The negotiations were aimed at creating "a possible combination" between France's two rival satellite platforms, namely Canal Plus owned by Vivendi Universal and TPS, a subsidiary of French terrestrial television channels TF1 and M6, the companies said in a joint statement on Sunday.

At the close of trading on Monday, shares in media conglomerate Vivendi Universal showed a gain of 3.46 percent to 26.0 euros, while TF1 television rose 7.99 percent to 23.91 euros and M6 television rose 3.94 percent to 23.76 euros.

In their statement, the companies said that a venture between Canal Plus and TPS would help them to compete against Internet and mobile phone providers, which have emerged as alternative sources of television content.

Subscribers to high-speed Internet services, known as ADSL, are now able to receive television content via their phone line and computer connection. Meanwhile, mobile phone companies have begun to offer content directly to the phones of subscribers.

A possible merger between Canal Plus and TPS was welcomed on the stock exchange and analysts said that the groups could reduce costs and boost their profit margins.

A merger would bring France into line with other European markets, which generally have only one dominant pay television operator alongside terrestrial channels, but it could have implications for the French film industry and television landscape.

Canal Plus and TPS have up until now competed to provide content, often bidding up the price of rights to broadcast films and events such as football, and Canal Plus is an important distributor and source of finance for French film-makers.

Some analysts said that a merger between Canal Plus and TPS had been expected for four years and made sense given changes in the television market.

An analyst at Global Securities, Stephane Lefevre-Sauli, said: "The emergence of digital terrestrial television and the rise in power of ADSL since the beginning of the year have speeded up a merger that seemed unavoidable."

In France, 350,000 households now receive television content via their Internet connection, mirroring a fast-developing trend in the United States, and high-speed Internet subscribers are expected to number 9.7 million by the end of the year according to regulator Arcep.

TPS and Canal Plus are reticent about giving subscriber numbers, but the head of Canal Plus, Bertrand Meheut, has said that the channel hoped to have 3.2 million subscribers by the end of the year, while TPS said it had 1.65 million subscribers at the end of June.

Analysts at US investment bank Merrill Lynch described the potential merger of the channels as "clearly good news for all the players involved".

The possible merger was also endorsed by French Culture and Communication Minister Renaud Donnedieu de Vabres, who said that a combined satellite platform would not necessarily mean less diversity for viewers.

"I think that it's about an economic strategy that is founded on a new technological environment and I understand the desire of two big groups ... to adapt themselves," he said.

In the statement issued on Sunday, the companies gave no time table for the conclusion of the talks.

In a brief statement, they said: "No further comments or information will be provided by any of the three companies until the potential conclusion of these negotiations".

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