginning of a fiscal quarter. Retrospective application is not
permitted.

SFAS No. 133 requires all derivative instruments to be recognized as
either assets or liabilities at fair values. Changes in fair value of
derivative instruments are either recognized in income or outside income as a
component of other comprehensive income, depending on their designation or
effectiveness as fair value hedges, cash flow hedges or foreign currency
hedges. The Company expects the adoption of the standard will not have any
material effect on its financial statements.

3 Inventories

December 31,
-------------------------------
1998 1997 1996
---------- ---------- -------

Inventories (substantially decoders and
antennas)................................ 12,187,591 4,129,128 102,647
Allowance for loss in value............... (3,164,480) (1,112,015)
---------- ---------- -------
9,023,111 3,017,113 102,647
========== ========== =======

The Company has marketed its services primarily through satellite
equipment dealers and distributors, and all equipment related to DBS services
is acquired directly by the subscriber. In August 1997, Net Sat also started to
offer equipment related to these services directly to potential subscribers.

N-10

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

4 Related Party Transactions

Significant transactions with related parties, which refer to expenses in
the statement of operations, are summarized below:

Year Ended December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------

Globopar, for the rights to use certain
satellite transponders, leased directly or
indirectly by that company from Embratel,
and for uplink services .................. 2,114,463 3,249,193 3,282,260
Net Brasil S.A., a subsidiary of Globopar,
for programming services and royalties.... 36,914,398 18,942,396 10,888,881
Editora Globo, a publishing subsidiary of
Globopar, for production of the Net Sat
program guide............................. 410,221 937,499 752,344
Sky Latin America LLC ("SESLA"), an
affiliate of News Corp., for marketing,
strategic and programming assistance...... 834,501 1,961,019 725,000
DTH TechCo Partners, an affiliate of News
Corporation and Globopar, for
retransmission of television programming
from an uplink facility in Florida........ 17,212,103 2,944,386
NDS Limited, a subsidiary of News
Corporation, for construction of uplink
facility, purchase of equipment, software,
smart cards and royalties 12,235,569 2,511,858 645,283

The following balances were owed to related parties:

Year ended December 31,
------------------------------
1998 1997 1996
---------- --------- ---------

Globopar...................................... 97,158 586,856
Net Brasil S.A................................ 6,275,351 3,503,998 1,046,959
Editora Globo S.A............................. 8,282 131,953 71,273
SESLA......................................... 1,031,672 725,000
DTH TechCo Partners........................... 2,402,828 2,941,411
TV Globo Ltda................................. 310,188
NDS Limited................................... 3,052,147 1,196,096
Others........................................ 400,468 147,130 21,692
---------- --------- ---------
12,139,076 9,049,418 2,761,968
========== ========= =========

N-11

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

The uplink facility in Rio de Janeiro is constructed on land rented from
Sao Marcos Empreendimentos Imobiliarios Ltda., a Globopar affiliate; rent of
US$2,400 a month has been paid as from June 1996.

5 Equipment and Other Fixed Assets

December 31, 1998
-------------------------------------
Accumulated
Cost depreciation Net
----------- ------------ -----------

Transponders......................... 219,866,910 (16,226,198) 203,640,712
Furniture, fixtures and
installations....................... 2,481,067 (484,402) 1,996,665
Equipment at subscribers'
residences.......................... 23,380,733 (3,112,172) 20,268,561
Computer equipment and software...... 19,574,955 (5,855,050) 13,719,905
Equipment for uplink installations... 37,994,472 (5,438,009) 32,556,463
Other................................ 3,663,950 (213,605) 3,450,345
----------- ----------- -----------
Total................................ 306,962,087 (31,329,436) 275,632,651
=========== =========== ===========

December 31, 1997
-------------------------------------

Transponders......................... 218,532,287 (7,608,161) 210,924,126
Furniture, fixtures and
installations....................... 2,221,479 (294,546) 1,926,933
Equipment at subscribers'
residences.......................... 935,976 (935,976)
Computer equipment and software...... 15,015,214 (2,953,189) 12,062,025
Equipment for uplink installations... 29,159,632 (2,619,452) 26,540,180
Other................................ 3,132,483 (145,184) 2,987,299
----------- ----------- -----------
Total................................ 268,997,071 (14,556,508) 254,440,563
=========== =========== ===========

December 31, 1996
-------------------------------------
Accumulated
Cost depreciation Net
----------- ------------ -----------

Transponders--PAS-3R................. 73,984,375 73,984,375
Furniture, fixtures and
installations....................... 1,426,002 (118,429) 1,307,573
Equipment at subscribers'
residences.......................... 935,976 (640,741) 295,235
Computer equipment and software...... 8,379,522 (675,506) 7,704,016
Equipment for uplink installations... 28,842,656 (660,543) 28,182,113
Other................................ 1,864,243 (74,040) 1,790,203
Transponders--PAS-6 advances,
including for launch failure........ 9,166,667 9,166,667
----------- ----------- -----------
Total................................ 124,599,441 (2,169,259) 122,430,182
=========== =========== ===========

Based on a contract dated June 26, 1996 between PanAmSat and Net Sat, the
Company acquired four transponders on PAS-3R in 1996; on the launch of PAS-6 in
August 1997 these transponders were traded in and twelve transponders on PAS-6
were purchased. The established purchase price was US$21,725,000 for each PAS-
3R or PAS-6 transponder. This price is payable, with interest of approximately
6.1% per annum, in 180 monthly installments commencing 30 days after delivery.
In the event that PAS-6 suffered a launch failure,

N-12

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

PanAmSat warranted to Net Sat that a replacement satellite would be delivered.
Net Sat contributed US$8,000,000 to PanAmSat's costs related to this
commitment. Contractually this amount was considered as an advance against
installment payments for the PAS-6 transponders. In light of the matters
outlined in Note 1, in practice the Company continues to use both PAS-3R and
PAS-6 satellites.

Under the amended contract dated March 5, 1998, referred to in Note 1,
and after considering the waived installments relating to PAS-6 transponders,
the expected useful life of PAS-6 was recognized as being approximately 20
years, assuming optimal deployment. Consequently, the established price for
each PAS-6 transponder has been increased to US$25,775,000 payable in 244
monthly installments. Similarly, transponders on PAS-6B are expected to have a
useful life of 19 1/2 years, and each will have a purchase price of
US$25,223,000 payable in 234 monthly installments.

The financing obtained for the purchase of the transponders reflected a
more favorable interest rate than would otherwise have been available to Net
Sat. Accordingly, the financing was discounted through application of a market
rate of interest (9% per annum) available to Net Sat resulting in a discount of
US$48,766,433 (1997--US$39,421,714; 1996--US$14,055,904) (Note 7) and a
corresponding decrease in the carrying value of the transponders in the
balance.

6 Short-term Debt

Short-term debt comprises the short-term position of the financing of
transponders, and in 1996 unsecured borrowing arrangements with Chase Manhattan
as follows:

Interest
rate per
annum--% 1998 1997 1996
-------- --------- ---------- ----------

Commercial loans denominated in
US Dollars falling due on:
January 8, 1997................. 9.0625 1,307,286
January 15, 1997................ 9.09375 736,112
January 27, 1997................ 8.65625 9,442,971
--------- ---------- ----------
11,486,369
Payable for transponders........ 4,119,374 8,414,468 2,556,057
Advances made................... (1,013,333)
--------- ---------- ----------
4,119,374 7,401,135 14,042,426
========= ========== ==========

N-13

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

7 Long-term Debt

Long-term debt consists of the following:

1998 1997 1996
----------- ----------- -----------

Payable for transponders, net of
discount.......................... 218,286,641 212,162,202 70,529,705
Less: current portion.............. (4,119,374) (7,401,135) (2,556,057)
----------- ----------- -----------
214,167,267 204,761,067 67,973,648
Senior Secured Notes............... 200,000,000 200,000,000 200,000,000
Add: Provision for additional
charges........................... 11,267,497 6,232,329 1,789,480
----------- ----------- -----------
Long-term debt..................... 425,434,764 410,993,396 269,763,128
=========== =========== ===========

As explained in Note 5, Net Sat purchased four transponders on PAS 3R,
which were traded in for twelve transponders on PAS-6. The PAS-3R and PAS-6
transponders are payable in installments of US$183,333 per transponder over 180
and 244 months, respectively, including interest of approximately 6.1% per
annum compounded monthly from the date of delivery. The interest rate on the
financing of the transponders was lower than the rate generally available to
the Company in the market and, accordingly, the financing was discounted to its
present value by using a 9% per annum interest rate, resulting in a discount of
US$48,766,433 (1997--US$39,421,714; 1996--US$14,055,904).

At December 31, 1998, the long-term portion of the financing of the
transponders matures in the following calendar years:

1998
------------------------------------
Amortization
of financing
Principal discount Net
----------- ------------ -----------

2000................................ 11,200,272 3,416,829 7,783,443
2001................................ 11,900,391 3,412,926 8,487,465
2002................................ 12,644,274 3,388,377 9,255,897
2003................................ 13,409,270 3,344,184 10,065,086
2004................................ 14,272,858 3,265,301 11,007,557
Thereafter.......................... 191,710,270 24,142,451 167,567,819
----------- ---------- -----------
255,137,335 40,970,068 214,167,267
=========== ========== ===========

On August 5, 1996 Net Sat issued US$200 million 12 3/4% Senior Secured
Notes (the "Notes"). These mature on August 5, 2004 and bear interest payable
semi-annually in arrears on February 5 and August 5, commencing on February 5,
1997. While the Notes mature in 2004, each holder of the Notes is entitled to
require that the Company or its Affiliates repurchase the Notes at a repurchase
price of 101% of the principal amount on August 5, 2001. If held to maturity,
the noteholders will be entitled to a premium payment equal to 5% of the
principal amount.

In the event that holders of the Notes opt for repurchase in 2001,
interest payments made on these Notes since their issue would no longer be
exempt from a withholding tax. Management believes, based on the

N-14

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

advice of its tax counsel, such withholding tax would be imposed at a rate of
12 1/2%. Net Sat would be liable for such tax. Similarly, if the Notes are
repurchased on August 5, 2001, a foreign exchange transactions tax ("IOF")
relating to the foreign loan proceeds entering Brazil will have to be paid
retroactively by the Company at a rate of 1%.

As a consequence, the carrying value of the Notes reflects an
incremental amount such that the greater of either the premium payable on
maturity, or the withholding and IOF taxes, will be fully recognized through
August 5, 2004 or August 5, 2001, respectively.

The Company and its Affiliates have the right to repurchase outstanding
Notes from holders at August 5, 2001 at 107% of the principal amount on that
date. If, within 39 months from August 5, 1996, the Company receives net
proceeds of not less than US$65 million, from a significant equity offering or
a strategic equity investor, it has the right to opt to use all or part of
such proceeds to repurchase up to 33% of the aggregate principal amount of the
Notes originally issued at a repurchase price equal to 112.75% of the
principal amount, provided that Notes of US$100 million would remain
outstanding.

As required under the Indenture, the Company used US$58 million of the
net proceeds of the Notes to purchase a portfolio of U.S. Government
securities. This portfolio was pledged as security for the first five interest
payments through February 1999. The Notes are also secured by certain of the
Company's assets including its broadcast and playout equipment and are further
guaranteed by the Company's subsidiaries, Promancor and Net Sat USA. The Notes
contain certain customary covenants which, among other matters, limit the
Company's ability to incur further indebtedness, issue preferred stock, pay
dividends or make other distributions, repurchase equity interests or
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with Affiliates, sell assets of
the Company or its subsidiaries which guarantee the Notes and enter into
certain business combinations.

8 Deferred Hook-up Fee Revenue

Deferred hook-up fee, net of related direct taxes, is projected to be
reversed to income as follows:

December 31,
---------------------------
1998 1997 1996
------- --------- ---------

1997......................................... 691,563
1998......................................... 869,458 691,563
1999......................................... 772,148 869,458 691,563
2000......................................... 64,346 72,455 337,671
------- --------- ---------
836,494 1,811,371 2,412,360
======= ========= =========

9 Partnership Interest

Based on the Company's Business Plan, the partners agreed to fund
capital calls of up to US$86 million in 1999. After the most recent
subscription, capital is represented by 235,940,465 quotas of R$1 each.

On January 6, 1999, the partners contributed additional capital of US$10
million.

N-15

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

Under the Articles of Association of the Company, a majority vote is
sufficient to authorize the Company to take action; however, the approval of
all partners is required in order to authorize a number of significant actions,
including, among others: (i) amendment to the Articles of Association of the
Company; (ii) appointment of the Company's Chief Executive Officer or a change
of his/her duties or remuneration; (iii) approval of the annual business plan
(including budgets); (iv) any changes in the business purpose of the Company or
in the approved annual business plan; (v) the execution of contracts with terms
in excess of three years or pursuant to which an aggregate of R$1,000,000 will
be received or paid by the Company; (vi) the incurrence of any indebtedness for
borrowed money or the offering of any guarantee in excess of R$500,000 except
as provided in the annual business plan; (vii) the voluntary dissolution or
liquidation of the Company; (viii) the issuance of any equity in the Company;
(ix) the purchase, lease or any other asset acquisition in a single transaction
or in a series of related transactions in excess of R$1,000,000; (x) the
declaration or payment of any distribution of profits not included in the
annual Business Plan; (xi) the sale of any assets of the Company, other than in
the ordinary course of its business; (xii) the acquisition, investment in or
joint venture with any third party (other than a wholly-owned subsidiary of the
Company); (xiii) the making of capital contributions to the Company other than
as provided in the annual business plan; (xiv) the terms of any agreement or
transaction between the Company and the partners or their respective
Affiliates; (xv) establish the price structure, categories and other terms
regarding the acquisition and distribution of any DBS subscription services or
channels; (xvi) renounce or change any term of any contract that requires
approval based on the Articles of Association of the Company; (xvii) make any
agreement by the Company on any legal action, suit or other procedure, not in
the ordinary course of business; (xviii) nominate or terminate the independent
auditor of the Company or change any accounting principle; (xix) any decision
regarding agreements on adjustments proposed as a result of tax examinations;
(xx) any decision related to transferring the location of the Company. Also,
partners are precluded from transferring their quotas to third parties other
than to defined Affiliates of the parties and, in the case of News DTH do
Brasil Comercio e Participacoes Ltda., only at the sole discretion of DTH
Comercio e Participacoes Ltda. and TCI International Brasil Ltda.

The payment of dividends is limited to the amount of retained earnings as
per the Company's local currency financial statements prepared in accordance
with accounting principles determined in Brazilian Corporate Law. Dividends are
payable in Brazilian reais and may be remitted to partners abroad, provided the
foreign capital is registered with the Brazilian Central Bank. At December 31,
1998, the Company's local currency financial statements presented an
accumulated deficit of the equivalent of US$178,254,650.

N-16

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

10 Taxes

Income taxes

(a) Under Brazilian Tax law, taxes are paid monthly based on the actual
or estimated monthly taxable income. Income taxes in Brazil include Federal
income tax and social contribution (which is an additional Federal income tax).
The statutory rates applicable in each period were as follows (in percentages):

Years ended December 31,
------------------------
%
---------------------------
1998, 1997 1996
---------------------------

Federal income tax.............................. 25 25
Social contribution(*).......................... 8 8
Adjustment to composite rate.................... (2.44)
----------- ------------
Composite Federal income tax rate............... 33 30.56
=========== ============

- --------
(*) The social contribution was deductible both for Federal income tax and
social contribution purposes until January 1, 1997, when the social
contribution became no longer deductible for income tax purposes. The
composite Federal income tax rate therefore increased from 30.56% to 33%.

(b) There are no state or local income taxes in Brazil.

(c) The amount reported as income tax charge or benefit relative to
continuing operations in the accompanying statement of operations is reconciled
to the statutory rates as follows:

Years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ -----------

Income (loss) before income
tax.......................... (237,799,820) (122,112,940) (12,788,036)
============ ============ ===========
Tax (charge) benefit at
statutory rates.............. 78,473,941 40,297,270 3,908,024
Adjustments to derive
effective rate
Exchange rates changes and
other effects.............. (5,188,878) (4,903,054) 842,368
Income tax on permanent
differences................ (131,050) (141,885) (132,161)
------------ ------------ -----------
Income tax (charge) benefit,
per consolidated statement of
operations................... 73,154,013 35,252,331 4,618,231
============ ============ ===========

N-17

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

(d) Analysis of tax balances

December 31,
----------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- --------------------
Current Long-term Current Long-term Current Long-term
---------- ----------- ---------- ----------- -------- ----------

Tax loss carryforwards.. 56,456,345 12,619,126 89,215
Differences between
Brazilian tax basis and
US GAAP
Assets
Deferred hook-up
revenue............. 221,883 54,171 240,227 357,526 212,258 493,877
Financing discount on
transponders........ 15,420,905 12,765,593 4,936,246
Capitalized cost of
subscribers' list... 576,996
Pre-operating
expenses deferred
for tax purposes.... 58,872,765 28,812,758 4,587,771
---------- ----------- ---------- ----------- -------- ----------
221,883 130,804,186 240,227 54,555,003 212,258 10,684,105
---------- ----------- ---------- ----------- -------- ----------
Liabilities
Carrying value of
fixed assets........ (3,684,984)
Discount on
transponder
financing........... (1,268,851) (15,191,997) (1,257,762) (11,751,404) (414,970) (3,947,660)
---------- ----------- ---------- ----------- -------- ----------
Net deferred tax
asset (liability)... (1,046,968) 111,927,205 (1,017,535) 42,803,599 (202,712) 6,736,445
========== =========== ========== =========== ======== ==========

No valuation allowance has been established to reduce or eliminate net
deferred tax assets as management believes, based on the expectation of profits
reflected in its business plan and the indefinite life of tax losses, that
realization is more likely than not.

Based on monthly taxable income, advances of federal income tax and
social contribution of US$910,352 were made during 1996. To the extent that
these exceeded that due on taxable income for the year they were carried
forward to be compensated against future tax payments.

As from January 1, 1996, the Company's tax loss carry forwards are no
longer price-level adjusted. Tax losses may be used to offset up to 30% of
taxable income in future years and do not expire.

(e) Other taxes

Law 8977 dated January 9, 1995 (the Cable Law), among other matters,
classified DBS subscription services as "Telecommunications Services". (These
services were not addressed by the Brazilian Telecommunications Code of 1962,
and until 1995 Net Sat had not been paying tax on subscription revenues based
on its interpretation of the conditions determined by each State or
municipality). Under the classification of the Cable Law, DBS subscription
revenues are considered as subject to ICMS--Value-added sales and service tax.
On April 4, 1995, the National Tax Policy Council (CONFAZ) approved Tax Accord
ICMS No. 5, which authorized the State tax authorities to reduce the ICMS tax
rate on such services to a minimum of 5%.

During the second quarter of 1995, the State of Sao Paulo, in which Net
Sat's analog operations were located, set the bases and rates of the ICMS tax
applicable to DBS operations at an effective rate of 5% on subscriptions and
hookup revenues. This rate was introduced to be applied retroactively as from
the commencement of each company's operations. Net Sat commenced paying this
tax on a current basis in May 1995. ln July 1996 negotiations for the
settlement of ICMS tax relating to prior periods of US$1,014,555 were
finalized, and the tax is to be paid in 60 monthly installments as from August
1996; the outstanding balance of US$432,696 at December 31, 1998 (1997--
US$714,356 and 1996--US$916,476) is subject to adjustment based on the Sao
Paulo State fiscal reference index (UFESP).

N-18

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

Based on Law 2773/94, during 1997 the Company was authorized to settle
ICMS 48 months after the import of equipment with no domestic equivalent. As of
December 31, 1998 long-term liabilities (other taxes payable) include
US$2,434,532 (1997--US$2,308,541) related to this obligation.

11 Commitments and Contingencies

The Company has a ten year agreement with DTH TechCo Partners for the
retransmission of television programming from an uplink facility in Florida
until 2008. The annual commitments are expected to be approximately
US$15,000,000.

Net Sat maintains commitments with the antenna and decoder suppliers to
subsidize their costs for a predetermined number of products. These commitments
will be based on future sales during 1999 and subsequent years.

12 Fair Value of Financial Instruments

Cash and cash equivalents are stated at cost plus accrued interest and
approximate fair value.

As of December 31, 1998, the carrying value of investments in U.S.
Government securities, including accrued interest, was US$12,687,971 (1997--
US$36,981,978; 1996--US$ 59,929,547), and their estimated fair value was
US$12,717,582 (1997--US$37,033,276; 1996--US$ 56,962,875). The Company intends
to hold these securities to maturity as required under the pledge agreement.

Based on interest rates currently available to Net Sat for supplier
financing with similar terms and average maturities, the fair value of long-
term transponder financing at December 31, 1998 approximates its carrying
value, after discount (Note 7).

Based on market quotations obtained as of December 31, 1998, the
estimated fair market value of the Notes is US$154,000,000 (1997--
US$183,000,000) and the carrying value is US$211,267,497 (1997--
US$206,232,329).

The carrying value of Net Sat's other financial instruments approximates
fair value at December 31, 1998, reflecting the short-term maturity of these
instruments at that date.

Fair market value estimates are made at a specific date, based on
relevant market information about the financial instruments. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

N-19

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

13 Selected Quarterly Financial Information (unaudited)

Financial data for the interim periods were as follows:

Quarters
----------------------------------------------------------------------------------------------------------------
First Second Third
----------------------------------- ------------------------------------ ------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
----------- ----------- --------- ----------- ----------- ---------- ----------- ----------- ----------

Net revenue..... 18,514,675 10,333,903 9,271,308 22,662,485 10,961,554 9,478,574 33,767,063 11,383,049 9,419,202
Operating income
(loss).......... (43,098,423) (10,682,556) 3,244,249 (54,050,968) (16,525,484) (2,613,128) (35,776,190) (27,567,579) (2,903,077)
Income (loss)
before
income tax...... (61,921,956) (16,168,142) (160,136) (71,869,612) (21,722,612) (2,275,902) (56,501,204) (35,835,034) (6,009,844)
Net income
(loss).......... (43,750,672) (11,408,211) 2,009,989 (48,610,367) (15,438,478) (1,241,909) (38,783,636) (25,783,159) (4,067,577)

Fourth
-------------------------------------
1998 1997 1996
------------ ------------ -----------

Net revenue..... 39,958,050 14,579,255 8,408,187
Operating income
(loss).......... (29,917,455) (39,933,184) (3,735,854)
Income (loss)
before
income tax...... (47,507,048) (48,387,150) (4,342,154)
Net income
(loss).......... (33,501,132) (34,230,761) (4,870,308)

N-20

NET SAT SERVICOS LTDA.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as of and for Years Ended December 31, 1998, 1997 and 1996
(Expressed in U.S. dollars, unless otherwise stated)

14 Subsequent Events

On January 13 and 15, 1999, certain significant changes occurred in the
exchange rate policy until then adopted by the Brazilian government. Going
forward, the Central Bank decided not to intervene in the foreign exchange
markets, which resulted in the elimination of certain exchange controls,
previously carried out by means of a system of currency trading bands. As a
result of this decision and market activity, the Real has devalued to
US$1:R$1.70 through January 22, 1999, equivalent to an accumulated devaluation
of approximately 40% from December 31, 1998. At present, it is not possible to
anticipate the effects of these or subsequent events on the financial position
of the Company, nor on the results of its operations nor its cash flows.

* * *

N-21

INNOVA, S DE R.L. de C.V. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report of Independent Accountants.......................................... I-2

Consolidated Balance Sheets as of December 31, 1998 and 1997............... I-3

Consolidated Statements of Loss for the years ended
December 31, 1998, and December 31, 1997 and for the period from
July 25, 1996 (Inception) to December 31, 1996............................ I-4

Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended December 31, 1998, and December 31, 1997
and for the period from July 25, 1996 (Inception) to December 31, 1996.... I-5

Consolidated Statements of Changes in Financial Position for
the years ended December 31, 1998, and December 31, 1997 and for the
period from July 25, 1996 (Inception) to December 31, 1996................ I-6

Notes to Consolidated Financial Statements................................. I-7

Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the respective financial statements or notes thereto.

I-1

[LETTERHEAD OF PRICEWATERHOUSECOOPERS]

To the Stockholders of
Innova, S. de R.L. de C.V.:

We have audited the accompanying consolidated balance sheets of Innova,
S. de R.L. de C.V. and subsidiaries (collectively the "Group") as of December
31, 1998 and 1997, and the related consolidated statements of loss, changes in
stockholders' equity (deficit) and changes in financial position for the years
ended December 31, 1998 and 1997 and for the period from July 25, 1996
(Inception) to December 31, 1996. These financial statements have been prepared
in accordance with accounting principles generally accepted in Mexico and are
the responsibility of the Group's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in Mexico, which are substantially the same as those followed in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As discussed in Note 3 to the consolidated financial statements,
effective January 1, 1997, the Group adopted the Modified Fifth Amendment to
Bulletin B-10, issued by the Mexican Institute of Public Accountants for
recognizing the effects of inflation and exchange rate movements on equipment,
and its related accumulated depreciation and depreciation expense.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Innova, S. de R.L. de C.V. and subsidiaries at December 31, 1998 and 1997 and
the consolidated results of their operations, changes in stockholders' equity
(deficit) and changes in their financial position for the years ended December
31, 1998 and 1997 and for the period from July 25, 1996 (Inception) to December
31, 1996, in conformity with accounting principles generally accepted in
Mexico.

Generally accepted accounting principles in Mexico vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Application of accounting principles generally
accepted in the United States of America would have affected the determination
of the consolidated results of operations for the years ended December 31, 1998
and 1997 and for the period from July 25, 1996 (Inception) to December 31, 1996
and the determination of total stockholders' equity (deficit) as of December
31, 1998 and 1997 to the extent summarized in Note 19 to the consolidated
financial statements.

[SIGNATURE]

By: Felipe Perez Cervantes, C.P.

Mexico, D.F.,
February 16, 1999, except with respect
to Note 14b for which the date is
March 30, 1999.

I-2

INNOVA, S. DE R.L. DE C.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
(Expressed in thousands of Mexican Pesos in purchasing power as of December 31,
1998)

1998 1997
------------- -------------

ASSETS
Current:
Cash & cash equivalents ....................... Ps. 238,229 Ps. 199,687
Trade accounts receivable, net (Note 4)........ 78,609 34,943
Short-term investments ........................ -- 538,514
Value added tax credit ........................ 42,420 124,315
Inventories (Note 5)........................... 28,401 14,999
Prepaid expenses and other..................... 43,379 34,553
Restricted investments (Note 6)................ 448,383 400,489
------------- -------------
Total current assets ........................ 879,421 1,347,500
------------- -------------
Restricted investments (Note 6).................. 237,319 669,158
Property and equipment, net (Note 7)............. 1,388,156 l,000,984
Deferred costs, net (Note 8)..................... 220,957 272,017
Intangible and other assets, net (Note 9)........ 281,562 353,484
------------- -------------
Total assets ................................ Ps. 3,007,415 Ps. 3,643,143
============= =============
LIABILITIES
Current:
Trade accounts payable ........................ Ps. 81,792 Ps. 123,124
Accrued expenses............................... 354,424 151,135
Due to affiliated companies and other related
parties (Note 10)............................. 222,517 252,525
Accrued interest............................... 125,348 115,334
Deferred income................................ 45,467 9,346
------------- -------------
Total current liabilities.................... 829,548 651,464
------------- -------------
Non-current liabilities:
Senior notes (Note 11)......................... 3,703,500 3,583,208
Stockholders' loans............................ 247,495 --
Other liabilities.............................. 81 44
------------- -------------
Total liabilities............................ 4,780,624 4,234,716
------------- -------------
Commitments and contingencies (Note 14)
STOCKHOLDERS' DEFICIT
Contributed capital:
Capital stock (Note 15)........................ 998,296 523,323
------------- -------------
Earned capital:
Accumulated losses............................. (1,087,294) (39,879)
Loss for the period............................ (1,689,468) (1,047,415)
Surplus (deficit) from restatement............. 5,257 (27,602)
------------- -------------
(2,771,505) (1,114,896)
------------- -------------
Total stockholders' deficit.................. (1,773,209) (591,573)
------------- -------------
Total liabilities and stockholders' deficit.. Ps. 3,007,415 Ps. 3,643,143
============= =============

The accompanying notes are an integral part of these consolidated financial
statements.

I-3

INNOVA, S. DE R.L. DE C.V. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS

For the Years Ended December 31, 1998 and 1997 and for the Period
from July 25, 1996 (Inception) to December 31, 1996
(Expressed in thousands of Mexican Pesos in purchasing power
as of December 31, 1998)

1998 1997 1996
------------- ------------- ----------

Net revenues and sales............... Ps. 722,264 Ps. 316,717 Ps. 1,861
Operating expenses:
Cost of sales...................... 1,103,847 694,154 28,997
Administrative expenses............ 157,709 132,735 6,838
Selling expenses................... 154,624 183,142 1,008
Other operating expenses........... 69,689 57,632 --
------------- ------------- ----------
Total operating expenses......... 1,485,869 1,067,663 36,843
Depreciation and amortization........ 358,811 140,918 5,966
------------- ------------- ----------
Operating loss..................... (1,122,416) (891,864) (40,948)
------------- ------------- ----------
Integral result of financing (Note
3):
Interest expense................... (520,650) (396,073) (445)
Interest income.................... 104,831 159,039 432
Foreign exchange losses, net....... (562,205) (47,684) (274)
Gain from monetary position........ 435,614 125,858 1,356
Other, net......................... (18,696) 3,310 --
------------- ------------- ----------
Total integral result of
financing....................... (561,106) (155,550) 1,069
Other expenses, net................ (5,941) -- --
------------- ------------- ----------
Loss before tax.................. (1,689,463) (1,047,414) (39,879)
Provision for income and assets
taxes............................... (5) (1) --
------------- ------------- ----------
Net loss......................... Ps.(1,689,468) Ps.(1,047,415) Ps.(39,879)
============= ============= ==========

The accompanying notes are an integral part of these consolidated financial
statements.

I-4

INNOVA, S. DE R.L. DE C.V. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Years Ended December 31, 1998 and 1997 and for the Period
from July 25, 1996 (Inception) to December 31, 1996.
(Expressed in thousands of Mexican Pesos in purchasing power as of December
31, 1998)

(Deficit) Total
surplus stockholders'
Capital from Accumulated Net equity
Stock restatement loss loss (deficit)
---------- ----------- ------------- ------------- -------------

Balance at July 25, 1996
(Inception)............ Ps. -- Ps. -- Ps. -- Ps. -- Ps. --
Initial contribution of
capital stock.......... 74 74
Surplus from holding
non-monetary assets.... 8,764 8,764
Net loss................ (39,879) (39,879)
---------- ---------- ------------- ------------- -------------
Balance at December 31,
1996................... Ps. 74 Ps. 8,764 Ps. -- Ps. (39,879) Ps. (31,041)
Capital contributions... 523,249 523,249
Transfer of net loss to
accumulated loss....... (39,879) 39,879
Deficit from holding
non-monetary assets.... (36,366) (36,366)
Net loss................ (1,047,415) (1,047,415)
---------- ---------- ------------- ------------- -------------
Balance at December 31,
1997................... Ps.523,323 Ps.(27,602) Ps. (39,879) Ps.(1,047,415) Ps. (591,573)
Capital contributions... 474,973 474,973
Transfer of net loss to
accumulated loss....... (1,047,415) 1,047,415
Surplus from holding
non-monetary assets.... 32,859 32,859
Net loss................ (1,689,468) (1,689,468)
---------- ---------- ------------- ------------- -------------
Balance at December 31,
1998................... Ps.998,296 Ps. 5,257 Ps.(1,087,294) Ps.(1,689,468) Ps.(1,773,209)
========== ========== ============= ============= =============

The accompanying notes are an integral part of these consolidated financial
statements.

I-5

INNOVA, S. DE R.L. DE C.V. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

For the Years Ended December 31, 1998 and 1997 and for the Period
From July 25, 1996 (Inception) to December 31, 1996
(Expressed in thousands of Mexican Pesos in purchasing power as of December 31,
1998)

1998 1997 1996
------------- ------------- ----------

Operating activities:
Net loss............................. Ps.(1,689,468) Ps.(1,047,415) Ps.(39,879)
Adjustments to reconcile net loss
to resources used in operating
activities
Depreciation and amortization.... 358,811 140,918 5,966
Satellite reorientation costs and
maintenance reserve............. 64,161 39,080 --
------------- ------------- ----------
(1,266,496) (867,417) (33,913)
Changes in operating assets and lia-
bilities:
Trade accounts receivable.......... (43,666) (34,068) (874)
Value added tax credit............. 81,895 (61,383) (62,932)
Inventories........................ (14,393) 5,665 (20,664)
Prepaid expenses and other......... (47,368) (33,599) (954)
Deferred cost...................... 51,060 (103,448) (211,060)
Intangible and other assets........ (6,913) 11,722 (32,103)
Trade accounts payable............. (41,332) 38,405 84,720
Accrued expenses................... 139,126 106,334 4,549
Due to affiliated companies and
other related parties............. (30,008) 137,666 116,032
Accrued interest................... 10,014 115,334 --
Deferred income.................... 36,122 9,345 --
Other.............................. 37 26 17
------------- ------------- ----------
Resources used in operating
activities...................... (1,131,922) (675,418) (157,182)
------------- ------------- ----------
Financing activities:
Issuance of senior notes........... 120,292 3,583,208 --
Due to affiliated companies and
other related parties............. -- (449,214) 449,214
Sale (purchase) of restricted in-
vestments, net.................... 383,945 (1,069,647) --
Stockholders' loans................ 247,495 -- --
Capital contributions.............. 474,973 523,249 74
------------- ------------- ----------
Resources provided by financing
activities...................... 1,226,705 2,587,596 449,288
------------- ------------- ----------
Investment activities:
Purchase of intangible assets...... -- (341,401) --
Investment in property and equip-
ment.............................. (594,755) (862,669) (262,013)
Sale (purchase) of short-term in-
vestments......................... 538,514 (538,514) --
------------- ------------- ----------
Resources used in investing
activities...................... (56,241) (1,742,584) (262,013)
------------- ------------- ----------
Cash & cash equivalents:
Increase for the period............ 38,542 169,594 30,093
At the beginning of the period..... 199,687 30,093 --
------------- ------------- ----------
At the end of the period......... Ps. 238,229 Ps. 199,687 Ps. 30,093
============= ============= ==========

The accompanying notes are an integral part of these consolidated financial
statements.

I-6

INNOVA, S. DE R.L. DE C.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Mexican Pesos in purchasing power as of December 31,
1998)

1. The Company and its principal operations

Description of business and formation:

Innova, S. de R.L. ("Innova" or the "Company"), a Mexican company with
limited liability, was incorporated on July 25, 1996 ("Inception"), as a
wholly-owned subsidiary of Grupo Televisa, S.A. ("Televisa"). In March 1997,
Televisa entered into an agreement with News Corporation Limited ("News
Corporation") to operate DTH broadcast satellite pay television services in
Mexico. As a result of the agreement, News Corporation made an equity
contribution to Innova of Ps.209,325 for a 40% interest in the Group. In April
1998, Tele-Communications International, Inc., ("TINTA") acquired a 10%
interest in the Group from News Corporation. On July 2, 1998, the Company's
equity and legal structure was changed to a variable capital limited liability
company, with a fixed minimum capital stock of Ps.827,750 (nominal pesos) and
unlimited variable capital. The Company and its subsidiaries are collectively
referred to as the "Group".

The Group's business requires a concession (license granted by the
Mexican federal government) to operate. On May 24, 1996, the Minister of State
for Transportation and Communications (the "SCT") ratified the concession
granted to Corporacion de Radio y Television del Norte de Mexico, S.A. de C.V.
("Radio y Television") to offer direct-to-home ("DTH") satellite broadcasting
services in Mexico using domestic satellites. The concession is for a period of
thirty years, beginning May 24, 1996, and renewable in accordance with Mexican
Communications Law. Radio y Television was subsequently acquired by, and since
October 1, 1996, has been a wholly-owned subsidiary of the Company. On December
15, 1996, the Group launched its digital Ku-band DTH broadcast satellite pay
television services in Mexico. Through December 31, 1996, revenues consisted
exclusively of sales of DTH units (satellite dishes, low noise blockers ("LNB")
and related components and equipment installation). The Group began receiving
subscriber revenues in 1997.

The offering:

In 1997, the Company consummated an offering (the "Offering") of U.S.$375
million dollar denominated senior notes. In late 1997, the senior notes were
exchanged for registered senior exchange notes of equal value (collectively the
"Notes"). A portion of the net proceeds from the Offering was used (i) to repay
Televisa and News Corporation approximately U.S.$24.6 million for certain
amounts advanced for capital expenditures and preoperating expenses, net of the
contribution to equity of certain indebtedness owed by the Group to Televisa
and its affiliates, (ii) to purchase U.S.$130 million of U.S. Government
securities, representing funds sufficient to cover the first six payments of
interest on the Notes, and (iii) to consummate the Medcom Acquisition described
below. The balance of the net proceeds from the Offering is being used (i) to
finance capital expenditures and operating expenses in connection with the roll
out and expansion of the Group DTH service, and (ii) for working capital and
other general corporate purposes.

Medcom acquisition:

In October 1997, the Group purchased certain assets and transponder
rights from Television Medcom, S.A. de C.V. and subsidiaries ("Medcom"), a DTH
satellite television company in Mexico. In addition, certain Medcom
shareholders agreed to five-year non-compete agreements with respect to
Spanish-language DTH services in Mexico, subject to certain exceptions. The
aggregate cash consideration paid by the Group was U.S.$57.7 million, excluding
value added taxes. The tangible assets acquired were recorded at appraised
value with the remainder of the purchase price allocated to the identifiable
intangible assets, composed of the non-compete agreements and certain
transponder rights. The acquisition allowed the Company to expand its channel
offerings by over 45 video channels.

I-7

2. Summary of significant accounting policies

The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Mexico ("Mexican GAAP") as
promulgated by the Mexican Institute of Public Accountants ("MIPA"). A
reconciliation from Mexican GAAP to United States generally accepted
accounting principles ("U.S. GAAP") is included in Note 19.

The principal accounting policies followed by the Group are as follows:

a) Basis of presentation

The financial statements of the Group as of and for the years ended
December 31, 1998 and 1997 and for the period from Inception to December 31,
1996, are presented on a consolidated basis. All significant intercompany
balances and transactions have been eliminated.

Certain prior period amounts have been reclassified to conform with the
1998 basis of presentation.

b) Members of the Group

At December 31, 1998, the Group consists of the Company and the
following subsidiaries:

. Corporacion de Radio y Television del Norte de Mexico, S.A. de C.V.
. Corporacion Novavision, S. de R. L.
. Corporacion Novaimagen, S. de R. L.
. Chilpancingo, S.A.

The foregoing companies were formed as subsidiaries of the Company with
the exception of Radio y Television and Chilpancingo which were acquired by
the Company in October 1996 and January 1997, respectively. Chilpancingo was
purchased from Televisa for Ps. 1,744 and had minimal operations.

c) Cash and cash equivalents

The Group considers all highly liquid temporary cash investments with
original maturities of three months or less, consisting primarily of overnight
deposits and obligations of the Mexican Government to be cash equivalents.

d) Short-term investments

Short-term investments consisted of term deposits and obligations of the
Mexican Government, with original maturities beyond three months but less than
one year and accrued interest thereon.

e) Inventories

Inventories are recorded at original cost. Subsequently, they are
revalued to the lower of net replacement cost or net realizable value. Costs
are removed from inventory on a first-in, first-out (FIFO) basis.

I-8

f) Restricted investments

Restricted investments, consisting of U.S. Government treasury
securities, will be held to maturity and are carried at amortized cost plus
accrued interest.

g) Property and equipment

Property and equipment are recorded at acquisition cost. From Inception
through December 31, 1996, property and equipment were revalued to net
replacement cost, and thereafter have been restated using the National Consumer
Price Index ("NCPI"), except for equipment of a non-Mexican origin, which is
restated using an index which reflects the inflation in the respective country
of origin and the exchange rate of the Mexican peso against the currency of
such country at the balance sheet date ("Specific Index").

When assets are retired or otherwise disposed of, the cost and the
accumulated depreciation are removed from the appropriate accounts and any gain
or loss is included in results of operations.

External costs incurred for internal use software is capitalized in
computer equipment and depreciated over three years.

h) Depreciation

Depreciation of property and equipment is based upon the restated
carrying value of the assets and is recognized using the straight-line method
over the estimated useful lives of the assets, which range from 3 to 10 years.
Depreciation was first recorded for the month of December 1996, with the
commencement of operations.

i) Preoperating expenses

The Group has deferred preoperating expenses incurred prior to the launch
of the satellite pay television services on December 15, 1996. Amortization is
calculated using the straight-line method over a term of five years and was
first recorded in the month of December 1996, with the commencement of
operations.

j) Seniority premiums and indemnities

The Group established, in accordance with Mexican law, a seniority
premium reserve for all its personnel, such reserve is determined by an
independent actuary under the projected unit credit method.

Costs, assets and liabilities derived from the labor obligations upon
retirement are determined using real rates of interest (net of inflation) in
the actuarial valuation and the resulting asset or liability is considered a
non-monetary item. The seniority premium reserve has not been funded.

The payments for compensation to personnel (seniority premiums) are
charged to the liability at the time they are made. Severance obligations to
dismissed personnel are charged to income in the year in which they are
incurred.

k) Foreign currency

Assets and liabilities denominated in foreign currencies are reported at
the prevailing exchange rate at the balance sheet date. Exchange differences on
monetary assets and liabilities are included in income for the period and
reflected in the integral result of financing. Revenues, costs and expenses
denominated in foreign currencies are reported at the average rates in effect
for each month of the year.

I-9

l) Revenue recognition

Sales of DTH units are without service obligations and are recognized
when the equipment is delivered to customers. Subscriber revenues are
recognized on a monthly basis as DTH service is provided. Subscriber revenues
paid in advance are deferred until earned. As of December 31, 1998 and 1997,
sales are net of Ps.12,848 and Ps.1,752 respectively for the payment to the
Mexican Government under the terms of the Group's concession of 2.5% and 1.5%
respectively of subscriber revenues. Starting in 1999, the payments increased
to 3.5% of subscriber revenues in 1999. Installation, activation and
maintenance charges are recognized when services are provided.

m) Income tax

Income tax is generally provided based upon taxable income for the
period. Deferred taxes are recorded only for significant distinct timing
differences whose reversal is reasonably assured within a defined period of
time and will not be replaced by other timing differences of similar nature and
amount.

n) Capitalized financing costs

The Group capitalizes the integral financing costs attributable to
acquired assets during installation and to preoperating expenses. Capitalized
integral financing costs include interest costs, gains from monetary position
and foreign exchange gains or losses, and are determined by reference to the
Group's average interest cost of outstanding borrowings. The amount of the
integral financing cost capitalized in preoperating expenses and in property
and equipment for the year ended December 31, 1996, amounted to Ps.2,194 and
Ps.2,325, respectively. No amounts were capitalized in 1998 and 1997.

o) Concentrations

Financial instruments which potentially subject the Group to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments, restricted investments and trade accounts receivable.
The Group maintains its cash and cash equivalents, short-term investments and
restricted investments with various major financial institutions and are
principally invested in obligations of the U.S. and Mexican governments.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers throughout Mexico. The Group's
policy is to require one month's payment in advance and to reserve for all
accounts receivable greater than ninety days. Bad debt expense was Ps.4,892 in
1998 and Ps.585 in 1997. No bad debt expense was recorded in 1996.

In order to provide DTH service to customers, the Group relies on the use
of 12 Ku-band transponders on the Solidaridad 2 satellite. The use of these
transponders is unprotected, as a result any long term disruption to one or
more of the transmission signals could have a material adverse effect on the
Group.

p) New accounting bulletins

In September 1998, the MIPA issued a revised Bulletin D-3, "Labor
Obligations". The revised Bulletin D-3, which is effective as of January 1,
1999, confirms the provisions of Circular 50 related to the use of real
assumptions, net of inflation, in actuarial calculations of pension and
seniority premium costs, and the non-monetary nature of the pension and
seniority premium liabilities. The revised Bulletin D-3 provides guidelines for
the accounting and disclosures of plan terminations, curtailments and
settlements. The adoptions of the revised Bulletin D-3 in 1999 is not expected
to materially affect the Group's results of operations or financial position.

I-10

3. Effects of inflation on the financial statements

The consolidated financial statements of the Group have been prepared in
accordance with Bulletin B-10, "Recognition of the Effects of Inflation on
Financial Information", as amended ("Bulletin B-10"), issued by the MIPA, which
provides guidance for recognizing the effects of inflation. The financial
statements of the Group are presented in Mexican Pesos in purchasing power as
of December 31, 1998 in order to be comparable to financial information as of
that date, as follows:

. The balance sheets have been restated in Mexican Pesos in purchasing
power as of December 31, 1998 using the NCPI as of December 31, 1998.

. The statements of loss and changes in stockholders' deficit have been
restated in Mexican Pesos in purchasing power as of December 31, 1998
using the NCPI for the month in which the transactions occurred.

The restatement of the financial statements has been applied in
accordance with Bulletin B-10 guidelines as described below:

Restatement of non-monetary assets

Effective January 1, 1997, property and equipment, except for equipment
of non-Mexican origin, are restated using the NCPI. Equipment of non-Mexican
origin is restated by the Specific Index. The Specific index is derived from
inflation of the country of the assets' origin and the foreign currency
exchange rate of the Mexican Peso against the currency of such country. Prior
to January 1, 1997, property and equipment were restated using replacement
costs reviewed by independent appraisers approved by the Comision Nacional
Bancaria y de Valores ("CNBV"). Replacement costs at December 31, 1996, became
the basis for subsequent restatement adjustments.

Property and equipment in use at the beginning of the year are
depreciated based on the restated value as of the beginning balance sheet date.
Additions during the year are depreciated based on the original cost.

Restatement of stockholders' equity (deficit)

Capital stock and other stockholders' equity accounts (other than deficit
/ surplus from restatement) include the effect of restatement, determined by
applying the NCPI factor to the applicable period. The restatement represents
the amount required to maintain the contributions and the accumulated results
in Mexican Pesos in purchasing power as of December 31, 1998. The deficit /
surplus from restatement includes the result from holding non-monetary assets
and is the cumulative difference between the specific cost of non-monetary
assets and restatement of such assets using the Specific Index.

Integral result of financing

Foreign exchange gains or losses included in the integral result of
financing are calculated by reporting monetary assets and liabilities
denominated in foreign currencies at the rate of exchange in effect at the end
of each month. The gain or loss from monetary position represents the effects
of inflation, as measured by the NCPI, on the monetary assets and liabilities
of the Group at the beginning of each month. For the years ended December 31,
1998 and 1997 and for the period from Inception to December 31, 1996, monetary
liabilities exceeded monetary assets, resulting in gains from monetary position
during the periods.

I-11

Statement of changes in financial position

Bulletin B-12, "Statements of Changes in Financial Position" ("Bulletin
B-12"), issued by the MIPA, specifies the appropriate presentation of the
statement of changes in financial position when the financial statements have
been restated in constant monetary units in accordance with the Third Amendment
to Bulletin B-10. Bulletin B-12 identifies the generation and application of
resources as the differences between beginning and ending financial statement
balances in constant monetary units. The Bulletin also requires that monetary
and foreign exchange gains and losses not be treated as non-cash items in the
determination of resources provided by operations. The translation effects of
operating assets and liabilities are included in the stated change in the
related item.

Other accounts

The following accounts are restated using the NCPI:

Preoperating expenses and related amortization
Deferred advertising and related amortization
Debt issuance cost and related amortization
Leasehold improvements and related amortization
Intangible assets and related amortization

National Consumer Price Index (NCPI)

Restatement of the financial statements to Mexican pesos in purchasing
power as of December 31, 1998, in accordance with the Third Amendment to
Bulletin B-10, requires restatement of the results for each month during each
year using the NCPI. The NCPI as of December 31, 1998, 1997 and 1996 was
275.038, 231.886 and 200.388 respectively.

4. Trade accounts receivable, net

Trade accounts receivable, net includes the receivables from DTH services
provided to subscribers, from the sale of DTH units and from the sale of
advertising. Balances as of December 31, consist of:

1998 1997
--------- ---------

Trade accounts receivable........................... Ps.83,994 Ps.35,528
Allowance for doubtful accounts..................... (5,385) (585)
--------- ---------
Ps.78,609 Ps.34,943
========= =========

5. Inventories

Inventories as of December 31, consist of:

1998 1997
--------- ---------

Smart cards........................................... Ps.10,169 Ps. 785
Antennas.............................................. 3,845 --
Low noise blockers.................................... 7,089 3,628
--------- ---------
21,103 4,413
Advances to suppliers................................. 4,693 555
In transit............................................ 2,605 10,031
--------- ---------
Total............................................... Ps.28,401 Ps.14,999
========= =========

I-12

6. Restricted investments

Restricted investments as of December 31, 1998, consist of U.S.
Government securities and accrued interest thereon, of approximately U.S.$69.4
million, which were pledged as security to provide for payment in full of the
first six scheduled interest payments due on the Notes. The first three
interest payments were made in October 1997, March 1998 and September 1998.
The securities bear interest at various rates and have maturities as follows:

Par value
(In thousands of
% Rate Maturity U.S. dollars)
------ ------------------ ----------------

5.875% March 31, 1999 U.S.$21,893
7.125% September 30, 1999 22,536
6.875% March 31, 2000 23,338

7. Property and equipment, net

Property and equipment, net as of December 31, consists of:

1998 1997
------------ ------------

Transmission equipment........................ Ps. 354,171 Ps. 362,576
Integrated receiver/decoders ("IRD").......... 1,163,582 535,289
Computer equipment............................ 86,446 83,009
Furniture..................................... 6,151 3,502
Buildings..................................... 1,523 1,523
Transportation equipment...................... 1,285 346
------------ ------------
1,613,158 986,245
Accumulated depreciation...................... (340,420) (95,335)
------------ ------------
1,272,738 890,910
Land.......................................... 6,529 18,719
Equipment in progress......................... 108,861 75,554
Advances to suppliers......................... 28 15,801
------------ ------------
Ps.1,388,156 Ps.1,000,984
============ ============

Depreciation expense for the years ended December 31, 1998 and 1997 and
for the period from Inception through December 31, 1996 was Ps.244,769,
Ps.90,565 and Ps.2,785, respectively.

At December 31, 1998 and 1997, transmission equipment, computer
equipment and transportation equipment include restated assets which are of a
non-Mexican origin of Ps.1,402,101 and Ps.724,617, respectively, net of
accumulated depreciation. Computer equipment includes Ps.76,959 and Ps.57,107
of capitalized software costs as of December 31, 1998 and 1997 respectively.

Property and equipment at December 31, 1998 includes depreciable assets
not in use as follows:

Transmission equipment...................... Ps.105,824
Computer equipment.......................... 2,871
Buildings................................... 1,523
Furniture................................... 135
----------
Ps.110,353
==========

I-13

8. Deferred costs, net

Deferred costs, net as of December 31, consists of:

1998 1997
---------- ----------

Preoperating expenses(a).......................... Ps.190,860 Ps.190,860
Debt issuance costs(b)............................ 127,731 128,459
Leasehold improvements............................ 5,912 3,957
---------- ----------
324,503 323,276
Accumulated amortization.......................... (103,546) (51,259)
---------- ----------
Ps.220,957 Ps.272,017
========== ==========

Amortization of leasehold improvements was Ps.1,302 and Ps.704 in 1998
and 1997 respectively.

a) Preoperating expenses

Preoperating expenses consist of:

Transponders payments......................................... Ps. 33,127
Salaries and benefits......................................... 3,987
Advertising costs(c).......................................... 92,953
Fees.......................................................... 9,472
Administrative expenses....................................... 47,748
Capitalized financing costs................................... 2,194
Other......................................................... 1,379
----------
Ps.190,860
==========

Amortization of preoperating expenses in 1998 and 1997 and from
Inception through December 31, 1996, was Ps.38,172, Ps.38,172 and Ps.3,181
respectively.

b) Debt issuance costs

Debt issuance costs represent expenses incurred for the issuance of the
Notes during 1997. These costs are amortized on a straight-line basis over the
term of the Notes. Amortization expense of Ps.12,811 and Ps.9,204 during 1998
and 1997, respectively is included in interest expense.

c) Deferred advertising costs

Advertising costs incurred prior to the launch of the Group's DTH
service were capitalized as part of preoperating costs and are amortized over
five years. Advertising expenditures coinciding with the launch of the Group's
DTH service were deferred and amortized using the straight-line method over
one year. All other advertising costs are expensed as incurred. Advertising
costs expensed in 1998 and 1997 were approximately Ps.98,676 and Ps.113,605,
respectively.

9. Intangible and other assets, net

Intangible assets, net consist primarily of non-compete agreements and
certain transponder rights acquired during 1997. The assets are amortized on a
straight-line basis over five years. The balance is net of accumulated
amortization of Ps.86,034 and Ps.11,472 at December 31, 1998 and 1997,
respectively.

I-14

10. Transactions with affiliated companies and other related parties

The principal transactions of the Group with affiliated companies and
related parties are:

1998 1997 1996
---------- ---------- ----------

Acquisition of smart cards............ Ps. 23,328 Ps. 14,473 Ps. 8,730
Finance costs......................... 333 2,372 9,892
Advertising costs (a)................. 32,747 55,863 79,167
Broadcasting services, Mexico City
(b).................................. 41,397 33,216 12,255
Special events programming (c)........ 38,154 14,453 --
Programming (d)....................... 55,571 7,926 --
Management and administrative
services (e)......................... 24,435 44,126 85,333
Fixed asset acquisitions.............. (4,969) 122,328 97,898
Guaranty deposits..................... -- 7,544 31,766
Royalties (f)......................... 38,811 18,790 --
Broadcasting services, Florida (g).... 104,063 110,636 --
Maintenance services.................. 2,235 2,240 --
Call Center services (h).............. 19,650 12,970 --
Borrowings from affiliates............ 247,495 -- 424,549
Other................................. 2,210 1,455 --

- -------
(a) The Group from time to time purchases advertising time and production and
creative services from Televisa on an as needed basis.
(b) The Group purchases uplink and downlink, playout, and compression
services from an affiliate of Televisa for operations conducted in the
Mexico City broadcast facility.
(c) The Group purchases on occasion the rights to broadcast certain special
events programming from Televisa and its affiliates.
(d) The Group purchases the rights to broadcast certain popular channels
through affiliate of Televisa and News Corporation. Fees for this
programming are based on the number of subscribers.
(e) The Group obtains certain management services from Televisa.
(f) Royalties paid to an affiliate of News Corporation consist of license,
security and access fees and charges for the use of certain technology.
The monthly fees and charges are based on either the total number of
subscribers or new subscribers during the period.
(g) The Group has an informal agreement with DTH Techo Co. Partners, an
affiliate of both Televisa and News Corporation for play-out, uplink and
downlink of signals and compression services. Costs for these services are
anticipated to be approximately U.S.$ 10 million annually.
(h) The Group receives call processing services and customer care from an
affiliate of Televisa.

The outstanding balances due to affiliates and other related parties as
of December 31, are as follows:

1998 1997
---------- ----------

Televisa and subsidiaries........................ Ps. 87,772 Ps. 87,957
News Corporation and subsidiaries................ 110,296 99,770
Entities in which both Televisa, and News
Corporation own, directly or indirectly,
significant interests........................... 24,449 64,798
---------- ----------
Ps.222,517 Ps.252,525
========== ==========

For a description of certain commitments with affiliates and other
related parties, see Note 14.

I-15

11. Senior notes

In 1997, the Group concluded an offering of senior debt securities,
priced to yield gross proceeds of U.S.$375 million and mature in April 2007.
The Notes, which bear interest at a rate of 12 7/8%, are redeemable at the
option of the Group, in whole or in part, at any time on or after April 1,
2002, initially at 106.4375% of their principal amount, plus accrued interest,
declining ratably to 100% of their principal amount, plus accrued interest, on
or after April 1, 2004. Interest on the Notes is payable semiannually on April
1 and October 1 of each year, commencing October 1, 1997. The Notes, which are
unsecured, unsubordinated indebtedness of the Group, contain certain covenants
which, among other things, restrict the ability of the Company and certain
subsidiaries to incur or guarantee additional indebtedness, make certain
dividend, investment or other restricted payments, issue or sell stock of
certain subsidiaries, enter into certain transactions with stockholders or
affiliates, create liens, engage in sales-leaseback transactions, sell assets
(except IRDs), or with respect to the Company, consolidate, merge, or sell all
or substantially all of its assets. The indenture agreement required the Group
to purchase and pledge as security for the benefit of the holders of the Notes
a portfolio of U.S. Government Securities (see Note 6).

12. Stockholders' loans

The Group's stockholders have agreed to make available to the Group up to
U.S.$67.5 million in loans and up to U.S.$64.5 million in capital
contributions. The loans and capital contributions will be based on the monthly
funding requirements of the Group, but may not exceed the above maximums.

Each stockholder loan plus accrued interest is payable in full ten years
from the date of issuance. The maturity date of any individual loan may be
accelerated or otherwise modified including by means of providing for periodic
payments of interest or principle upon joint agreement of the stockholders and
the Group. Each loan will bear interest at an annual rate of 9%.

On December 23, 1998, the Group borrowed U.S.$25 million under the
agreement.

13. Financial instruments

The Group's financial instruments include cash and cash equivalents,
trade accounts receivables, short-term investments, restricted investments,
trade accounts payable, due to affiliated companies and other related parties,
and debt. For cash and cash equivalents, trade accounts receivables, short-term
investments, trade accounts payable, and due to affiliated companies and other
related parties, the carrying amounts approximate fair value due to the short
maturity of these instruments.

The fair value of the Group's restricted investments and Notes are based
on quoted market prices. The estimated fair values of these instruments at
December 31, 1998 are as follows:

Carrying value Fair value
---------------- ----------------

Restricted investments................ U.S.$ 67,767,000 U.S.$ 68,846,000
Notes................................. U.S.$375,000,000 U.S.$273,750,000

The Notes are thinly traded financial instruments accordingly, their
market price at any balance sheet date may not be representative of the price
which would be derived from a more active market.

Management is unable to estimate the fair value of the stockholder loans
due to their nature.

I-16

14. Commitments and contingencies

a) In April 1998, the Group signed a definitive agreement with PanAmSat
Corporation ("PanAmSat") for the use of 12 Ku-band transponders on the PAS-5
satellite. As a result of uncorrectable signal interference, the satellite was
never used to provide services to customers. In late 1998, the Group initiated
negotiations to cancel the agreement. As of December 31, 1998, the Group
recorded as cost of sales total payments of U.S.$21.9 million for the
availability of PAS-5 since October 1997, even though the satellite could not
be used for its intended purpose.

On February 8, 1999, the Group and PanAmSat entered into a new agreement
for satellite signal reception and retransmission service from 12 Ku-band
transponders on a new satellite("PAS-9"), expected to be launched during the
second half of 2000. PAS-9, which will have different frequencies and
footprint than PAS-5, along with other technical advantages shall provide a
solution to the terrestrial interference problem affecting PAS-5. The PAS-9
agreement terminated and unconditionally released the parties from the PAS-5
agreement. The in service date is currently estimated to be no later than June
2000, and the service term will end at the earlier of (a) the end of 15 years
or (b) the date PAS-5 is taken out of service. The Group is committed to pay a
monthly fee of U.S.$1.7 million per month. The Group will receive a credit
against the initial service fees of U.S.$11.7 million otherwise payable under
the new agreement. The credit will apply only against monies otherwise payable
to PanAmSat by the Group and will not be recoverable if the agreement is
terminated for any reason without payments amounting to said credit becoming
due.

The use of the PAS-9 transponders is subject to the receipt of a
concession from the Mexican government allowing the Group to use a foreign
satellite, which is pending.

The obligations of the Group under the PAS-9 agreement are guaranteed by
the Group's stockholders.

b) The Group currently uses the 12 Ku-band transponders on the
Solidaridad 2 satellite owned by Satellites Mexicanos, S.A. de C.V. ("SATMEX")
under two separate agreements which expire in September and October 1999. The
agreements require monthly payments of U.S.$200,000 and U.S.$195,000 for each
of the five and seven transponders, respectively. On March 30, 1999, the Group
and SATMEX entered into a new agreement for the use of 12 Ku-band transponders
on the Solidaridad 2 satellite. The new agreement replaces the two previous
agreements. The agreement term is from April 1, 1999 through December 31,
2001. The total amount of the agreement is U.S.$68.6 million as follows:

--Initial fee of U.S.$5 million consisting of a U.S.$3 million payment at
the date of signature of the agreement and a U.S.$2 million payment
before June 30, 1999;

--Monthly payments of U.S.$200,000 per transponder from April 1, 1999
through December 31, 1999;

--Monthly payments of U.S.$146,000 per transponder from January 1, 2000
through December 31, 2001.

c) In 1996, the Group signed an agreement with an affiliate of News
Corporation to acquire and implement a conditional access system. This system
includes Smart Cards which decode satellite signals and control access by
subscribers. Additionally, the Group has acquired from this affiliate and
other suppliers a subscriber management system (SMS) designed specifically for
DTH services for approximately U.S.$8.5 million. Under these arrangements, the
Group's annual commitments with this affiliate are estimated to be
approximately U.S.$5.7 million for royalties, licenses and maintenance of the
foregoing systems. In 1998 and 1997 the Group incurred expenses of US$3.4
million and U.S.$2.2 million, respectively.

I-17

The Group has entered into agreements with Televisa and an affiliate of
Televisa to provide uplink and downlink, playout and compression services at
the Mexico City station. The annual commitments are estimated to be
approximately U.S.$4.4 million per year. In 1998 and 1997 the Group incurred
expenses of U.S. $3.8 million and U.S.$3.3 million, respectively.

In 1996, the Group entered into several contracts with programming
providers, establishing that the amounts payable to the programmers will be
based on the number of subscribers. As of December 31, 1996, the financial
statements reflected no charge due to a one month period of free programming
negotiated with the providers during the initial months of operation. These
charges started in February 1997 and totaled Ps.224.0 million and Ps.42.5
million for the years ended December 31, 1998 and 1997, respectively.

Outstanding letters of credit which guarantee payment for the purchases
of integrated receiver/decoders, were approximately U.S.$3.9 million at
December 31, 1997. There were no letters of credit outstanding at December 31,
1998.

d) The Ministry of Finance and Public Credit ("Ministry") has asserted
that the Company did not file certain information concerning the Notes on a
timely basis. Such information is required to be filed in order to benefit from
the reduced withholding tax rate of 4.9% on interest payments to foreign
holders of the Notes. The Company disputes the Ministry's position and has
sought a declaratory judgment (amparo) from a Mexican federal court to confirm
that it may withhold tax at the reduced rate. In July 1998, the Ministry
published a pronouncement that authorizes the Company to withhold tax at the
reduced rate if the Company paid a surcharge within a specified period of time.
The Company paid the surcharge in November 1998 to benefit from the
pronouncement without abandoning the relief sought under the amparo;
notwithstanding, no assurance can be given that the 4.9% withholding tax on
interest paid will apply if the final resolution of the declaratory judgment
(amparo) mentioned above is not favorable to the Company. In the event of a
favorable resolution on the amparo, the Company will be able to withhold tax at
the reduced rate and expects to seek to recover the surcharge paid to the tax
authorities. In the event of an unfavorable outcome, the applicable withholding
tax would be 15% for 1997 and 1998 and 10% thereafter in accordance with
current tax law over the term of the Notes, excluding any possible penalties
and surcharges.

15. Capital stock

On April 1, 1998, the Series A-2 and B-2 partnership interests were
assigned to the holders of the Series A-1 and B-1 partnership interests,
respectively. Simultaneously TINTA acquired a 10% interest in the Group from
News Corporation represented by the Series B-2 partnership interest.

The capital stock as of December 31, 1998, is represented by three
partnership interests of unequal value, distributed as follows:

Partnership
interest Subseries Amount
----------- --------- ----------

1 A-1 Ps.598,978
1 B-1 299,489
1 B-2 99,829

Series A is composed of a partnership interest initially representing 60%
of the total capital stock. The Series A partnership interest may be subscribed
to only by persons of Mexican nationality.

Series B is composed of a partnership interest initially representing 40%
of the total capital stock. The Series B partnership interest will be
unrestricted as to ownership and therefore, may be acquired by Mexican
investors and foreign natural and legal persons or by persons, companies or
entities that are included in Article 2, Section III of the Foreign Investments
Law.

I-18

In March, 1997, certain amounts owed by the Group to Televisa were
forgiven resulting in a contribution to capital of Ps.313,924.

On April 1, 1998, the Group received cash contributions of U.S.$30
million from Televisa and U.S.$20 million from News Corporation.

Future dividends will be tax-free if distributed from the net tax income
account ("CUFIN"). Dividends paid in excess of the CUFIN balance will be
subject to a 35% tax on the dividend times the factor of 1.5385. The
corresponding tax will be payable by the Group. In addition, dividends paid to
natural persons or nonresidents are subject to an additional withholding tax
equal to 5% of the dividend times the factor noted above.

The ability of the Group to declare dividends is restricted by the Note
indenture.

16. Accumulated losses

Under Mexican Corporate Law, interested third parties can request the
dissolution of the Group if accumulated losses exceed two-thirds of capital
stock. At December 31, 1998, the Group's accumulated losses exceeded its
capital stock. Although the Group believes it is unlikely such action will
occur, the Group obtained from Televisa, News Corporation and TINTA a
commitment to provide financial support to the Group in proportion to their
respective ownership interests, if required, to avoid such action. For the
period up to one year after the balance sheet date.

The recoverability of the Group's investment in DTH infrastructure and
product development is dependent upon future events, including, but not limited
to, the stability of the Mexican economic environment, obtaining adequate
financing for the Group's development program, the continued operation of
satellites owned by third parties, the competitive and market environment for
pay television services in Mexico, and the achievement of a level of operating
revenues that is sufficient to support the Group's cost structure.

17. Provision for taxes and employees' statutory profit sharing

The Group received authorization from Mexican tax authorities to be
included in the consolidated tax return of Televisa and its consolidated
subsidiaries for purposes of determining income taxes and assets tax beginning
January 1, 1997 (Radio y Television and Chilpancingo were consolidated in
Televisa's tax return prior to January 1, 1997). The tax profit or loss
obtained by the Group will be consolidated with the tax profit or loss of
Televisa to the extent of Televisa's percentage ownership of the Group. Tax
losses incurred prior to January 1, 1997, will not be available to Televisa.

The Group expects to incur tax losses during the next few years. Tax
losses can be carried forward for up to ten years and offset against any
profits that the Group or Televisa may generate during that period in
accordance with the Income Tax Law.

The Group entered into a tax sharing agreement with Televisa under which
the Group will, during the periods that the Group is a part of Televisa's
consolidated tax group, pay Televisa the amount of income and asset taxes that
Televisa is required to pay on behalf of the Group. No such amount will be
payable until the Group's profits exceed its tax loss carryforwards.
Conversely, Televisa shall pay to the Group the portion of any tax refund
allocable to the Group.

Under the income Tax Law, if the Group is deconsolidated from Televisa's
tax group, Televisa will be required to recognize profits in respect of tax
loss carryforwards generated by the Group that Televisa previously utilized,
and the Group may thereafter utilize such tax loss carryforwards to the extent
permitted under the Income Tax Law.

I-19

At December 31, 1998, the Group had total tax loss carryforwards of
Ps.2,383,018, which will under certain circumstances, be carried forward over
ten years from the period generated.

The Group, other than Radio y Television and Chilpancingo (acquired
entities), will not be subject to assets taxes until 2000 in accordance with
the Asset Tax Law.

The following items represent the principal differences between income
taxes computed at the statutory rate and the Group's provision for income
taxes:

1998 1997 1996
------------ ----------- ----------

Tax at the statutory rate (34%)
on loss before provisions.......... Ps.(574,4l7) Ps.(356,121) Ps.(13,558)
Differences in restatement.......... 90,353 31,651 (1,668)
Tax loss carryforwards.............. 447,603 299,954 67,451
Differences between tax and finan-
cial accounting for cost of sales
and purchases...................... (3,338) 973 (5,492)
Deferred advertising................ (241) 9,658 (38,070)
Depreciation and amortization....... 11,205 10,834 2,027
Debt issuance costs................. 3,381 (36,793) --
Provisions.......................... 4,728 48,746 --
Transponder payments................ -- -- (11,122)
Deferred income..................... 12,780 3,178 --
Other............................... 7,946 (12,080) 432
Provision for income tax............ -- -- --
Assets tax.......................... (5) (1) --
------------ ----------- ----------
Total............................. Ps. (5) Ps. (1) Ps. --
============ =========== ==========

Employees' statutory profit sharing in Mexico is determined for each
subsidiary (not on a consolidated basis) on a basis similar to income tax. The
employees' profit sharing net deferred tax liability as of December 31, 1998
and 1997 is not material.

18. Foreign currency position

a) The foreign currency position of monetary items of the Group at
December 31, 1998 and 1997, were as follows:

1998:

Foreign currency Year-end Mexican pesos
Currency amounts (thousands) exchange rate (thousands)
-------------------------- ------------------- ------------- -------------

Assets:
U.S. Dollars............ 93,287 9.876 Ps. 921,302
Liabilities:
U.S. Dollars............ 464,473 9.876 4,587,135
Pounds Sterling......... 737 16.994 12,525

1997:

Foreign currency Year-end Mexican pesos
Currency amounts (thousands) exchange rate (thousands)
-------------------------- ------------------- ------------- -------------

Assets:
U.S. Dollars............ 160,928 8.056 Ps.1,296,438
Liabilities:
U.S. Dollars............ 422,466 8.056 3,403,383
Pounds Sterling......... 1,207 13.55 16,361
Belgian Francs.......... 33 0.219 7

I-20

b) The foreign currency position of non-monetary items of the Group at
December 31, 1998 and 1997, were as follows:

1998:

Foreign currency Year-end Mexican pesos
Currency amounts (thousands) exchange rate (thousands)
-------------------------- ------------------- ------------- -------------

Property and equipment:
U.S. Dollars............ 51,520 9.876 Ps.508,812
Pounds Sterling......... 52,567 16.994 893,324
Inventories:
U.S. Dollars............ 2,018 9.876 19,930
Pounds Sterling......... 161 16.994 2,736

1997:

Foreign currency Year-end Mexican pesos
Currency amounts (thousands) exchange rate (thousands)
-------------------------- ------------------- ------------- -------------

Property and equipment:
U.S. Dollars............ 27,262 8.056 Ps.219,623
Pounds Sterling......... 41,361 13.55 560,442
Inventories:
U.S. Dollars............ 999 8.056 8,048
Pounds Sterling......... 231 13.55 3,130

c) Transactions, including interest income and expense, during 1998, 1997
and the period from inception through December 31, 1996 in foreign currencies
included in the consolidated statements of loss were as follows:

1998:

Foreign
currency Year-end
amounts exchange Mexican Pesos
Currency (thousands) rate (1) (thousands) (1)
--------------- ----------- -------- ---------------

Interest income..... U.S. Dollars 8,390 9.876 Ps. 82,860
Costs and Expenses:
Transponder
expense............ U.S. Dollars 51,835 9.876 511,922
Inventory........... U.S. Dollars 12,196 9.876 120,448
Broadcasting........ U.S. Dollars 13,341 9.876 131,756
Programming......... U.S. Dollars 19,206 9.876 189,678
Royalty fees........ Pounds Sterling 1,114 16.994 18,931
Royalty fees........ U.S. Dollars 1,292 9.876 12,760
Other expenses...... U.S. Dollars 1,368 9.876 13,510
Interest expense.... U.S. Dollars 55,207 9.876 545,224

I-21

1997:

Foreign
currency Year-end
amounts exchange Mexican Pesos
Currency (thousands) rate (1) (thousands) (1)
--------------- ----------- -------- ---------------

Interest income..... U.S. Dollars 12,598 8.056 Ps.101,489
Costs and Expenses:
Transponder
expense............ U.S. Dollars 36,012 8.056 290,113
Inventory........... U.S. Dollars 7,485 8.056 60,299
Broadcasting........ U.S. Dollars 15,000 8.056 120,840
Programming......... U.S. Dollars 4,182 8.056 33,690
Royalty fees........ Pounds Sterling 975 13.55 13,211
Royalty fees........ U.S. Dollars 329 8.056 2,650
Other expenses...... U.S. Dollars 133 13.55 1,802
Other expenses...... U.S. Dollars 346 8.056 2,787
Interest expense.... U.S. Dollars 39,000 8.056 314,184

1996:

Foreign
currency Year-end
amounts exchange Mexican Pesos
Currency (thousands) rate (1) (thousands) (1)
------------ ----------- -------- ---------------

Costs and Expenses:
Transponder expense..... U.S. Dollars 1,500 9.09 13,635
Broadcasting............ U.S. Dollars 1,040 9.09 9,453

- --------
(1) For reference purposes only; does not indicate the actual amounts presented
in the consolidated statement of loss.

Paragraphs b) and c) are disclosed in accordance with the Fourth
Amendment to Bulletin B-10 issued by the MIPA, which also provides that
liabilities denominated in a foreign currency are translated using exchange
rates in effect at the balance sheet date.

As of December 31, 1998 and 1997, the exchange rate between the Mexican
Peso and the U.S. Dollar was Ps.9.876, and Ps.8.056 per U.S. dollar
respectively, which represents the interbank free market exchange rate as of
those dates as published by Banco de Mexico, S.A.

As of February 16, 1999, the exchange rate was Ps.9.9190 (Ps.8.422 as of
February 6, 1998; Ps.7.82 as of February 4, 1997) per U.S. dollar, which
represents the interbank free market exchange rate as of that date as published
by Banco de Mexico, S.A.

19. Differences between Mexican GAAP and U.S. GAAP

The Group's consolidated financial statements are prepared in accordance
with Mexican GAAP, which differs in certain significant respects from U.S.
GAAP.

The reconciliation to U.S. GAAP includes a reconciling item for the
effect of applying the option provided by the Modified Fifth Amendment for the
restatement of equipment of non-Mexican origin because, as described below,
this provision of inflation accounting under Mexican GAAP does not meet the
consistent currency requirement of Regulation S-X of the Securities and
Exchange Commission ("SEC").

I-22

The reconciliation to U.S. GAAP does not include the reversal of the
other adjustments to the financial statements for the effects of inflation
required under Mexican GAAP Bulletin B-10, because the application of Bulletin
B- 10 represents a comprehensive measure of the effects of price level changes
in the inflationary Mexican economy and, as such, is considered a more
meaningful presentation than historical, cost-based financial reporting for
both Mexican and U.S. accounting purposes.

The principal differences between Mexican GAAP and U.S. GAAP that affect,
net loss and total stockholders' deficit are described below.

Development Stage Enterprise

The principal planned operations of the Group relate to the provision of
the Group's DTH service to customers. The Group started to earn subscriber
revenues beginning in 1997 and receive advertising revenues in 1998. In 1996,
revenues consisted exclusively of sales of DTH units and related components.
Accordingly, under U.S. GAAP, the Group was a "development stage enterprise" as
set forth in Financial Accounting Standards Board Statement No. 7 ("SFAS 7"),
"Accounting and Reporting by Development Stage Enterprises" in 1996.

PAS-5

As noted in note 14, in April 1998, the Group signed a definitive
agreement with PanAmSat for the use of 12 Ku-band transponders on the PAS-5
satellite. The agreement required minimum monthly payments of U.S.$1.5 million,
plus additional payments based on gross revenue (as defined) above certain
incremental levels. The term of the agreement was through the commercial
service life of the satellite, which was estimated to be 15 years. During
testing of the transponders, the Group discovered that the signals to several
key locations throughout Mexico were experiencing substantial interference and
degradation. The Group explored several alternative solutions to the problem,
all of which proved not to be economically or commercially feasible, except for
the use of an alternative satellite. As a result, in late 1998 management
decided to abandon the possibility of using PAS-5 and began negotiating
possible alternatives with PanAmSat. On February 8, 1999, the parties entered
into a new agreement for the use of PAS-9 an alternative satellite to be
launched in 2000 and for the unconditional release of the parties from the PAS-
5 agreement.

As a result of the signal interference and subsequent termination of the
PAS-5 agreement, for Mexican GAAP purposes the Group expensed the payments made
under the PAS-5 agreement as part of cost of sales.

Under U.S. GAAP, the Group recorded (i) an asset and liability of
approximately U.S.$126.4 million (Ps.1,197,664), equal to the net present value
of the minimum payments as of April 1998; (ii) the monthly payments to PanAmSat
as a reduction in the above liability of U.S.$2.4 million (Ps.34,147) and
interest expense of U.S.$9.6 million (Ps.92.272); and (iii) amortization
expense of U.S.$5.8 million (Ps.55,380). In December 1998, as a result of the
decision to abandon PAS-5, the Group recognized in operating results a pre-tax
impairment loss of U.S.$120.6 million (Ps.1,142,284) equal to the net book
value of the PAS-5 asset and an income tax benefit of U.S.$42.2 million
(Ps.399,799) for the reversal of the related deferred income taxes. Due to the
termination of the PAS-5 agreement, the Group will recognize in 1999 a pre-tax
extraordinary gain of U.S.$123.8 million, (Ps.1,253,741) equal to the remaining
outstanding obligation at termination, and an income tax charge of U.S.$43.3
million (Ps.438,810) for the reversal of the related deferred income taxes.

For U.S. GAAP purposes, the Group anticipates recording at the PAS-9 in
service date, an asset and liability of commitment approximately U.S.$145.5
million, equal to the net present value of the future minimum payments.

I-23

Deferred preoperating expenses and advertising costs

Under Mexican GAAP, it is acceptable to defer certain preoperating
expenses and advertising costs and amortize these expenses over the life of the
expected benefit. Under U.S. GAAP, those items are expensed as incurred.

Satellite reorientation costs and maintenance reserve

Under Mexican GAAP, it is acceptable to accrue for certain expenses which
management believes will be incurred in subsequent periods. Under U.S. GAAP,
these costs are expensed as incurred.

Capitalization of financing costs

Mexican GAAP allows, but does not require, capitalization of integral
financing costs attributable to acquired assets during installation and to
preoperating expenses. In 1996, the Group capitalized integral financing costs
attributable to those assets. Capitalized integral financing costs include
interest expense, gains from monetary position and foreign exchange losses.

U.S. GAAP requires the capitalization of interest during construction and
installation of qualifying assets. In an inflationary economy, such as
Mexico's, acceptable practice is to capitalize interest net of the monetary
gain on the related Mexican Peso debt, but not on U.S. dollar or other stable
currency debt. In addition, U.S. GAAP does not allow the capitalization of
foreign exchange losses or the capitalization of financing costs on deferred
expenses. For U.S. GAAP purposes, no interest costs were capitalized for the
year's ended December 31, 1998 and 1997 and from Inception to December 31,
1996.

Restatement of property and equipment

Effective January 1, 1997, the Group adopted the Fifth Amendment to
Bulletin B-10 which eliminated the use of replacement costs for the restatement
of property and equipment and instead, included an option of using the Specific
Index for the restatement of equipment of non-Mexican origin. The Group has
elected to apply the Specific Index option for determining the restated
balances under Mexican GAAP. For U.S. GAAP purposes, the use of an index that
contemplates currency exchange movements is not in accordance with the
historical cost concept nor does it present financial information in a constant
currency.

Deferred Income taxes

Under Mexican GAAP, deferred income taxes are determined by the partial
liability method of accounting, under which deferred income taxes are provided
for identifiable, non-recurring temporary differences (i.e., those that are
expected to reverse over a definite period of time) at rates expected to be in
effect at the time those temporary differences reverse. The recognition of
deferred tax assets under Mexican GAAP is subject to "practical absolute
assurance" that they are realizable through future operations, which cannot be
presumed to exist in a loss period.

Under U.S. GAAP, Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes", requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets including benefits
from tax loss carryforwards are recognized to the extent their realization is
more likely than not.

I-24

The tax effects of temporary differences that give rise to significant
deferred tax assets and liabilities, applying SFAS 109 at December 31, 1998 and
1997, are as follows:

1998 1997
------------- -----------

Deferred income tax liabilities:
Current:
Inventories................................ Ps. (4,767) Ps. (1,175)
Prepaid expenses........................... (648) (2,014)
------------- -----------
Total Current................................ (5,415) (3,189)
Non-current:
Other deferred cost........................ -- (2,268)
Debt issuance costs........................ (28,786) (36,793)
------------- -----------
Total deferred income tax liabilities...... (34,201) (42,250)
------------- -----------
Deferred income tax assets:
Current:
Accrued expenses........................... 54,218 35,460
PAS-5 Liability............................ 428,892 --
Deferred income............................ 15,915 3,178
------------- -----------
Total Current................................ 499,025 38,638
Non-current:
Other deferred cost........................ 1,395 --
Property and equipment..................... 1,258 2,094
Tax loss carryforwards..................... 2,383,018 358,213
------------- -----------
Total deferred income tax assets........... 2,884,696 398,945
Less: Valuation allowance.................. (2,421,603) (356,695)
------------- -----------
Net deferred income tax assets............. 463,093 42,250
------------- -----------
Income tax benefit......................... Ps. 428,892 Ps. --
============= ===========

The valuation allowance as of December 31, 1998 and 1997, is primarily
attributable to the tax loss carryforwards.

In conformity with the Income Tax Law, the Group restates the tax basis
of preoperating expenses and property and equipment in a form similar to the
restatement for financial reporting purposes. Such restatement is neither
permitted for accounting purposes nor for purposes of calculating profit-
sharing.

I-25

Summary

Net loss for the years ended December 31, 1998 and 1997 and for the
period from Inception to December 31, 1996, adjusted to take into account the
principal differences between Mexican GAAP and U.S. GAAP, as they relate to the
Group, are as follows:

1998 1997 1996
------------- ------------- -----------

Net loss as reported under
Mexican GAAP................... Ps.(1,689,468) Ps.(1,047,415) Ps. (39,879)
U.S. GAAP adjustments:
PAS-5 adjustments:
Impairment loss of PAS-5...... (1,142,284) -- --
PAS-5 deferred income tax
adjustment................... 428,892
Cost of services.............. 126,418 -- --
Interest expense.............. (92,271)
Amortization of PAS-5......... (55,380) -- --
Gain from monetary position on
the PAS-5 liability.......... 125,642 -- --
Foreign exchange loss on the
PAS-5 liability.............. (187,530) -- --
Capitalization of financing
costs.......................... 904 439 (4,519)
Deferred preoperating expenses.. 37,733 37,733 (185,486)
Deferred advertising............ -- 20,198 (20,198)
Satellite reorientation costs... 62,564 36,927 --
Maintenance reserve............. (555) 2,153 --
Property and equipment re-
statement.................... 2,515 (2,740) --
------------- ------------- -----------
Total U.S. GAAP
adjustments................ (693,352) 94,710 (210,203)
------------- ------------- -----------
Net loss under U.S. GAAP...... Ps.(2,382,820) Ps. (952,705) Ps.(250,082)
============= ============= ===========

I-26

Stockholders' deficit as of December 31, 1998 and 1997, adjusted to take
into account the principal differences between Mexican GAAP and U.S. GAAP, as
they relate to the Group, are as follows:

1998 1997
------------- -----------

Total stockholders' deficit under Mexican
GAAP....................................... Ps.(1,773,209) Ps.(591,573)
U.S. GAAP adjustments:
PAS-5 Adjustments:
Impairment loss of PAS-5 ................. (1,142,284) --
PAS-5 deferred income tax adjustment ..... 428,892
Cost of services ......................... 126,418 --
Interest expense ......................... (92,271)
Amortization of PAS-5 .................... (55,380) --
Gain from monetary position on the PAS-5
liability ............................... 125,642 --
Foreign exchange loss on the PAS-5
liability................................ (187,530) --
Capitalization of financing costs .......... (3,176) (4,080)
Deferred preoperating expenses ............. (110,020) (147,753)
Satellite reorientation costs............... 99,491 36,927
Maintenance reserve......................... 1,598 2,153
Property and equipment restatement.......... 3,282 33,626
------------- -----------
Total U.S. GAAP adjustments ................ (805,338) (79,127)
------------- -----------
Total stockholders' deficit under U.S. GAAP
........................................... Ps.(2,578,547) Ps.(670,700)
============= ===========

A summary of the Group's statement of changes in stockholders' deficit
with balances determined under U.S. GAAP is as follows:

Balance at December 31, 1996............................. Ps. (241,244)
Capital contribution................................... 523,249
Net loss for the year.................................. (952,705)
-------------
Balance at December 31, 1997............................. (670,700)
Capital contribution................................... 474,973
Net loss for the year.................................. (2,382,820)
-------------
Balance at December 31, 1998............................. Ps.(2,578,547)
=============

A summary of the Group's stockholders' deficit after the U.S. GAAP
adjustments described above, as of December 31, is as follows:

1998 1997
------------- ------------

Capital stock.............................. Ps. 998,296 Ps. 523,323
Accumulated losses......................... (3,585,607) (1,202,787)
Deficit from restatement................... 8,764 8,764
------------- ------------
Total stockholders' deficit under U.S.
GAAP...................................... Ps.(2,578,547) Ps. (670,700)
============= ============

Beginning January 1, 1998, the Group adopted the Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive income" ("SFAS 130"), for
U.S. GAAP purposes. SFAS 130 establishes

I-27

standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The statement requires
that all items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements; it does not address
the issues of recognition or measurement. The statement is effective for
fiscal years beginning after December 15, 1997 and requires reclassification
of earlier financial statements for comparative purposes. For the years ended
December 31, 1998 and 1997, the Group did not generate, for U.S. GAAP
purposes, components of other comprehensive income.

Comprehensive income for the period from Inception to December 31, 1996,
is determined as follows:

1996
-----------

Net loss under U.S. GAAP................................... Ps.(250,082)
Recognition of revaluation to net replacement cost......... 8,764
-----------
Comprehensive income under U.S. GAAP....................... Ps.(241,318)
===========

Taxes were not recorded for the above adjustment due to the existence of
significant tax loss carryforwards.

Accumulated other comprehensive income was Ps.8,764 as of December
31,1998 and 1997.

Cash Flows

Mexican GAAP Bulletin B-12, specifies the appropriate presentation of the
statements of changes in financial position. Under Bulletin B-12, the sources
and uses of resources are determined based upon differences between beginning
and ending financial statement balances in constant pesos. Under U.S. GAAP, a
statement of cash flows is required, which presents only cash movements and
excludes non-cash items.

Presentation of cash flow information in accordance with SFAS in a highly
inflationary environment presents unique problems as price level adjustments
are inherently non-cash. SFAS No. 95 does not provide any specific guidance
with respect to inflation-adjusted financial statements. In the absence of
specific requirements, the Company has presented below a SFAS 95 summary of
cash flows provided by (used in) operating, financing and investing activities
for the year ended December 31, 1997 and for the period from Inception to
December 31, 1996 prepared after considering the impact of U.S. GAAP
adjustments, excluding the effects of inflation as prescribed by Bulletin B-10
and its amendments and other non-cash item. The summary information has been
prepared on a nominal Mexican Peso basis, restated to Mexican Pesos in
purchasing power as of December 31, 1998, for comparability purposes with the
most recent period presented.

1997 1996
---------- --------

Operating activities............................... (568,833) (156,810)
Investing activities............................... (2,425,754) (262,164)
Financing activities............................... 3,164,182 449,066

Non-cash activities other than inflation effects and foreign exchange
gains (losses) excluded from these amounts include certain liabilities to
Televisa which were forgiven in 1997, resulting in a capital contribution.

I-28

Net cash flow from operating activities reflects cash payments for
interest and income taxes as follows:

1997 1996
---------- --------

Interest paid........................................ Ps.223,791 Ps.5,474
Income taxes paid.................................... -- --

Presented below is a statement of cash flow for the year ended December
31, 1998, prepared after considering the impact of U.S. GAAP adjustments. The
cash flow statement presents nominal cash flows during the period, adjusted to
December 31, 1998, purchasing power.

I-29

CONSOLIDATED STATEMENT OF CASH FLOW

For the Year Ended December 31, 1998
(Expressed in thousands of Mexican Pesos in purchasing power as of December 31,
1998)

1998
-------------

Operating activities:
Net loss ..................................................... Ps.(2,382,820)
Adjustments to reconcile net loss to cash flows (used in)
operating activities:
Gain from monetary position .................................. (561,256)
Unrealized exchange losses ................................... 791,859
Impairment PAS-5 ............................................. 1,142,284
Deferred income tax .......................................... (428,892)
Allowance for doubtful accounts .............................. 4,800
Depreciation and amortization ................................ 375,554
Changes in operating assets and liabilities:
Current assets ............................................... (61,945)
Current liabilities .......................................... 177,460
-------------
Cash flows used in operating activities ...................... (942,956)
-------------
Investing activities:
Investment in property and equipment ......................... (594,755)
Sale of short-term investments ............................... 511,982
Sale of restricted investments ............................... 414,295
-------------
Cash flows provided by investing activities .................. 331,522
Financing activities:
Stockholders' loans .......................................... 247,495
Capital contributions ........................................ 474,973
-------------
Cash flows provided by financing activities .................. 722,468
Effects of inflation ........................................... (72,492)
-------------
Increase in cash and cash equivalents ........................ 38,542
Cash & cash equivalents, beginning of period ................. 199,687
-------------
Cash & cash equivalents, end of period ....................... Ps. 238,229
=============
Interest and taxes paid:
Interest paid ................................................. Ps. 549,192
Income and asset taxes paid ................................... 5

Non-cash investing activity:

A capital lease obligation of U.S.$126.4 million (Ps.1,072,022) was
incurred when the Company signed an agreement with PanAmSat for the use of 12
Ku-band transponder on the PAS-5 satellite in April 1998.

I-30

Recently Issued Accounting Pronouncements

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants recently issued Statement of Position 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1") in March 1998. The Statement is effective for fiscal
periods beginning after December 15, 1998, with earlier application encouraged.
SOP 98-1 provides authoritative guidance for the capitalization of external
direct costs of materials and services, payroll costs for employees devoting
time to the software project, and interest costs.

On June 15, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", ("SFAS
133"). SFAS 133 establishes a new model for the accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon the statement's initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS 133. The Group is not currently
involved in derivative or hedging activities, as a result, management does not
believe that the adoption of this statement will significantly impact the
financial statements of the Group.

---------------

I-31

TV GUIDE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report.............................................. T-2
Consolidated Balance Sheets............................................... T-3
Consolidated Statements of Income......................................... T-4
Consolidated Statements of Changes in Stockholders' Equity................ T-5
Consolidated Statements of Cash Flows..................................... T-6
Notes to Consolidated Financial Statements................................ T-7

Separate financial statements of the guarantor subsidiaries have not been
presented herein as such subsidiaries are wholly owned and are joint and
several, full and unconditional guarantors of the senior subordinated notes.

INDEX TO FINANCIAL STATEMENT SCHEDULES

Schedule II--Valuation and Qualifying Accounts............................. T-35

All other Schedules have been omitted since the required information is not
present or the amounts are not sufficient to require submission of the Schedule
or because the information required is included in the respective financial
statements or notes thereto.

T-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
TV Guide, Inc.:

We have audited the accompanying consolidated balance sheets of TV Guide,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of income, changes in stockholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1999. In connection with our
audits of the consolidated financial statements, we have also audited the
related financial statement schedule. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TV Guide,
Inc. as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the years in the three year period ended December
31, 1999, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

KPMG LLP

Tulsa, Oklahoma
February 25, 2000

T-2

TV GUIDE, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

December 31,
-------------------
1999 1998
---------- --------

ASSETS
Current assets:
Cash and cash equivalents............................... $ 93,210 $155,644
Marketable securities, at fair value.................... 20,723 5,804
Accounts receivable, net of allowance for doubtful
accounts of
$18,397 and $2,917 at December 31, 1999 and 1998,
respectively........................................... 293,331 64,632
Inventories and other................................... 29,742 6,168
Deferred tax asset...................................... 4,296 1,811
---------- --------
Total current assets...................................... 441,302 234,059
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization............................ 75,745 45,762
Intangible assets, net of accumulated amortization........ 2,755,498 113,523
Other assets.............................................. 42,274 19,162
---------- --------
Total assets.............................................. $3,314,819 $412,506
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 72,570 $ 5,655
Accrued liabilities..................................... 127,661 57,365
Note payable and current portion of capital lease
obligations............................................ 7,764 5,463
Customer prepayments and deferred subscription revenue.. 290,400 109,929
---------- --------
Total current liabilities................................. 498,395 178,412
Deferred compensation..................................... 306 367
Long-term deferred subscription revenue................... 62,013 --
Deferred tax liability.................................... 647,084 17,280
Capital lease obligations................................. 8,990 13,007
Long-term debt............................................ 615,300 --
Minority interest......................................... 5,016 3,596

Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized, no shares outstanding...................... -- --
Class A common stock, $.01 par value; shares authorized:
650,000,000; shares outstanding: 154,477,696 in 1999
and 47,893,688 in 1998................................. 1,545 479
Class B common stock, $.01 par value; shares authorized:
300,000,000; shares outstanding: 149,986,352 in 1999
and 37,496,588 in 1998................................. 1,500 375
Additional paid-in capital.............................. 1,283,860 22,191
Accumulated other comprehensive income (loss), net of
tax.................................................... 9,306 (54)
Retained earnings....................................... 181,504 176,853
---------- --------
Total stockholders' equity................................ 1,477,715 199,844
---------- --------
Total liabilities and stockholders' equity................ $3,314,819 $412,506
========== ========

See accompanying notes.

T-3

TV GUIDE, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

Year Ended December 31,
-----------------------------
1999 1998 1997
--------- -------- --------

Revenues:
Satellite-delivered programming services...... $ 513,357 $540,632 $457,975
Magazine subscription and newsstand sales..... 346,447 -- --
Advertising sales............................. 217,500 40,349 30,828
Systems integration services.................. 39,415 40,959 41,617
Other......................................... 18,586 -- --
--------- -------- --------
1,135,305 621,940 530,420
Operating expenses:
Programming, printing, distribution and
delivery..................................... 628,739 330,904 266,119
Selling, general and administrative........... 283,619 154,190 144,325
Depreciation.................................. 21,176 13,961 12,316
Amortization.................................. 114,789 14,266 6,534
--------- -------- --------
1,048,323 513,321 429,294
--------- -------- --------
Operating income................................ 86,982 108,619 101,126
Gain on issuance of equity by subsidiary........ -- 37,898 --
Interest expense................................ (43,609) (1,629) (2,122)
Other income (expense), net..................... (134) 16,530 6,242
--------- -------- --------
Income before income taxes and minority
interest....................................... 43,239 161,418 105,246
Provision for income taxes...................... (26,392) (58,977) (38,438)
Minority interest in earnings................... (12,196) (382) 627
--------- -------- --------
Net income...................................... $ 4,651 $102,059 $ 67,435
========= ======== ========
Earnings per share:
Basic......................................... $ 0.02 $ 0.59 $ 0.39
Diluted....................................... 0.02 0.59 0.39

See accompanying notes.

T-4

TV GUIDE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)

Accumulated
Notes Other
Class A Class B Additional Receivable Comprehen-
Common Common Paid-In From sive Income Retained
Stock Stock Capital Stockholders (Loss) Earnings Total
------- ------- ---------- ------------ ----------- -------- ----------

Balance at January 1,
1997................... $ 238 $ 187 $ 34,725 $(509) $ 161 $ 36,057 $ 70,859
Net income.............. -- -- -- -- -- 67,435 67,435
Other comprehensive
income, net of tax:
Unrealized loss on
available for sale
securities............ -- -- -- -- (174) -- (174)
----------
Comprehensive income.... 67,261
Exercise of stock
options, net of stock
tendered (701,829 Class
A shares).............. 7 -- 2,601 -- -- -- 2,608
Repurchase and
retirement of stock
(123,995 Class A
shares)................ (1) -- (2,076) -- -- -- (2,077)
Tax benefit from
exercise of non-
qualified stock
options................ -- -- 3,799 -- -- -- 3,799
Payments received on
stockholders' notes.... -- -- -- 509 -- -- 509
Distributions to Liberty
Media.................. -- -- -- -- -- (22,178) (22,178)
------ ------ ---------- ----- ------ -------- ----------
Balance at December 31,
1997................... 244 187 39,049 -- (13) 81,314 120,781
Net income.............. -- -- -- -- -- 102,059 102,059
Other comprehensive
income, net of tax:
Unrealized loss on
available for sale
securities............ -- -- -- -- (41) -- (41)
----------
Comprehensive income.... 102,018
Two-for-one split
(24,224,833 Class A
shares and 18,748,294
Class B shares)........ 242 188 (430) -- -- -- --
Exercise of stock
options, net of stock
tendered (133,220 Class
A shares).............. 1 -- 1,222 -- -- -- 1,223
Repurchase and
retirement of stock
(887,800 Class A
shares)................ (8) -- (18,775) -- -- -- (18,783)
Tax benefit from
exercise of non-
qualified stock
options................ -- -- 362 -- -- -- 362
Non-cash stock
compensation........... -- -- 763 -- -- -- 763
Distributions to Liberty
Media.................. -- -- -- -- -- (6,520) (6,520)
------ ------ ---------- ----- ------ -------- ----------
Balance at December 31,
1998................... 479 375 22,191 -- (54) 176,853 199,844
Net income.............. -- -- -- -- -- 4,651 4,651
Other comprehensive
income, net of tax:
Unrealized gain on
available for sale
securities............ -- -- -- -- 9,360 -- 9,360
----------
Comprehensive income.... 14,011
Shares issued to News
Corp. for TV Guide
acquisition (22,503,412
Class A shares and
(37,496,588 Class B
shares)................ 225 375 1,120,200 -- -- -- 1,120,800
Market equalization
shares issued to News
Corp. (6,534,108 Class
A shares).............. 65 -- 130,617 -- -- -- 130,682
Exercise of stock
options, net of stock
tendered (291,912 Class
A shares).............. 3 -- 2,343 -- -- -- 2,346
Two-for-one split
(77,238,848 Class A
shares and 74,993,176
Class B shares)........ 773 750 (1,523) -- -- -- --
Tax benefit from
exercise of non-
qualified stock
options................ -- -- 1,379 -- -- -- 1,379
Non-cash stock
compensation........... -- -- 682 -- -- -- 682
Contribution from
Liberty Media-Netlink
Wholesale Division..... -- -- 7,971 -- -- -- 7,971
------ ------ ---------- ----- ------ -------- ----------
Balance at December 31,
1999................... $1,545 $1,500 $1,283,860 $ -- $9,306 $181,504 $1,477,715
====== ====== ========== ===== ====== ======== ==========

See accompanying notes.

T-5

TV GUIDE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,
-----------------------------
1999 1998 1997
--------- -------- --------

Operating activities:
Net income...................................... $ 4,651 $102,059 $ 67,435
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on issuance of equity by subsidiary...... -- (37,898) --
Depreciation and amortization................. 135,965 28,227 18,850
Minority interest in earnings................. 12,196 382 (627)
Deferred income taxes......................... (29,447) 17,830 2,169
(Gain) loss on asset dispositions............. 321 (10,890) (132)
Other......................................... 3,125 1,682 1,400
Changes in operating assets and liabilities:
Accounts receivable......................... (80,847) 674 (10,626)
Inventory and other......................... 18,999 2,043 1,013
Accounts payable............................ 2,533 (1,517) (424)
Accrued liabilities......................... 35,727 (1,954) 6,924
Customer prepayments........................ (23,981) (4,749) (4,691)
Other....................................... (5,218) (504) (427)
--------- -------- --------
Net cash provided by operating activities....... 74,024 95,385 80,864
Investing activities:
Capital expenditures.......................... (44,629) (11,115) (10,250)
Investments and acquisitions, net of cash
acquired..................................... (813,328) (42,102) (130)
Purchases of marketable securities............ (6,049) (74,360) (91,666)
Sales of marketable securities................ 4,812 116,347 3,659
Maturities of marketable securities........... 1,104 73,822 33,041
Other......................................... (6,011) (857) (1,588)
--------- -------- --------
Net cash provided by (used in) investing
activities..................................... (864,101) 61,735 (66,934)
Financing activities:
Repayment of note payable and long-term debt.. -- (6,201) (7,261)
Issuance of senior subordinated notes......... 400,000 -- --
Borrowings under bank credit facilities....... 217,331 -- 7,446
Debt issuance costs........................... (15,114) -- --
Repayment of capital lease obligations........ (3,747) (3,493) (3,258)
Issuance of common stock...................... 133,028 1,223 2,608
Repurchase of common stock.................... -- (18,783) (2,077)
Contributions from (distributions to) Liberty
Media-Netlink Wholesale Division............. 7,971 (6,520) (22,178)
Distributions to minority interests........... (12,438) -- --
Other......................................... 612 (258) 436
--------- -------- --------
Net cash provided by (used in) financing
activities..................................... 727,643 (34,032) (24,284)
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (62,434) 123,088 (10,354)
Cash and cash equivalents at beginning of year.. 155,644 32,556 42,910
--------- -------- --------
Cash and cash equivalents at end of year........ $ 93,210 $155,644 $ 32,556
========= ======== ========

See accompanying notes.

T-6

TV GUIDE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

The Company

TV Guide, Inc. ("TV Guide" or the "Company") is an international media
and communications company that provides print and electronic program listings
guides and program promotion services to households via magazine subscriptions,
newsstands, cable television systems, direct-to-home satellite providers and
the Internet; distributes programming to cable television systems and direct-
to-home satellite providers; markets satellite-delivered programming to C-band
satellite dish owners; provides software development and systems integration
services; and provides satellite transmission services for private networks.
The majority of the Company's operating income is earned through the sale and
distribution of program listings guides and program promotion services, the
sale of home satellite dish services and satellite distribution of video
services.

Liberty Media Corporation, an indirect wholly owned subsidiary of AT&T
Corp. ("Liberty Media"), and The News Corporation Limited ("News Corp.") each
directly or indirectly own approximately 44% of the issued and outstanding
common stock of TV Guide representing approximately 98% (approximately 49%
each) of the total voting power of TV Guide common stock.

2. Significant Accounting Policies

Basis of Presentation

These financial statements present the consolidated financial position,
results of operations and cash flows of TV Guide and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.

Marketable Securities

The Company invests the majority of its cash produced by operating
activities in municipal debt securities, equities, money market funds and
commercial paper. These investments are diversified among high credit quality
issues in accordance with the Company's investment policy. Management
determines the appropriate classification of its marketable securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date. Marketable securities which the Company may not hold to maturity are
classified as available-for-sale. Securities available-for-sale are carried at
fair market value with the unrealized gains and losses, net of tax, reported as
accumulated other comprehensive income or loss. At December 31, 1999 and 1998,
the Company classified all of its marketable securities as available-for-sale.

The amortized cost of the Company's municipal debt securities is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization or accretion is included in interest income. Realized gains and
losses and declines in value judged to be other-than-temporary are included in
other income. The cost of the municipal debt securities sold is based on the
specific identification method.

T-7

Inventories

Inventories consist primarily of paper supplies for TV Guide magazine and
are stated at the lower of cost or market. Cost of paper inventory is
determined using the last-in, first-out method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Additions and
improvements that extend the useful lives of assets are capitalized. Other
expenditures for repairs and maintenance are charged to expense as incurred.

Depreciation and Amortization

Depreciation and amortization of property, plant and equipment is
provided on a straight-line basis over the estimated useful lives of the assets
as follows:

Leased transponders.......................................... 9-12 years
Building..................................................... 10-32 years
Building improvements........................................ 2-10 years
Electronic equipment......................................... 2- 5 years
Equipment and other.......................................... 3-15 years

Intangible assets are being amortized on a straight-line basis over 3-40
years.

Revenue Recognition on Satellite Services

The Company recognizes revenue on the accrual basis in the month the
service is provided. Payments received in advance for subscription services are
deferred until the month earned, at which time income is recognized. The
Company's liability is limited to the unearned prepayments in the event that
the Company is unable to provide service.

Revenue Recognition on Magazine Sales

Subscription revenue is recognized on a proportionate basis as magazines
are delivered to subscribers. Newsstand revenues are recognized based on the
on-sale dates of magazines. Allowances for estimated returns are recorded based
upon historical experience. The Company's liability for prepaid magazine
subscriptions is limited to the unearned prepayments in the event customers
cancel their subscriptions.

Revenue Recognition on Advertising

The Company recognizes channel advertising revenue when the related
advertisement is aired. Magazine advertising is recognized upon release of
magazines for sale to consumers. All advertising is stated net of agency
commissions and discounts.

Revenue Recognition on Systems Integration Services

Revenues and profits on systems integration services are determined based
on progress to completion measured generally either by incurred billable hours
and costs at contract rates or on the percentage-of-completion method by
comparing actual costs incurred to total estimated costs expected to be
incurred to complete the contract.

T-8

Any excess of contract revenue recognized (i.e., costs incurred plus
gross profit earned) over billings to date represents unbilled revenues earned
and is included in accounts receivable. Any excess of billings over contract
revenue recognized is deferred as advance billings and is included in accrued
liabilities. At December 31, 1999 and 1998, $3.9 million and $4.5 million,
respectively, of earned revenues not yet billed are included in accounts
receivable. At December 31, 1999 and 1998, there were no excess billings over
contract revenue earned. Estimated losses on contracts are recorded in full
when a loss is anticipated.

Subsidiary Equity Transactions

The Company recognizes as non-operating income or loss its proportionate
share of increases or decreases in the equity of its affiliates arising from
equity transactions by such affiliates.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews long-lived assets and intangible assets, including
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of the asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. During the fourth quarter
of 1999, the Company recognized a $15.2 million impairment of its goodwill in
SSDS, Inc. ("SSDS").

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Earnings Per Share

The following information reconciles the number of shares used to compute
basic earnings per share to those used to compute diluted earnings per share
(in thousands, except per share amounts):

1999 1998 1997
-------------- --------------- --------------
Per Per Per
Share Share Share
Amount Amount Amount
------ ------ ------

Net income....................... $ 4,651 $102,059 $67,435
======= ======== =======
Weighted average number of shares
of common stock outstanding..... 281,998 $0.02 171,916 $0.59 172,195 $0.39
===== ===== =====
Effect of dilutive securities-
stock options................... 3,489 1,855 1,422
------- -------- -------
Weighted average number of shares
of common stock and dilutive
potential common shares......... 285,487 $0.02 173,771 $0.59 173,617 $0.39
======= ===== ======== ===== ======= =====

T-9

Credit Risk

Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents,
marketable securities and trade receivables. The Company invests its available
cash in high grade municipal securities, equity securities, money market funds
and commercial paper. There is a concentration of credit risk associated with
wholesale distributors of print products which may be affected by changes in
economic and industry conditions. Concentration of credit risk with respect to
satellite services trade receivables is limited since a substantial number of
the Company's customers pay in advance, providing for receipt of funds prior to
service being rendered, or provide letters of credit as security. The Company
generally does not require collateral from its systems integration services
customers as progress billings are rendered to customers as the work is
completed. For other customers, service is generally terminated in the event
payment is not received within 30-60 days of service. Credit losses have been
within management's expectations.

Stock-based Compensation

The Company follows the guidelines established by Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employees' stock options.

Related Party Transactions

AT&T Broadband and Internet Services ("BIS") (formerly Tele-
Communications, Inc.) and its consolidated affiliates purchase video, program
promotion and guide services and subscriber management services from the
Company. During the years ended December 31, 1999, 1998 and 1997, revenues
earned by the Company from BIS were $19.2 million, $11.2 million and $10.1
million, respectively.

News Corp. and its consolidated affiliates purchased $21.4 million of
magazine advertising from the Company from March 1, 1999 through December 31,
1999.

The Company purchases programming and production services and is provided
satellite transponder facilities and uplink services from Liberty Media
consolidated affiliates. These purchases totaled $28.0 million, $28.7 million
and $27.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively. In addition, the Company purchased programming and production
services from News Corp. and its consolidated affiliates from March 1, 1999
through December 31, 1999 totaling $18.0 million.

At December 31, 1999 and 1998, the Company had outstanding receivables of
$4.3 million and $7.0 million, respectively, due from BIS consolidated
affiliates and outstanding liabilities of $1.9 million and $2.2 million,
respectively, due to Liberty Media consolidated affiliates. In addition, at
December 31, 1999, the Company had outstanding receivables due from News Corp.
consolidated affiliates and outstanding liabilities due to News Corp.
consolidated affiliates of $4.3 million and $686,000, respectively.

The Company has included in the amounts discussed above, transactions
with BIS, Liberty Media and News Corp. and all entities in which BIS, Liberty
Media and News Corp. have an interest greater than 50%. In addition, the
Company has significant transactions with entities in which BIS, Liberty Media
and News Corp. own, directly or indirectly, 50% or less, which transactions
were conducted at arms-length in the ordinary course of business.

T-10

Research and Development Costs

Research and development costs of $11.5 million, $7.9 million and $7.5
million for the years ended December 31, 1999, 1998 and 1997, respectively, are
included in selling, general and administrative expenses.

Comprehensive Income

Unrealized holding gains and losses for available-for-sale securities are
reflected, net of related tax effects, in accumulated other comprehensive
income in stockholders' equity.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Reclassifications

Certain financial statement items for prior years have been reclassified
to conform to the 1999 presentation.

3. Investments and Acquisitions

TV Guide Transaction

On March 1, 1999, the Company acquired from a subsidiary of News Corp.
the stock of certain corporations (the "TV Guide Transaction") which publish TV
Guide magazine and other printed television program listings guides and
distribute, through the Internet, an entertainment service known as TV Guide
Online (formerly TV Guide Entertainment Network or TVGEN). A subsidiary of News
Corp. received 45,006,824 shares of TV Guide Class A Common Stock, 74,993,176
shares of TV Guide Class B Common Stock and $800 million in cash as
consideration. In addition, the subsidiary of News Corp. acquired 13,068,216
additional shares of TV Guide Class A Common Stock for approximately $131
million in cash to equalize the TV Guide Class A Common Stock ownership of
Liberty Media and its affiliates and News Corp. and its affiliates. The $800
million cash consideration portion of the transaction was funded from existing
cash balances, the issuance of $400 million in 8 1/8% senior subordinated notes
due 2009, bank borrowings of approximately $185 million drawn under a new bank
credit facility and proceeds from the issuance of equity to the subsidiary of
News Corp. The TV Guide Transaction was accounted for as a purchase.
Accordingly, the consolidated financial statements include the results of
operations of the TV Guide magazine businesses from March 1, 1999.

The purchase price for the TV Guide Transaction was $1.9 billion,
consisting of the shares of TV Guide Class A and Class B Common Stock issued to
a subsidiary of News Corp. at $9.32 per share, the average market price of the
Company's common stock for a few days before and after the agreement on the TV
Guide Transaction was reached and announced, $800 million in cash and certain
transaction costs. The cost of the acquisition also included approximately $5.3
million of severance and contract termination costs, all of which were paid
prior to December 31, 1999. There are no remaining significant preacquisition
contingencies. The purchase price was allocated to identifiable tangible and
intangible assets and liabilities as follows with the excess of the purchase
price over such identifiable assets and liabilities allocated to goodwill (in
thousands).

T-11

Assets:
Current assets.............................................. $ 182,313
Property, plant and equipment............................... 10,000
Intangible assets........................................... 2,729,236
Other assets................................................ 8,468
----------
2,930,017
Liabilities:
Current liabilities......................................... 299,019
Deferred tax liability...................................... 650,985
Other long-term liabilities................................. 57,482
----------
Net purchase price............................................ $1,922,531
==========

Intangible assets relating to the TV Guide Transaction are comprised of
the following amounts and lives (in thousands):

Acquired subscriber accounts....................... $ 108,800 3 years
Trademarks and patents............................. $ 390,600 17-40 years
Publishing rights.................................. $1,265,900 40 years
Goodwill........................................... $ 963,936 40 years

Upon closing of the above transactions, the Company's name was changed
from United Video Satellite Group, Inc. to TV Guide, Inc.

Turner Vision Acquisition

Effective February 1, 1998, Turner Vision, Inc. ("Turner Vision")
contributed its retail C-band home satellite dish business' assets, obligations
and operations to Superstar/Netlink Group LLC ("SNG") in return for an
approximate 20% interest in SNG, reducing the Company's ownership interest in
SNG to approximately 80%. The Company continues to manage SNG and SNG's
operating results continue to be consolidated with those of the Company.

The contribution was accounted for as a purchase of Turner Vision's
business by SNG. Assets contributed by Turner Vision to SNG totaled $4.2
million and consisted primarily of $2.5 million of cash and $1.7 million of
accounts receivable. These assets were subject to liabilities of $27.9 million,
consisting primarily of $21.6 million of customer prepayments and $6.3 million
of accounts payable and accrued liabilities. The purchase price of Turner
Vision's business exceeded the fair value of the underlying net assets acquired
by approximately $61.6 million, which amount was assigned to goodwill and is
being amortized over eight years. As a result of the transaction, the Company
recognized a gain of $37.9 million.

ODS Technologies Acquisition

On July 13, 1998, the Company increased its ownership interest in ODS
Technologies, L.P. ("ODS"), a privately held company, to 98% by purchasing an
88% interest in ODS for approximately $28.4 million in cash. The purchase price
of the Company's ownership interest in ODS exceeded the fair value of ODS's net
assets acquired by approximately $28.2 million, which was assigned to patents
and is being amortized over 15 years.

T-12

The following unaudited pro forma financial information reflects the
Company's results of operations for the years ended December 31, 1999 and 1998
as though the TV Guide Transaction, the Turner Vision acquisition and the ODS
Technologies acquisition had been completed as of January 1, 1998, excluding
the gain recognized by the Company as a result of the Turner Vision acquisition
(in thousands, except per share amounts):

1999 1998
---------- ----------

Pro forma:
Revenues.......................................... $1,254,162 $1,272,498
Net income........................................ 4,923 61,341
Net income per share:
Basic........................................... 0.02 0.20
Diluted......................................... 0.02 0.20

Liberty Transaction

On March 1, 1999, the Company issued to Liberty Media 25,500,000 shares
of Class B Common Stock in exchange for all of the outstanding shares of each
of three subsidiaries of Liberty Media that together owned approximately 40% of
SNG (bringing the Company's ownership to 80%), a business that provides
satellite-transmitted programming services known as the "Denver 6" and a
business that sells programming packages to SMATV systems that serve hotels and
multi-unit dwellings. These consolidated financial statements give retroactive
effect to the Liberty Transaction, which has been accounted for as a
combination of entities under common control, similar to a pooling of
interests, from January 25, 1996, the date the Company and the Liberty Media
businesses were first under common control.

4. Marketable Securities

The Company's marketable securities, all of which are classified as
available-for-sale, as of December 31 are summarized as follows (in thousands):

1999
--------------------------------
Gross
Unrealized Estimated
Unamortized Gains Fair
Cost (Losses) Value
----------- ---------- ---------

Equity securities......... $6,018 $14,705 $20,723
======= ======= =======

1998
--------------------------------
Gross
Unrealized Estimated
Unamortized Gains Fair
Cost (Losses) Value
----------- ---------- ---------

Municipal debt securities:
Due after three months
through one year....... $ 1,664 $ 1 $ 1,665
Due after one year
through three years.... 3,908 19 3,927
------- ------- -------
5,572 20 5,592
Equity securities......... 318 (106) 212
------- ------- -------
$ 5,890 $ (86) $ 5,804
======= ======= =======

Fair values for available-for-sale securities are based on quoted market
prices. The carrying amounts reported in the consolidated balance sheet for all
other financial instruments approximate those instruments' fair values.

T-13

During 1998 the Company realized gains from the sale of marketable
securities of $10.4 million which are included in "Other income(expense), net".

5. Property, Plant and Equipment

Property, plant and equipment as of December 31 are summarized as follows
(in thousands):

1999 1998
--------- --------

Leased transponders................................. $ 37,959 $ 37,959
Land................................................ 172 172
Building............................................ 2,105 2,103
Building improvements............................... 8,662 4,274
Electronic equipment................................ 43,839 33,708
Equipment and other................................. 84,762 49,453
--------- --------
177,499 127,669
Accumulated depreciation and amortization........... (101,754) (81,907)
--------- --------
$ 75,745 $ 45,762
========= ========

Included in the above amounts are two transponders leased under long-term
agreements that are accounted for as capital leases. Accumulated amortization
of such assets was $26.9 million and $23.3 million at December 31, 1999 and
1998, respectively.

6. Intangible Assets

Intangible assets as of December 31 are summarized as follows (in
thousands):

1999 1998
---------- --------

Goodwill............................................... $1,085,800 $102,181
Patents................................................ 35,945 28,238
Publishing rights...................................... 1,265,900 --
Customer lists......................................... 108,800 --
Trademarks............................................. 387,100 --
Other.................................................. 2,035 2,035
---------- --------
2,885,580 132,454
Accumulated amortization............................... (130,082) (18,931)
---------- --------
$2,755,498 $113,523
========== ========

T-14

7. Income Taxes

Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows (in thousands):

1999 1998
--------- --------

Deferred tax assets:
Bad debt expense..................................... $ 3,110 $ 729
Deferred launch support and marketing fees........... 5,281 --
Deferred compensation................................ 84 377
Compensated absences................................. 607 282
Capital lease obligations............................ 781 822
Operating loss carryforwards......................... -- 3,196
Other................................................ 203 632
--------- --------
Total deferred tax assets.......................... 10,066 6,038
Deferred tax liabilities:
Unrecognized gain on marketable securities........... (5,433) --
Book/tax depreciation and amortization............... (631,742) (4,482)
Investment in Superstar/Netlink Group LLC............ (14,991) (16,652)
Other................................................ (688) (373)
--------- --------
Total deferred tax liabilities..................... (652,854) (21,507)
========= ========
Net deferred tax liabilities........................... $(642,788) $(15,469)
========= ========

Significant components of the provision for income taxes for the years
ended December 31 are as follows (in thousands):

1999 1998 1997
-------- ------- -------

Current:
Federal......................................... $ 51,386 $38,353 $33,951
State........................................... 4,453 2,794 2,318
-------- ------- -------
55,839 41,147 36,269
Deferred:
Federal......................................... (27,045) 16,582 1,992
State........................................... (2,402) 1,248 177
-------- ------- -------
(29,447) 17,830 2,169
-------- ------- -------
$ 26,392 $58,977 $38,438
======== ======= =======

The reconciliation of income tax computed at the U.S. federal statutory
tax rate to income tax expense is (in thousands):

1999 1998 1997
-------- ------- -------

Tax at statutory rate (35%).................... $ 15,134 $56,496 $36,836
Minority interest in consolidated entities not
subject to income taxes....................... (4,577) (32) 149
State taxes, net of federal benefit............ 1,331 2,927 1,747
Effect of municipal interest earned and exempt
from federal tax.............................. (552) (1,215) (1,411)
Non-deductible merger costs.................... 1,750 -- --
Non-deductible goodwill amortization........... 13,295 780 780
Other.......................................... 11 21 337
-------- ------- -------
$ 26,392 $58,977 $38,438
======== ======= =======

T-15

Income taxes paid were approximately $58.8 million, $32.9 million and
$27.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

8. Credit Arrangements

On March 1, 1999, the Company issued $400 million in 8 1/8% senior
subordinated notes due 2009 and entered into a $300 million six-year revolving
credit facility and a $300 million 364-day revolving credit facility with a
group of banks. Proceeds from the issuance of the senior subordinated notes and
borrowings of approximately $185 million under the six-year revolving credit
facility were used to fund a portion of the cash consideration for the TV Guide
Transaction. The 364-day revolving credit facility has been extended to mature
February 24, 2001 when borrowings outstanding under the credit facility convert
to a four-year term loan. Borrowings under the credit facilities bear interest
(7.7% at December 31, 1999) either at the bank's prime rate or LIBOR, both plus
a margin based on a sliding scale tied to the Company's leverage ratio, as
defined in the facility. For the first year of the credit facilities, the LIBOR
margin is fixed at a minimum of 1.25%. The credit facilities are subject to
prepayment or reduction at any time without penalty. As of December 31, 1999,
the Company had available borrowing capacity under the six-year revolving
credit facility and 364-day revolving credit facility of approximately $84.7
million and $300.0 million, respectively.

The indenture for the notes and the Company's bank credit facilities
impose certain operating and financial restrictions on the Company. These
restrictions include the designation of certain of the Company's subsidiaries
as "restricted" for certain financing and operating matters which may
significantly limit the ability of the Company to execute transactions,
including the transfer of cash, between subsidiaries in the restricted group
and subsidiaries in the unrestricted group. The subsidiaries in the
unrestricted group are not subject to certain covenants in the indenture for
the notes and may incur indebtedness, grant liens on their assets and sell all
or a portion of their assets, among other things, without violating the
restrictions in the indenture.

SSDS has a revolving credit facility with a bank that provides for
borrowings up to the lesser of 80% of the billed trade accounts receivable
outstanding less than 90 days, subject to certain conditions, or $5.0 million.
Borrowings under this credit facility bear interest (8.25% at December 31,
1999) at the bank's stated prime rate plus a margin. SSDS pays a commitment fee
of 0.375% on the average daily unused portion of this credit facility.
Outstanding borrowings under the credit facility were $3.7 million as of
December 31, 1999 and $1.7 million as of December 31, 1998 and are classified
as current liabilities. The credit facility, which was scheduled to terminate
April 30, 1999, was extended until April 30, 2000 and is secured by
substantially all of SSDS's assets. SSDS was not in compliance with certain
financial covenants contained in the credit agreement at December 31, 1999.

Interest paid by the Company was $31.6 million, $1.7 million and $2.0
million for the years ended December 31, 1999, 1998 and 1997, respectively.

9. Leases

The Company leases operating and office premises and satellite
transponders. The terms of certain of the agreements provide for an option to
cancel the agreements after a period of time, subject to cancellation charges
and/or meeting certain conditions. Two satellite transponders are under long-
term lease arrangements that are accounted for as capital leases. The remainder
of the satellite transponder leases are accounted for as operating leases.

T-16

Future minimum lease payments under capital and noncancellable operating
leases at December 31, 1999 are as follows (in thousands):

Capital Operating
Leases Leases
------- ---------

Year ending December 31:
2000..................................................... $ 4,740 $22,762
2001..................................................... 3,400 14,300
2002..................................................... 2,400 12,751
2003..................................................... 2,400 11,974
2004..................................................... 2,400 9,016
Thereafter............................................... -- 4,217
------- -------
Total future minimum lease payments........................ 15,340 75,020
Less amount representing interest at 7%.................... 2,334 --
Less sublease revenues..................................... -- 1,230
------- -------
Net future minimum lease payments.......................... 13,006 $73,790
=======
Less current portion....................................... 4,016
-------
$ 8,990
=======

Rental expense under noncancellable operating leases amounted to $26.4
million (net of $1.7 million in sublease revenues), $17.5 million (net of $1.7
million in sublease revenues) and $16.0 million (net of $1.8 million in
sublease revenues) for the years ended December 31, 1999, 1998 and 1997,
respectively.

10. Stock Options and Other Employee Incentive Plans and Agreements

The Company sponsors the TV Guide, Inc. Equity Incentive Plan under which
16 million shares of TV Guide's Class A Common Stock are authorized to be
issued in connection with the exercise of awards of stock options, stock
appreciation rights and restricted stock granted under the plan. The Equity
Incentive Plan provides that the price at which each share of stock covered by
an option may be acquired shall in no event be less than 100% of the fair
market value of the stock on the date the option is granted, except in certain
limited circumstances. Additionally, the Company sponsors the TV Guide, Inc.
Stock Option Plan for Non-Employee Directors under which 1 million shares of TV
Guide's Class A Common Stock are authorized to be issued in connection with the
exercise of stock options granted thereunder.

T-17

At December 31, 1999, 12.0 million shares of Class A Common Stock of the
Company were reserved for issuance under the stock option plans. The options
granted under the stock option plans expire ten years from the date of grant.
Options outstanding as of December 31, 1999, 1998 and 1997 and option activity
during each of the years in the three year period ended December 31, 1999 are
as follows (in thousands, except exercise prices):

Weighted-
Average
Exercise
Options Price Exercisable
------- --------- -----------

At January 1, 1997.......................... 7,554 $ 2.78 4,956
Granted................................... 1,832 4.27
Exercised................................. (4,177) 2.02
Cancelled................................. (504) 2.94
------ ------
At December 31, 1997........................ 4,705 4.02 1,416
Granted................................... 1,417 8.30
Exercised................................. (509) 3.42
Cancelled................................. (72) 4.71
------ ------
At December 31, 1998........................ 5,541 5.16 2,310
Granted................................... 6,796 17.38
Exercised................................. (684) 4.31
Cancelled................................. (532) 10.74
------ ------
At December 31, 1999........................ 11,121 $12.41 2,607
====== ======

The weighted average exercise price of exercisable options as of December
31, 1999 is $4.32. Exercise prices for all options outstanding as of December
31, 1999 ranged from $2.00 to $31.73. The weighted-average remaining
contractual life of those options is 8.4 years.

The Company applies APB No. 25 and related Interpretations in accounting
for its employee stock options, and not the fair-value accounting provided for
under Statement No. 123, "Accounting for Stock- based Compensation".

Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
6.3%, 4.7% and 5.7%; a dividend yield of 0%; volatility factors of the expected
market price of the Company's common stock of .46, .41, and .41; and a
weighted-average expected life of the options of 5 years. The weighted average
estimated fair value of stock options granted during 1999, 1998 and 1997 was
$8.49, $3.58 and $3.82, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share amounts):

1999 1998 1997
---- -------- -------

Pro forma net income(loss)........................ $ (5) $100,636 $66,735
Pro forma earnings per share:
Basic........................................... 0.00 0.59 0.39
Diluted......................................... 0.00 0.58 0.38

T-18

Pro forma net income reflects only options granted subsequent to December
31, 1994. Therefore, the full impact of calculating compensation cost for stock
options under Statement No. 123 is not reflected in the pro forma net income
amounts for 1998 and 1997 presented above because compensation cost is
reflected over the options' vesting period, which is generally five years, and
compensation cost for options granted prior to January 1, 1995 is not
considered.

The Company has entered into incentive compensation agreements with key
management personnel. These agreements require payments upon termination or
retirement based on various valuation formulas contained in the agreements.
Cash payments to settle certain incentive compensation agreements aggregated
$211,000, $464,000 and $427,000 during the years ended December 31, 1999, 1998
and 1997, respectively.

11. Common Stock

The Class A Common Stock entitles the holder to one vote per share and
the Class B Common Stock entitles the holder to ten votes per share. Each share
of Class B Common Stock is convertible, at the option of the holder, into one
share of Class A Common Stock. Class A Common Stock is not convertible into
Class B Common Stock.

On August 20, 1998, the Company effected a two-for-one split of its Class
A Common Stock and Class B Common Stock in the form of a stock dividend of one
additional share of Class A Common Stock for each share of Class A Common Stock
outstanding and one additional share of Class B Common Stock for each share of
Class B Common Stock outstanding to holders of record on August 10, 1998.

On December 17, 1999, the Company effected a two-for-one split of its
Class A Common Stock and Class B Common Stock in the form of a stock dividend
of one additional share of Class A Common Stock for each share of Class A
Common Stock outstanding and one additional share of Class B Common Stock for
each share of Class B Common Stock outstanding to holders of record on December
3, 1999. All per share amounts and the notes to the financial statements have
been adjusted to reflect the stock split.

12. Employee Benefit Plans

The Company sponsors defined contribution plans (collectively, the
"Plans") which provide most of its employees with the ability to defer a
percentage of their annual compensation subject to certain limitations. The
Company matches 100% of the employee's deferrals up to a fixed percentage,
determined annually, of the employee's annual compensation. Vesting of the
Company's matching contributions begins at 20% after one full year of service
and from the second through the fifth years, vesting increases by 20% each year
until full vesting occurs. The Company's contributions to the Plans for the
years ended December 31, 1999, 1998 and 1997 were $3.9 million, $1.3 million
and $1.3 million, respectively. The Company does not provide any postretirement
or postemployment benefits.

13. Legal Proceedings

On October 8, 1993, the Company received correspondence from StarSight
Telecast, Inc. ("StarSight"), now a wholly owned subsidiary of Gemstar
International Group Limited ("Gemstar"), bringing to the Company's attention
the existence of three patents and various patent applications containing
claims relating to certain functions performed by interactive television
program schedule services, alleging that the Company is or may be infringing
StarSight issued patents, including U.S. Patent No. 4,706,121 and then-pending
Reexamination Certificate B1 4,706,121 (collectively, the "121 Patent"), and
claims of its pending patent applications, and threatening the Company with
enforcement litigation. On October 19, 1993, the Company filed an action in the
U.S. District Court for the Northern District of Oklahoma seeking a Declaratory
Judgment to the effect that the services offered by the Company do not infringe
the three United States patents issued to StarSight, including the 121 Patent.
On October 22, 1993, StarSight filed a separate action in the United States
District Court for the Northern District of California, alleging that certain
of the Company's

T-19

interactive services infringe the 121 Patent. This action was dismissed by
StarSight on May 25, 1994. On July 6, 1994, the Company filed an Amended
Complaint seeking Declaratory Judgment that it did not infringe the three
StarSight patents listed in the original Complaint as well as five other
patents licensed to StarSight. On July 19, 1994, StarSight refiled its
infringement claim against the Company as a counter-claim to the Company's
Amended Complaint seeking damages and injunctive relief. On February 15, 1995,
the Company filed an Amended and Supplemental Complaint which averred that the
121 Patent is invalid and not infringed, that the 121 Patent is unenforceable
because of StarSight's inequitable conduct in obtaining the patent and its
misuse of the patent, and that StarSight violated the antitrust laws. The
Company also sought a Declaratory Judgment that the other two patents
identified in the original complaint and the five patents licensed to StarSight
are not infringed by the Company. On March 20, 1995, StarSight filed an Answer
to the Amended and Supplemental Complaint, reasserting its charge of
infringement of the 121 Patent. In December 1995, StarSight moved to file an
amended answer to assert infringement of two additional patents. The Court
subsequently granted StarSight's motion, but stayed all proceedings as to those
two patents. Trial of validity and inequitable conduct unenforceability of the
121 Patent, and alleged infringement by the Prevue Express product of the 121
Patent, commenced May 8, 1996. Proceedings on all issues other than liability
with respect to the 121 Patent had been stayed. Over the course of the
subsequent two and one-half years, the Court heard approximately 20 days of
testimony, which concluded on July 7, 1998. The trial was continued at various
times at the parties' request to allow the parties to assess the litigation and
consider settlement possibilities. Although the parties announced a settlement
as part of a business deal on January 20, 1998, it was never finalized, and no
settlement was reached. The parties submitted post-trial papers in September
and October 1998, and presented closing arguments to the Court on November 12,
1998. The case has been submitted to the Court and the parties are awaiting a
decision on the issues of infringement and validity of the 121 Patent. Shortly
before the closing arguments, on November 9, 1998, StarSight moved to dismiss
the case asserting that the Company had abandoned the Prevue Express product at
issue in the case and that the Court therefore lacked subject matter
jurisdiction over the matter. The Company opposed the motion on November 12,
1998. The Court did not issue a decision on that motion. On February 19, 1999,
the Court entered Partial Findings of Fact and Conclusions of Law determining
that the 121 Patent is not unenforceable by reason of inequitable conduct. The
Court referred the case to a Magistrate Judge for settlement conference
purposes prior to the Court entering additional findings of fact and
conclusions of law with respect to the remaining issues tried. On October 4,
1999, the Company and Gemstar announced that they had entered into a definitive
merger agreement under which the Company will become a wholly owned subsidiary
of Gemstar. The transaction was approved by the stockholders of both companies
on March 17, 2000, but has not closed pending regulatory approvals. The Company
expects that the litigation with Gemstar and its affiliates will be dismissed
in connection with the closing of the transaction with Gemstar. In the
meantime, this litigation has been administratively terminated pursuant to an
order entered by the Court on November 24, 1999. If the transaction with
Gemstar does not close, the parties may reopen the proceedings upon a showing
of good cause. The parties are required to advise the Court as to the need to
maintain the administrative closure by August 24, 2000. If the transaction with
Gemstar does not close, there could be no assurance that this litigation will
be resolved without material adverse effect on the business prospects of the
Company and its subsidiaries and the future financial position or results of
the Company and its subsidiaries. The Company has not provided for any
potential loss as a result of this litigation.

On July 24, 1998, Gemstar and StarSight filed an action in the U.S.
District Court for the Northern District of California asserting infringement
by the Company's TV Guide Networks, Inc. subsidiary (formerly Prevue Networks,
Inc.) of the 121 Patent and U.S. Patent No. 4,751,578 (the "578 patent")
seeking damages and injunctive relief. The original Complaint did not specify a
product accused of infringement. On September 30, 1998, Gemstar and StarSight
filed an Amended Complaint adding SuperGuide Corporation ("SuperGuide") as a
plaintiff, Tele-Communications, Inc. ("TCI") as a defendant, and specifying TV
Guide Interactive as the allegedly infringing product. TCI Communications, Inc.
was subsequently substituted for TCI. TV Guide Networks answered the Amended
Complaint on October 15, 1998, asserting the defenses of non-infringement,
invalidity and estoppel with respect to both the 121 and 578 Patents, and
inequitable conduct unenforceability with respect to the 121 Patent. In
addition, TV Guide Networks asserted that StarSight had violated the antitrust
laws. On August 7, 1998, TV Guide Networks moved to transfer this action to the
U.S. District Court for the

T-20

Northern District of Oklahoma. On February 2, 1999, the California Court
granted TV Guide Networks' motion to transfer. On December 23, 1998, Gemstar,
StarSight and SuperGuide filed a motion before the Judicial Panel on
Multidistrict Litigation ("JPML") to consolidate and transfer for pretrial
proceedings this action and four other patent infringement lawsuits Gemstar and
its affiliated companies have pending with manufacturers of cable television
set-top boxes. In their motion, Gemstar and its affiliates suggested either the
Central or Northern District of California as the appropriate venue for
pretrial proceedings. TV Guide Networks opposed the motion for consolidation.
On April 26, 1999, the JPML denied the motion to transfer the action pending in
the Northern District of Oklahoma to another district court for pretrial
proceedings. The JPML also ordered that the cases against the manufacturers of
cable set-top boxes be transferred to the Northern District of Georgia for
pretrial proceedings. On March 22, 1999, the transferred case in the Northern
District of Oklahoma was referred to a Magistrate Judge for settlement
conference purposes. As discussed above, the Company expects that this
litigation will be dismissed in connection with the closing of the merger
transaction with Gemstar. In the meantime, this litigation has been
administratively terminated pursuant to an order entered by the Court on March
9, 2000. If the transaction with Gemstar does not close, the parties may reopen
the proceedings upon a showing of good cause. The parties are required to
advise the Court as to the need to maintain the administrative closure by
August 24, 2000. If the transaction with Gemstar does not close, there could be
no assurance that this litigation will be resolved without material adverse
effect on the business prospects of the Company and its subsidiaries and the
future financial position or results of the Company and its subsidiaries. The
Company has not provided for any potential loss as a result of this litigation.

The State of Illinois (the "State") has asserted that certain uplinking
services performed by the Company at its Chicago teleport are subject to the
State's Telecommunications Excise Tax Act. The State contends that the Company
should have collected approximately $1.5 million in excise taxes from its
customers during the period August 1985 through June 1994 and remitted such
receipts to the State. In addition to that amount, the State has assessed
penalties and interest of approximately $900,000. The Company, after consulting
with outside counsel, strongly disagrees with the State's position. The Company
has provided a reserve of $275,000 for certain matters associated with the
State's claim. No provision has been made in the Company's financial statements
for the remainder of the State's claim and the Company has not collected from
its customers or remitted their tax (which would aggregate approximately
$300,000 annually) for periods subsequent to June 1994. However, pursuant to
the State's Protest Money Act which stops further accrual of interest during
the appeals process, the Company has paid into the Illinois Court $2.4 million,
which represents the amount of the State's claim applicable to the period
August 1985 through June 1994. Also pursuant to the State's Protest Money Act,
the Company filed a Verified Complaint for Injunctive and Other Relief in the
Cook County Chancery Court on February 28, 1995, and an Amended Verified
Complaint on October 6, 1995. The Company filed a motion for summary judgment
on August 29, 1996, asking the Court for summary disposition of the case.
Pursuant to this motion, the Company received a partial refund of $123,000 on
February 10, 1997. On March 13, 2000, the Company was awarded complete summary
judgment in its favor. The State has indicated that it plans to appeal the
judgment to the Illinois Appellate Court. While the Company believes that this
matter will not have a material adverse effect on its business, financial
position or results of operations, a complete reversal of the summary judgment
could result in a loss of up to $4.4 million.

By letter dated March 20, 2000 and in other correspondence and
discussions, the broadcast networks and their affiliates have made a demand for
damages against the Company for alleged violations of the network service
restrictions in the "red zone/green zone" plan which limited the Company's
Denver 6 service, and SNG's ability to sell those network television station
signals into certain markets. With the passage of SHVIA, the Company exercised
the option of discontinuing the "red zone/green zone" agreement and utilizing
the exemption for C-band subscribers to continue distributing distant network
signals. The broadcasters have objected to such termination and have asserted
claims for liquidated damages and other damages as a result of the Company's
determination not to terminate Denver 6 distant network signal subscribers
during the time period from September 1999 through and after the passage of
SHVIA up to the notice of termination. The Company and the broadcast networks
and affiliates have commenced settlement negotiations. Because these claims are
preliminary and discussions are ongoing, the Company cannot reasonably predict
whether there will be any damages awarded if the broadcast networks and
affiliates commence a proceeding against the Company.

T-21

On October 4, 1999, a former employee of ODS, filed a complaint against
that Company in the Los Angeles Superior Court asserting causes of action for
breach of contract and declaratory relief relating to his employment agreement
with ODS and seeking damages. The matter is set for trial in October 2000.
Although discovery has not been completed, the Company believes the claims are
without merit and will vigorously defend the action in court.

On October 18, 1999, another former employee of ODS filed a complaint
against ODS and the Company in a Florida federal court, which complaint was
amended on November 12, 1999, asserting causes of action for violations of
certain federal statutes governing pension plans and for equitable estoppel.
The amended complaint seeks an unspecified amount of damages for benefits
allegedly due to the plaintiff under his employment agreement with ODS.
Discovery in this proceeding is in a preliminary stage and ODS and the
Company's motion to dismiss the lawsuit for lack of personal and subject matter
jurisdiction is pending before the Court.

The Company is also a party to certain other claims, actions and
proceedings incidental to its business, none of which is expected to have a
material adverse effect on the business, financial position or results of
operations of the Company.

14. Segment Information

The Company categorizes its businesses into three groups for internal
reporting purposes: TV Guide Magazine Group, TV Guide Entertainment Group and
United Video Group. The Company has five reportable segments: print program
listings guide services (TV Guide Magazine Group); electronic program promotion
and guide services (TV Guide Entertainment Group); and home satellite dish
services (SNG), satellite distribution of video entertainment services (UVTV)
and distribution of interactive sports entertainment services (ODS), all of
which are included in the United Video Group. Segment information reported in
prior years has been reclassified to conform with the current year
presentation. TV Guide Magazine Group distributes TV Guide magazine to
households and newsstands and provides customized monthly program guides for
cable and satellite operators. TV Guide Entertainment Group markets electronic
programming guide and promotion channels and services to cable television
systems and other multi-channel video programming distributors. United Video
Group includes SNG, which markets and distributes programming to the C-band
direct-to-home satellite dish subscriber market, UVTV, which markets and
distributes to programming distributors certain video and audio services, and
ODS, which produces and distributes to programming distributors the TVG
Network. United Video Group also operates businesses that provide software
development and systems integration services and satellite transmission
services for private networks and holds certain other investments.

The Company's reportable segments are strategic business units that offer
different products and services. The reportable segments are measured based on
EBITDA (operating income before depreciation and amortization) including
allocated corporate expenses. The Company accounts for inter-segment sales as
if the sales were to third parties at market prices.

T-22

Segment information as of December 31, 1999, 1998 and 1997 and for each of
the years then ended is as follows:

TV Guide TV Guide
Magazine Entertainment United Video United Video United Video United Video
Group Group Group-SNG Group-UVTV Group-ODS Group-Other Eliminations Consolidated
---------- ------------- ------------ ------------ ------------ ------------ ------------ ------------

1999
Revenues from
external customers:
Satellite-
delivered
programming
services......... $ -- $39,670 $390,119 $55,460 $ 890 $ 27,218 $ -- $ 513,357
Magazine
subscription and
newsstand sales.. 346,447 -- -- -- -- -- -- 346,447
Advertising
sales............ 165,321 52,179 -- -- -- -- -- 217,500
Systems
integration
services......... -- -- -- -- -- 39,415 -- 39,415
Other............. 18,586 -- -- -- -- -- -- 18,586
Intersegment
revenues........... 3,128 -- -- 27,207 -- -- (30,335) --
---------- ------- -------- ------- -------- -------- -------- ----------
Total revenues.. 533,482 91,849 390,119 82,667 890 66,633 (30,335) 1,135,305
Operating expenses,
excluding
depreciation and
amortization 407,289 80,014 317,535 42,063 33,180 62,612 (30,335) 912,358
---------- ------- -------- ------- -------- -------- -------- ----------
Operating income
(loss) before
depreciation and
amortization....... $ 126,193 $11,835 $ 72,584 $40,604 $(32,290) $ 4,021 $ -- 222,947
========== ======= ======== ======= ======== ======== ========
Depreciation and
amortization....... (135,965)
Interest expense.... (43,609)
Other expense, net.. (134)
----------
Income before income
taxes and minority
interest........... $ 43,239
==========
Capital
expenditures....... $ 9,953 $20,480 $ 551 $ 117 $ 2,079 $ 11,449 $ -- $ 44,629
========== ======= ======== ======= ======== ======== ======== ==========
Segment assets...... $2,946,159 $89,530 $140,135 $82,911 $ 32,504 $107,307 $(83,727) $3,314,819
========== ======= ======== ======= ======== ======== ======== ==========
1998
Revenues from
external customers:
Satellite-
delivered
programming
services......... $ -- $36,473 $414,694 $60,725 $ 312 $ 28,428 $ -- $ 540,632
Advertising
sales............ -- 40,349 -- -- -- -- -- 40,349
Systems
integration
services......... -- -- -- -- -- 40,959 -- 40,959
Intersegment
revenues........... -- -- -- 24,016 -- -- (24,016) --
---------- ------- -------- ------- -------- -------- -------- ----------
Total revenues.. -- 76,822 414,694 84,741 312 69,387 (24,016) 621,940
Operating expenses,
excluding
depreciation and
amortization....... -- 53,562 354,429 40,460 3,453 57,206 (24,016) 485,094
---------- ------- -------- ------- -------- -------- -------- ----------

T-23

TV Guide TV Guide
Magazine Entertainment United Video United Video United Video United Video
Group Group Group-SNG Group-UVTV Group-ODS Group-Other Eliminations Consolidated
--------- ------------- ------------ ------------ ------------ ------------ ------------ ------------

Operating income
(loss) before
depreciation and
amortization....... $ -- $23,260 $ 60,265 $44,281 $ (3,141) $ 12,181 $ -- 136,846
========= ======= ======== ======= ======== ======== ========
Depreciation and
amortization ...... (28,227)
Gain on issuance of
equity by
subsidiary......... 37,898
Interest expense.... (1,629)
Other income, net... 16,530
--------
Income before income
taxes and minority
interest........... $161,418
========
Capital
expenditures....... $ -- $ 5,187 $ 324 $ 191 $ 40 $ 5,373 $ -- $ 11,115
========= ======= ======== ======= ======== ======== ======== ========
Segment assets...... $ -- $62,261 $129,453 $95,565 $ 29,864 $127,290 $(31,927) $412,506
========= ======= ======== ======= ======== ======== ======== ========
1997
Revenues from
external customers:
Satellite-
delivered
programming
services......... $ -- $32,128 $326,285 $57,676 $ -- $ 41,886 $ -- $457,975
Advertising
sales............ -- 30,828 -- -- -- -- -- 30,828
Systems
integration
services......... -- -- -- -- -- 41,617 -- 41,617
Intersegment
revenues........... -- -- -- 16,938 -- 518 (17,456) --
--------- ------- -------- ------- -------- -------- -------- --------
Total revenues.. -- 62,956 326,285 74,614 -- 84,021 (17,456) 530,420
Operating expenses,
excluding
depreciation and
amortization....... -- 40,548 287,775 30,825 -- 68,752 (17,456) 410,444
--------- ------- -------- ------- -------- -------- -------- --------
Operating income
before depreciation
and amortization... $ -- $22,408 $ 38,510 $43,789 $ -- $ 15,269 $ -- 119,976
========= ======= ======== ======= ======== ======== ========
Depreciation and
amortization....... (18,850)
Interest expense.... (2,122)
Other income, net... 6,242
--------
Income before income
taxes and minority
interest........... $105,246
========= ======= ======== ======= ======== ======== ======== ========
Capital
expenditures....... $ -- $ 6,009 $ 352 $ 42 $ -- $ 3,847 $ -- $ 10,250
========= ======= ======== ======= ======== ======== ======== ========
Segment assets...... $ -- $45,988 $ 23,180 $82,663 $ -- $164,156 $(12,845) $303,142
========= ======= ======== ======= ======== ======== ======== ========

T-24

Revenue from other non-reportable operating segments primarily includes
revenue derived from system integration and software development services and
from satellite transmission services. Eliminations include inter-segment
revenues and expenses and inter-segment payables and receivables.

15. Quarterly Financial Data (unaudited)

Quarters Ended
------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(in thousands, except per share amounts)

1999
Revenues............................ $201,842 $312,966 $302,631 $317,866
Operating expenses.................. 169,839 282,602 284,428 311,454
Operating income.................... 32,003 30,364 18,203 6,412
Net income (loss)................... 12,761 9,837 1,318 (19,265)
Earnings (loss) per share:
Basic............................. 0.06 0.03 0.00 (0.06)
Diluted........................... 0.06 0.03 0.00 (0.06)

Quarters Ended
------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(in thousands, except per share amounts)

1998
Revenues............................ $146,164 $155,045 $159,430 $161,301
Operating expenses.................. 124,496 127,335 127,230 134,260
Operating income.................... 21,668 27,710 32,200 27,041
Net income.......................... 38,961 17,916 21,060 24,122
Earnings per share:
Basic............................. 0.23 0.10 0.12 0.14
Diluted........................... 0.22 0.10 0.12 0.14

The results of operations for the fourth quarter of 1999 include a
provision of $15.2 million to reflect impairment of the Company's goodwill in
SSDS.

16. Gemstar Merger

On October 4, 1999, the Company and Gemstar announced that they had
entered into a definitive merger agreement under which the Company will become
a wholly owned subsidiary of Gemstar. Under the merger agreement, the Company's
stockholders will receive .6573 shares of Gemstar common stock for each share
of TV Guide Class A and Class B Common Stock. The exchange ratio is not subject
to adjustment. The transaction, which is expected to close in the first half of
2000, has been approved by the stockholders of both companies but has not
closed pending regulatory approvals.

17. Supplemental Guarantor Information

In connection with the TV Guide Transaction, the Company issued $400
million in aggregate principal amount of its senior subordinated notes due
2009, which are not callable until 2004. A group of the Company's subsidiaries
(the "Guarantors") guarantee the senior subordinated indebtedness. Supplemental
condensed combining financial information of the Company, the Guarantors and
the remainder of the Company's consolidated group (the "Non-Guarantors") is
presented below.

Investments in the Non-Guarantors by their parent companies that are part
of the Company and the Guarantors are presented under the equity method of
accounting in the combining financial information. The

T-25

principal elimination entries eliminate intercompany sales and purchases of
video products, intercompany interest income and expense, equity in earnings of
subsidiaries and investments in and amounts due to and from subsidiaries.

Because of the factual basis underlying the obligations created pursuant
to a senior secured credit facility and other obligations that may constitute
senior indebtedness of the Guarantors of the senior subordinated notes, it is
not possible to predict how a court in bankruptcy would accord priorities among
the obligations of the Company and its subsidiaries.

T-26

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS

As of December 31, 1999
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------

ASSETS
Current assets:
Cash and cash
equivalents.......... $ -- $ 9,859 $ 83,351 $ -- $ 93,210
Marketable securities,
at fair value........ -- 20,723 -- -- 20,723
Accounts receivable,
net of allowance for
doubtful accounts.... -- 257,199 36,132 -- 293,331
Accounts and notes
receivable from
affiliates........... -- 87,863 944 (88,807) --
Other current assets.. -- 26,780 7,258 -- 34,038
---------- ---------- -------- ----------- ----------
Total current
assets.............. -- 402,424 127,685 (88,807) 441,302
Property, plant and
equipment, at cost, net
of accumulated
depreciation and
amortization........... -- 61,465 14,280 -- 75,745
Intangible assets, net
of accumulated
amortization........... -- 2,665,890 89,608 -- 2,755,498
Investment in
subsidiaries, at
equity................. 2,127,998 -- -- (2,127,998) --
Other assets, net of
accumulated
amortization........... 13,543 27,993 738 -- 42,274
---------- ---------- -------- ----------- ----------
Total assets............ $2,141,541 $3,157,772 $232,311 $(2,216,805) $3,314,819
========== ========== ======== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ -- $ 68,870 $ 3,700 $ -- $ 72,570
Accounts and notes
payable to
affiliates........... 36,954 922 50,931 (88,807) --
Accrued liabilities... 11,572 72,057 44,032 -- 127,661
Note payable and
current portion of
capital lease
obligations.......... -- 4,016 3,748 -- 7,764
Customer prepayments.. -- 191,103 99,297 -- 290,400
---------- ---------- -------- ----------- ----------
Total current
liabilities......... 48,526 336,968 201,708 (88,807) 498,395
Deferred tax liability
and other long-term
liabilities............ -- 692,797 16,606 -- 709,403
Capital lease
obligations and long-
term debt.............. 615,300 624,290 -- (615,300) 624,290
Minority interest....... -- -- 2,459 2,557 5,016
Stockholders' equity:
Common stock.......... 3,045 35,696 211 (35,907) 3,045
Other stockholders'
equity............... 1,474,670 1,468,021 11,327 (1,479,348) 1,474,670
---------- ---------- -------- ----------- ----------
Total stockholders'
equity.............. 1,477,715 1,503,717 11,538 (1,515,255) 1,477,715
---------- ---------- -------- ----------- ----------
Total liabilities and
stockholders' equity... $2,141,541 $3,157,772 $232,311 $(2,216,805) $3,314,819
========== ========== ======== =========== ==========

T-27

SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS

As of December 31, 1998
(In thousands)

The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------

ASSETS
Current assets:
Cash and cash
equivalents.......... $ -- $ 98,556 $ 57,088 $ -- $155,644
Marketable securities,
at fair value........ -- 5,804 -- -- 5,804
Accounts receivable,
net of allowance for
doubtful accounts.... -- 26,035 39,839 (1,242) 64,632
Accounts and notes
receivable from
affiliates........... -- 46,475 62,911 (109,386) --
Other current assets.. -- 2,517 5,462 -- 7,979
-------- -------- -------- --------- --------
Total current
assets.............. -- 179,387 165,300 (110,628) 234,059
Property, plant and
equipment, at cost, net
of accumulated
depreciation and
amortization........... -- 33,305 12,457 -- 45,762
Intangible assets, net
of accumulated
amortization........... -- 5,076 108,447 -- 113,523
Investment in
subsidiaries, at
equity................. 228,082 -- -- (228,082) --
Other assets, net of
accumulated
amortization........... -- 14,028 5,171 (37) 19,162
-------- -------- -------- --------- --------
Total assets............ $228,082 $231,796 $291,375 $(338,747) $412,506
======== ======== ======== ========= ======== ===
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ -- $ 4,611 $ 2,286 $ (1,242) $ 5,655
Accounts and notes
payable to
affiliates........... 28,238 62,911 18,237 (109,386) --
Accrued liabilities... -- 15,710 41,655 -- 57,365
Note payable and
current portion of
capital lease
obligations and long-
term debt............ -- 3,746 1,754 (37) 5,463
Customer prepayments.. -- 7,061 102,868 -- 109,929
-------- -------- -------- --------- --------
Total current
liabilities......... 28,238 94,039 166,800 (110,665) 178,412

Deferred liabilities.... -- 4,293 13,354 -- 17,647
Capital lease
obligations and long-
term debt.............. -- 13,007 -- -- 13,007
Minority interest....... -- -- 349 3,247 3,596
Stockholders' equity:
Common stock.......... 854 806 48 (854) 854
Other stockholders'
equity............... 198,990 119,651 110,824 (230,475) 198,990
-------- -------- -------- --------- --------
Total stockholders'
equity.............. 199,844 120,457 110,872 (231,329) 199,844
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity... $228,082 $231,796 $291,375 $(338,747) $412,506
======== ======== ======== ========= ========

T-28

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

Year Ended December 31, 1999
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------

Revenues:
Satellite delivered
programming
services............. $ -- $112,006 $428,558 $(27,207) $ 513,357
Magazine subscription
and newsstand sales.. -- 349,575 -- (3,128) 346,447
Advertising sales..... -- 217,500 -- -- 217,500
Systems integration
services............. -- -- 39,415 -- 39,415
Other................. -- 18,586 -- -- 18,586
-------- -------- -------- -------- ----------
-- 697,667 467,973 (30,335) 1,135,305
Operating expenses:
Programming, printing,
distribution and
delivery............. -- 356,892 302,182 (30,335) 628,739
Selling, general and
administrative....... -- 160,258 123,361 -- 283,619
Depreciation and
amortization......... -- 101,240 34,725 -- 135,965
-------- -------- -------- -------- ----------
-- 618,390 460,268 (30,335) 1,048,323
-------- -------- -------- -------- ----------
Operating income........ -- 79,277 7,705 -- 86,982
Interest expense........ (42,419) (43,391) (218) 42,419 (43,609)
Other income (expense),
net.................... 47,070 (2,901) 2,767 (47,070) (134)
-------- -------- -------- -------- ----------
Income before income
taxes and minority
interest............... 4,651 32,985 10,254 (4,651) 43,239
Provision for income
taxes.................. -- (6,037) (20,355) -- (26,392)
Minority interest in
earnings............... -- -- (14,547) 2,351 (12,196)
-------- -------- -------- -------- ----------
Net income.............. $ 4,651 $ 26,948 $(24,648) $ (2,300) $ 4,651
======== ======== ======== ======== ==========

T-29

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

Year Ended December 31, 1998
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------

Revenues:
Satellite delivered
programming
services............. $ -- $111,831 $452,817 $ (24,016) $540,632
Advertising sales..... -- 40,349 -- -- 40,349
Systems integration
services............. -- -- 40,959 -- 40,959
-------- -------- -------- --------- --------
-- 152,180 493,776 (24,016) 621,940
Operating expenses:
Programming, printing,
distribution and
delivery............. -- 33,972 320,948 (24,016) 330,904
Selling, general and
administrative....... -- 53,743 100,447 -- 154,190
Depreciation and
amortization......... -- 10,588 17,639 -- 28,227
-------- -------- -------- --------- --------
-- 98,303 439,034 (24,016) 513,321
-------- -------- -------- --------- --------
Operating income........ -- 53,877 54,742 -- 108,619
Interest expense........ -- (1,287) (342) -- (1,629)
Other income, net....... 102,059 12,253 42,175 (102,059) 54,428
-------- -------- -------- --------- --------
Income before income
taxes and minority
interest............... 102,059 64,843 96,575 (102,059) 161,418
Provision for income
taxes.................. -- (21,838) (37,139) -- (58,977)
Minority interest in
earnings............... -- -- (316) (66) (382)
-------- -------- -------- --------- --------
Net income.............. $102,059 $ 43,005 $ 59,120 $(102,125) $102,059
======== ======== ======== ========= ========

T-30

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME

Year Ended December 31, 1997
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------

Revenues:
Satellite delivered
programming
services............. $ -- $ 98,332 $377,099 $(17,456) $457,975
Advertising sales..... -- 30,828 -- -- 30,828
Systems integration
services............. -- -- 41,617 -- 41,617
------- -------- -------- -------- --------
-- 129,160 418,716 (17,456) 530,420
Operating expenses:
Programming, printing
distribution and
delivery............. -- 24,976 258,599 (17,456) 266,119
Selling, general and
administrative....... -- 40,797 103,528 -- 144,325
Depreciation and
amortization......... -- 9,271 9,579 -- 18,850
------- -------- -------- -------- --------
-- 75,044 371,706 (17,456) 429,294
------- -------- -------- -------- --------
Operating income........ -- 54,116 47,010 -- 101,126
Interest expense........ -- (1,550) (572) -- (2,122)
Other income, net....... 67,435 3,314 2,928 (67,435) 6,242
------- -------- -------- -------- --------
Income before income
taxes and minority
interest............... 67,435 55,880 49,366 (67,435) 105,246
Provision for income
taxes.................. -- (20,047) (18,391) -- (38,438)
Minority interest in
earnings............... -- -- (9) 636 627
------- -------- -------- -------- --------
Net income.............. $67,435 $ 35,833 $ 30,966 $(66,799) $ 67,435
======= ======== ======== ======== ========

T-31

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS

Year Ended December 31, 1999
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------

Net cash provided by
operating activities... $ -- $ 49,801 $ 24,355 $ (132) $ 74,024
Investing activities:
Capital expenditures.. -- (37,077) (7,659) 107 (44,629)
Investments and
acquisitions, net of
cash acquired........ (810,297) (13,604) 276 10,297 (813,328)
Purchases of
marketable
securities........... -- (6,049) -- -- (6,049)
Sales and maturities
of marketable
securities........... -- 5,916 -- -- 5,916
Other................. -- (2,607) (3,391) (13) (6,011)
--------- -------- -------- -------- ---------
Net cash used in
investing activities... (810,297) (53,421) (10,774) 10,391 (864,101)
Financing activities:
Issuance of senior
subordinated notes... 400,000 -- -- -- 400,000
Borrowings under notes
and bank credit
facilities........... 215,300 -- 2,031 -- 217,331
Debt issuance costs... (15,114) -- -- -- (15,114)
Repayment of note
payable and capital
lease obligations.... -- (3,747) (38) 38 (3,747)
Common stock
transactions, net.... 133,028 -- 10,297 (10,297) 133,028
Contributions from
Liberty Media-Netlink
Wholesale Division... -- 6,476 1,495 -- 7,971
Distributions to
minority interests... -- -- (12,438) -- (12,438)
Intercompany
transfers............ 76,099 (87,806) 11,707 -- --
Other................. 984 -- (372) -- 612
--------- -------- -------- -------- ---------
Net cash provided by
(used in) financing
activities............. 810,297 (85,077) 12,682 (10,259) 727,643
--------- -------- -------- -------- ---------
Net increase (decrease)
in cash and cash
equivalents............ -- (88,697) 26,263 -- (62,434)
Cash and cash
equivalents at
beginning of year...... -- 98,556 57,088 -- 155,644
--------- -------- -------- -------- ---------
Cash and cash
equivalents at end of
year................... $ -- $ 9,859 $ 83,351 $ -- $ 93,210
========= ======== ======== ======== =========

T-32

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS

Year Ended December 31, 1998
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------

Net cash provided by
operating activities... $ -- $ 40,426 $54,719 $ 240 $ 95,385
Investing activities:
Capital expenditures.. -- (7,997) (3,838) 720 (11,115)
Investments and
acquisitions, net of
cash acquired........ (31,848) (9,555) (699) -- (42,102)
Purchases of
marketable
securities........... -- (74,360) -- -- (74,360)
Sales and maturities
of marketable
securities........... -- 190,169 -- -- 190,169
Other................. -- (1,105) 1,034 (786) (857)
-------- -------- ------- ----- --------
Net cash provided by
(used in) investing
activities............. (31,848) 97,152 (3,503) (66) 61,735
Financing activities:
Repayment of note
payable, capital
lease obligations and
long-term debt....... -- (3,493) (6,267) 66 (9,694)
Common stock
transactions, net.... (17,560) -- -- -- (17,560)
Distributions to
Liberty Media-Netlink
Wholesale Division... -- (10,688) 4,168 -- (6,520)
Intercompany
transfers............ 49,408 (50,965) 1,907 (350) --
Other................. -- -- (368) 110 (258)
-------- -------- ------- ----- --------
Net cash provided by
(used in) financing
activities............. 31,848 (65,146) (560) (174) (34,032)
-------- -------- ------- ----- --------
Net increase in cash and
cash equivalents....... -- 72,432 50,656 -- 123,088
Cash and cash
equivalents at
beginning of year...... -- 26,124 6,432 -- 32,556
-------- -------- ------- ----- --------
Cash and cash
equivalents at end of
year................... $ -- $ 98,556 $57,088 $ -- $155,644
======== ======== ======= ===== ========

T-33

SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS

Year Ended December 31, 1997
(In thousands)

Non-
The Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------

Net cash provided by
operating activities... $ -- $ 65,063 $ 15,824 $ (23) $ 80,864
Investing activities:
Capital expenditures.. -- (6,380) (4,117) 247 (10,250)
Purchases of
marketable
securities........... -- (91,666) -- -- (91,666)
Sales and maturities
of marketable
securities........... -- 36,700 -- -- 36,700
Other................. -- (1,532) (67) (119) (1,718)
----- -------- -------- ----- --------
Net cash used in
investing activities... -- (62,878) (4,184) 128 (66,934)
Financing activities:
Repayment of note
payable, capital
lease obligations and
long term debt....... -- (3,258) (7,156) (105) (10,519)
Borrowings under bank
credit facilities.... -- -- 7,446 -- 7,446
Common stock
transactions, net.... 531 -- -- -- 531
Distributions to
Liberty Media-Netlink
Wholesale Division... -- (7,980) (14,198) -- (22,178)
Intercompany
transfers............ (531) 1,708 (1,177) -- --
Other................. -- 509 (73) -- 436
----- -------- -------- ----- --------
Net cash used in
financing activities... -- (9,021) (15,158) (105) (24,284)
----- -------- -------- ----- --------
Net decrease in cash and
cash equivalents....... -- (6,836) (3,518) -- (10,354)
Cash and cash
equivalents at
beginning of year...... -- 32,960 9,950 -- 42,910
----- -------- -------- ----- --------
Cash and cash
equivalents at end of
year................... $ -- $ 26,124 $ 6,432 $ -- $ 32,556
===== ======== ======== ===== ========

T-34

TV GUIDE, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

Balance at Amounts Charged Balance at
Beginning Charged to to Other End of
Description of Period Expense Accounts Deductions Period
----------- ---------- ---------- -------- ---------- ----------

Year ended December 31,
1999:
Allowance for doubtful
accounts.............. $2,917 13,972 7,694(1) 6,186 $18,397
Year ended December 31,
1998:
Allowance for doubtful
accounts.............. 2,965 959 -- 1,007 2,917
Year ended December 31,
1997:
Allowance for doubtful
accounts.............. 2,535 701 -- 271 2,965

- --------
(1) Amount represents the allowance for doubtful accounts recorded as part of
the allocation of purchase price to the assets and liabilities acquired in
the TV Guide Transaction.

T-35

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

[Logo]

Sky Global Networks, Inc.

Class A Common Stock

----------------

PROSPECTUS
----------------

Goldman, Sachs & Co.

Merrill Lynch & Co.

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE INTERNATIONAL PAGE]
Subject to Completion
Preliminary Prospectus dated June 20, 2000

PROSPECTUS

[LOGO]

Shares
Sky Global Networks, Inc.
Class A Common Stock

-----------

This is Sky Global Networks, Inc.'s initial public offering of its Class A
common stock. The international managers are offering shares outside the
U.S. and Canada and the U.S. underwriters are offering shares in the U.S.
and Canada. Following the offering, we will have two classes of authorized
common stock: Class A common stock and Class B common stock. The rights of
holders of Class A common stock and Class B common stock will be substantially
identical, except with respect to voting. Each share of Class A common stock
will have one vote and each share of Class B common stock will have ten votes
on all matters submitted to a vote of our stockholders. After the offering, The
News Corporation Limited will beneficially own stock representing approximately
% of our equity and % of our voting power. Accordingly, News Corporation
will be able to control the vote on substantially all matters submitted to a
vote of stockholders.

Investing in the Class A common stock involves risks that are described in
the "Risk Factors" section beginning on page 10 of this prospectus.

-----------

Per Share Total
--------- -----

The international managers may also purchase up to an additional
shares of Class A common stock from Sky Global Networks, Inc. at the public
offering price, less the underwriting discount, within 30 days of the date of
this prospectus to cover over-allotments. The U.S. underwriters may similarly
purchase up to an additional shares of Class A common stock from Sky Global
Networks, Inc.

The shares of Class A common stock will be ready for delivery on or about
, 2000.

-----------

Joint Book-Running Managers

Goldman Sachs International Merrill Lynch International

-----------

The date of this prospectus is , 2000.

[ALTERNATE INTERNATIONAL PAGE]

The Offering

Of the shares of Class A common stock being offered by us,
shares are being offered for sale initially outside the United
States and Canada by the international managers and shares are
concurrently being offered for sale initially in the United States and Canada
by the U.S. underwriters.

Class A common stock offered by us:(/1/)
U.S. offering............................. shares
International offering.................... shares
Total................................. shares
Common Stock outstanding after the offerings:
Class A common stock(/1/) ................ shares
Class B common stock(/2/) ................ shares
Total................................. shares
Over-allotment options....................... shares
Voting Rights:
Class A common stock...................... One vote per share.
Class B common stock...................... Ten votes per share.
Dividend policy.............................. We do not currently intend to pay
dividends in the foreseeable future.
Use of proceeds.............................. We currently intend to use the net
proceeds from the offering to repay
indebtedness to a subsidiary of News
Corporation, to support the growth
of our platforms and for general
corporate purposes.
Listing...................................... We will apply to list the Class A
common stock on the New York Stock
Exchange under the symbol "SGN".

- --------
(/1/)Does not include up to an aggregate shares of Class A common stock
subject to over-allotment options granted by us to the underwriters (
shares of Class A common stock to the U.S. underwriters and shares of
Class A common stock to the international managers).

(/2/)All of the shares of Class B common stock are beneficially owned by News
Corporation and are convertible automatically upon transfer to persons who
are not affiliates of News Corporation or at any time at News
Corporation's option into shares of Class A common stock on a share-for-
share basis.

[ALTERNATE INTERNATIONAL PAGE]

UNDERWRITING

We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S.
underwriters. Goldman Sachs International and Merrill Lynch International are
acting as lead managers for the international managers named below. Subject to
the terms and conditions described in an international purchase agreement among
us and the international managers, and concurrently with the sale of
shares to the U.S. underwriters, we have agreed to sell to the international
managers, and the international managers severally have agreed to purchase from
us, the number of shares listed opposite their names below.

Number
of
International Manager Shares
--------------------- ------

Goldman Sachs International ........................................
Merrill Lynch International.........................................
---
Total..........................................................
===

We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares in the U.S. and Canada for whom Goldman,
Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting
as U.S. representatives. Subject to the terms and conditions in the U.S.
purchase agreement, and concurrently with the sale of shares to the
international managers pursuant to the international purchase agreement, we
have agreed to sell to the U.S. underwriters, and the U.S. underwriters
severally have agreed to purchase shares from us. The initial public
offering price per share and total underwriting discount per share are
identical under the international purchase agreement and U.S. purchase
agreement.

The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults,
the U.S. and international purchase agreements provide that the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings for the sale of shares to be
purchased by the international managers and the U.S. underwriters are
conditioned on one another.

We have agreed to indemnify the international managers and the U.S.
underwriters against some liabilities, including liabilities under the
Securities Act, and to contribute to payments the international managers and
U.S. underwriters may be required to make in respect of those liabilities.

Commissions, Discounts and Expenses

The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the initial public offering
price listed on the cover page of this prospectus, and to dealers at that

[ALTERNATE INTERNATIONAL PAGE]
price less a concession not in excess of $ per share. The international
managers may allow, and the dealers may reallow, a discount not in excess of $
per share to other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.

The following table shows the public offering price, underwriting
discount and proceeds before expenses to Sky Global. The information assumes
either no exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.

Per
Share Without Option With Option
----- -------------- -----------

Public offering price................... $ $ $
Underwriting discount................... $ $ $
Proceeds, before expenses, to Sky
Global................................. $ $ $

The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by Sky Global.

Over-allotment Option

We have granted options to the international managers to purchase up to
additional shares at the public offering price less the underwriting
discount. The international managers may exercise these options for 30 days
from the date of this prospectus solely to cover any over-allotments. If the
international managers exercise these options, each international manager will
be obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.

We have also granted options to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to additional
shares to cover any over-allotments on terms similar to those granted to the
international managers.

Intersyndicate Agreement

The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the international managers and
the U.S. underwriters may sell shares to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the intersyndicate agreement, the international managers and
any dealer to whom they sell shares will not offer to sell or sell shares to
U.S. or Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the intersyndicate
agreement. Similarly, the U.S. underwriters and any dealer to whom they sell
shares will not offer to sell or sell shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, except in the case of transactions under
the intersyndicate agreement.

No Sale of Similar Securities

We and our executive officers and directors and existing stockholders
have agreed, with exceptions, not to sell or transfer any common stock for
days after the date of this prospectus without first obtaining the written
consent of Goldman Sachs and Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:

. offer, pledge, sell, or contract to sell any common stock,

. sell any option or contract to purchase any common stock,

. purchase any option or contract to sell any common stock,

. grant any option, right or warrant for the sale of any common stock,

. lend or otherwise dispose of or transfer any common stock,

[ALTERNATE INTERNATIONAL PAGE]

. request or demand that we file a registration statement related to
the common stock, or

New York Stock Exchange Listing

. the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,

. our financial information,

. the history of, and the prospects for, our company and the industry
in which we compete,

. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,

. the present state of our development,

. the market value of the shares of our publicly traded subsidiaries
and affiliates, and

. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

Price Stabilization, Short Selling and Penalty Bids

Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.

[ALTERNATE INTERNATIONAL PAGE]

U.K. Selling Restrictions

Each international manager has agreed that

. it has not offered or sold and will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do
not constitute an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995;

. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the
United Kingdom; and

. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997
or is a person to whom such document may otherwise lawfully be issued
or passed on.

No Public Offering Outside the United States

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.

Purchasers of the shares offered by this prospectus may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price on the cover page of
this prospectus.

Other Relationships

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions. In addition, John Thornton, president and
co-chief operating officer of Goldman, Sachs & Co., serves on the board of
directors of BSkyB.

[ALTERNATE INTERNATIONAL PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.

[Logo]

Sky Global Networks, Inc.

Class A Common Stock

----------------

PROSPECTUS
----------------

Goldman Sachs International

Merrill Lynch International

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by us in connection with the
issuance and distribution of the securities being offered hereby (items marked
with an asterisk (*) represent estimated expenses):

SEC Registration Fee.............................................. $26,400
NASD Filing Fee................................................... 10,500
New York Stock Exchange Listing Fee............................... *
Legal Fees and Expenses........................................... *
Blue Sky Fees (including counsel fees)............................ *
Accounting Fees and Expenses...................................... *
Transfer Agent and Registrar Fees................................. *
Printing and Engraving Expenses................................... *
Miscellaneous Expenses............................................ *
-------
Total........................................................... $ *
=======

- --------
* To be filed by amendment

Item 14. Indemnification of Officers and Directors.

Section 145 of the Delaware General Corporation Law ("DGCL") makes
provision for the indemnification of officers and directors in terms
sufficiently broad to indemnify our officers and directors under certain
circumstances from liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Our restated certificate of incorporation and
restated by-laws provide, in effect, that, to the fullest extent and under the
circumstances permitted by the DGCL, we will indemnify any person (or the
estate of any person) who is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, by reason
of the fact that he or she is one of our directors or officers or is or was
serving at our request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. In addition, we have
entered into indemnification agreements with our directors and certain of our
officers providing, subject to the terms therein, that we will indemnify such
individuals for damages suffered by reason of the fact that any such individual
is one of our directors or officers or is or was serving at our request as a
director or officer of another corporation or enterprise. Our restated
certificate of incorporation, together with such indemnification agreements,
relieve our directors from monetary damages for breach of such director's
fiduciary duty as director to the fullest extent permitted by the DGCL.
Consequently, a director or officer will not be personally liable to us or our
stockholders for monetary damages for any breach of his or her fiduciary duty
as director except (i) for a breach of the duty of loyalty, (ii) for failure to
act in good faith, (iii) for intentional misconduct or knowing violation of
law, (iv) for willful or negligent violation of certain provisions in the DGCL
imposing certain requirements with respect to stock repurchases, redemptions
and dividends, or (v) for any transactions from which the director derived an
improper personal benefit. In connection with proceedings whether or not by or
in our right, under our restated by-laws, we will indemnify the officers and
directors against expenses (including attorneys' fees), actually and reasonably
incurred in connection with any action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to our best interests, and with respect to any criminal action or
proceeding other than by or in our right, had no reasonable cause to believe
such person's conduct was unlawful. With respect to indemnification other than
by or in our right, the termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, will not, of itself, create a presumption that the person did
not act in good faith and in a manner which such

II-1

person reasonably believed to be in or not opposed to our best interests, and,
with respect to any criminal action or proceeding, that such person had
reasonable cause to believe that such person's conduct was unlawful. No
indemnification will be made in connection with actions by or in our right in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable for negligence or misconduct in the performance of such person's
duty to us unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought determines upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
deems proper. Such expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement may, as permitted by Delaware law, be advanced by us
prior to the final disposition of such action upon receipt of an undertaking by
or on the behalf of such director or officer to repay such amounts if it shall
ultimately be determined that he or she is not entitled to be indemnified as
authorized in accordance with Delaware law. To the extent that any of our
directors or officers has been successful in the defense of any action, suit or
proceeding referred to above, we will be obligated to indemnify him or her
against expenses (including attorneys' fees) actually and reasonably incurred
in connection therewith.

The DGCL provides that it is not exclusive of other indemnification that
may be granted by a corporation's charter, by-laws, disinterested director
vote, stockholder vote, agreement or otherwise. Our restated certificate of
incorporation provides for such indemnification of our directors and officers
as permitted by Delaware law.

Reference is made to Article of our restated certificate of
incorporation for certain indemnification rights of our officers and directors.

The Purchase Agreements provide for reciprocal indemnification among us
and the underwriters and their respective officers, directors and control
persons against certain liabilities in connection with this registration
statement, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").

Item 15. Recent Sales of Unregistered Securities.

None.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit
No.
-------

1.1 Form of U.S. Underwriting Agreement*
3.1 Restated certificate of incorporation of Sky Global*
3.2 Restated by-laws of Sky Global*
4.1 Specimen of Class A common stock*
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP*
21.1 Subsidiaries of Sky Global*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen
23.3 Consent of KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
23.4 Consent of PricewaterhouseCoopers

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23.5 Consent of PricewaterhouseCoopers
23.6 Consent of KPMG LLP
23.7 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the
opinion to be filed as Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page)

- --------
* To be filed by amendment.

(b) Financial Statement Schedules.

Schedule II--Valuation and Qualifying Accounts

Item 17. Undertakings.

Sky Global hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons under
the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by any
of our directors, officers or controlling persons in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel of the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by itself is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

Sky Global hereby undertakes that, for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant under Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.

Sky Global hereby undertakes that, for the purpose of determining any
liability under the Securities Act, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Under the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 20, 2000.

Sky Global Networks, Inc.

By: /s/ Chase Carey
----------------------------------
Chase Carey

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arthur M. Siskind and David F. DeVoe, or any one
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign and file (i) any and all pre- or post-effective
amendments to this registration statement, with all exhibits thereto, and other
documents in connection therewith, and (ii) any registration statement, and any
and all amendments thereto, relating to the offering covered hereby under Rule
462(b) under the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

Signatures Title Date
---------- ----- ----

/s/ K. Rupert Murdoch Chairman and Director June 20, 2000
___________________________________________
K. Rupert Murdoch

/s/ Chase Carey President and Chief June 20, 2000
___________________________________________ Executive Officer
Chase Carey (Principal Executive
Officer) and Director

/s/ David F. DeVoe Acting Chief Financial June 20, 2000
___________________________________________ Officer (Principal
David F. DeVoe Financial and
Accounting Officer) and
Director
/s/ Peter Chernin Director June 20, 2000
___________________________________________
Peter Chernin

/s/ Lachlan K. Murdoch Director June 20, 2000
___________________________________________
Lachlan K. Murdoch

/s/ James Murdoch Director June 20, 2000
___________________________________________
James Murdoch

/s/ Arthur M. Siskind Director June 20, 2000
___________________________________________
Arthur M. Siskind

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