No deal was struck to re-sign the channels by the deadline of midnight last night ,creating a public relations nightmare between Virgin Media and its 3.3m subscribers, who will no longer be able to receive hit programmes such as '24', 'Lost', 'The Simpsons' and 'Battlestar Galactica'.
Virgin Media will now replace Sky One with its Virgin Central brand, which will now transmit on channel 120. Virgin Central is a video-on-demand channel offering shows such as 'Spooks', 'The Office' and 'Alias'.
A spokesman for Sky said: "We know that Sky's basic channels have many loyal cable viewers and our aim has been to avoid any disruption to their enjoyment of our programmes. We're disappointed that we will now be denied access to cable TV homes.
"We've made repeated efforts to reach an agreement, but Virgin Media has rejected all of our proposals -- including our latest offer of just 3p per customer per day. To ensure that Virgin Media's customers would continue to enjoy access to our channels, Sky even offered to retail them directly to customers on the Virgin Media Network. This proposal was also dismissed by Virgin Media.
"Six frustrating days have passed since Virgin Media last put forward financial terms for a proposed agreement to Sky. As late as yesterday, Virgin Media declined to re-enter negotiations of financial terms and confirmed that it did not intend to make a new offer of financial terms to Sky.
The broadcaster even invited Virgin Media to reopen negotiations with the channel. "We're available for talks at any time," the spokesman said.
In response, Virgin Media hit back saying it would now focus on providing its customers with the "most comprehensive range of programming available".
The network said that the money saved due to Sky's withdrawal of its basic channels would be used to build on a series of major programming acquisitions.
Virgin Media said that throughout the dispute it had made continued efforts to reach an agreement with Sky offering to appoint an independent expert to adjudicate over the deal.
The broadcaster said that Sky had formally rejected this offer on Wednesday morning and again on Wednesday afternoon following a personal call to James Murdoch chief executive of BSkyB, instigated by Virgin Media's chairman Jim Mooney and chief executive Steve Burch.
Burch said: "We're disappointed but not surprised by this outcome: nothing Sky have said or done in the course of the negotiation indicates they had the slightest interest in doing a commercially viable deal. Their action here is consistent with their plans to withdraw their free channels from Freeview and, in our view, reflects their desire to limit consumer choice."
Richard Branson, Virgin Media's largest shareholder, added: ""We're sorry that Sky have pulled their basic channels from our service. These however do not include their sports and movie channels, which will continue to be available to Virgin Media's customers.
"When Virgin Media launched last month, we promised to put the power of the entertainment industry back in the hands of UK consumers, giving them the service they deserve and the value they'd expect. Consumers have my whole-hearted assurance that Virgin Media will not allow this dispute to prevent us from giving them the freshest and most exciting TV service in the UK."
Sky has launched a national press advertising campaign yesterday in the form of a letter titled "TV you love" and finished by telling Virgin Media Customers how easy it is to switch to Sky.
Yesterday, Virgin Media posted fourth-quarter revenues slightly above expectations at £1.08bn and its consumer cable division reduced churn but lost a net 37,000 customers during the quarter.
The group, which rebranded this month from NTL:Telewest to Virgin Media, said cable churn, or the percentage of customers who left the service, had been reduced to 1.7%. In the third quarter churn was 1.8% and the net customer loss was 37,000.
Arpu, the average amount of revenue per customer, was £42.82, up 34p from the previous quarter.
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