TVB, which sells terrestrial and satellite pay-television programmes as far afield as the United States and Australia, cut losses from its 49 per cent held TVB Pay Vision, Hong Kong's smallest pay-television operator, to HK$87 million from HK$99 million a year earlier after a distribution arrangement with PCCW's NOW Broadband TV in February.

The distribution agreement enables TVB to sell a bundle of 20 channels to NOW Broadband TV customers.

The revenue contribution from the deal in the first half was limited because of a two-month free trial for existing NOW subscribers, analysts said.

Cost of sales, which includes expenses related to programmes, film rights and movies, was cut 2 per cent to HK$836 million.

Revenue from terrestrial television broadcasting, which accounts for about 50 per cent turnover, fell 4.2 per cent, or HK$40.73 million, to HK$924.9 million.

The company said the decline was mainly due to a 5 per cent drop in Hong Kong advertising sales as clients such as property companies, slimming centres and the beauty products industry reduced spending on advertising.

The company, which gets 58 per cent of its revenue from its Hong Kong business, said experiments with product placements were encouraging and represented potential new revenue streams.

Net profit dropped 14 per cent to HK$470 million or HK$1.07 per share from HK$545 million or HK$1.25, after a HK$149 million gain on change in fair value of financial assets during the same period last year.

Rival cable-television provider i-Cable Communications, a division of Wharf (Holdings), reported last week that operating profit from its pay-television business plunged 50 per cent as turnover gained 2 per cent to HK$966 million.

TVB declared an interim dividend of 25 HK cents per share, unchanged from last year.

The company's shares fell 65 HK cents or 1.43 per cent to close at HK$44.85 yesterday.