Media: All about ... Virgin Media

campaignlive.co.uk, Friday, 06 March 2009 12:00AM

Would a sale of the content arm hurt advertisers? Ian Darby investigates.

Amid the excitement surrounding ITV's plans to stage a takeover of UK commercial television, the events swirling around Virgin Media almost went unnoticed.

Last week saw the media group announce its full-year results, launch a significant investment in broadening its broadband offer and stage a board meeting to decide on a sale of its content business.

While its chief executive, Neil Berkett, announced mixed news in its results announcement, he refused to be drawn on speculation linking Virgin Media to a sale of its content arm, Virgin Media Television, a move that could raise up to £500 million and help to improve Virgin Media's cashflow situation.

Ahead of the results announcement, which showed full-year revenues down 1.4 per cent to £4 billion, but also that Virgin Media is on target to reach five million customers by the end of the decade, came the news on the broadband service.

Last December, Virgin had launched what Berkett termed his "Ferrari in the fleet" in the shape of a 50mbps broadband service. It's unclear how many customers have subscribed to this offer, but now Virgin is improving broadband speeds for those customers not quite in the market for the equivalent of an Italian sports car. Its basic entry broadband package will increase from 2mb to 10mb from May, with Berkett claiming it's twice the speed of comparable services from rivals.

In addition to luring in new subscribers, Virgin Media hopes that the new entry-level broadband will lead to greater levels of customer retention as users discover the delights of high-speed broadband in delivering edifying content via the BBC iPlayer.

While analysts predict the next step from Virgin will be price rises on the back of these product launches, they seem encouraged that the media group is making moves in the right direction.

1. Virgin Media was launched in 2006 following a merger of NTL with Telewest and the Virgin Mobile phones business. With Sir Richard Branson remaining on board as a major shareholder, it's big sell was the first UK offer of a so-called quadruple play of television, internet, fixed-line and mobile phone services.

Launched with an ad campaign by Rapier featuring Uma Thurman, it has found the going tough. Last November, it announced a cost-cutting programme involving 2,200 job losses (15 per cent of its work force) and a pledge to improve cash flow by £120 million by 2012 as it attempts to meet debt payments of £4 billion.

2. Virgin's TV platform business has 3.62 million customers (a net increase of 44,500 during the final quarter of 2008). It has recently built its TV proposition with improvements to its video-on-demand service, which also delivers the BBC iPlayer service.

Last November, Virgin ended its spat with bitter rival Sky that had led to the withdrawal of Sky's basic channel package, including Sky1 and Sky Sports News, from the Virgin platform. Their return could help grow its subscriber base.

3. The broadband business grew rapidly during 2008 on the back of improved speeds. It now has 3.68 million broadband customers, up from 3.41 million at the close of 2007. Its Virgin Mobile business is also growing at an increasing rate, adding 70,800 customers in the final quarter of 2008 to take it to a record 649,400.

4. Virgin's content arm, Virgin Media Television, is currently at the centre of massive speculation. A potential sale could bring in a chunk of cash for Virgin, but significantly less than if it had sold at the peak of its valuation.

Formerly known as Flextech, Virgin's TV business includes a 50 per cent stake in UKTV (a joint venture with BBC Worldwide), the sales house ids and a portfolio of wholly owned channels including Virgin1, Living, Bravo, Challenge and Trouble.

VMTV is led by Virgin Media's chief executive of content, Malcolm Wall, and the managing director Johnny Webb.

BBC Worldwide's 50 per cent stake in UKTV complicates the picture somewhat given it is in talks with Channel 4 over creating a joint venture.

Analysts argue that the most likely scenario is a separate sale of Virgin's non-UKTV content business, comprising the wholly owned TV channels and ids with a separate agreement to sell its UKTV stake to the new BBC/Channel 4 venture.

WHAT IT MEANS FOR ...

ADVERTISERS

- Any growth in Virgin's platform business is welcome news to advertisers given that this provides welcome competition for BSkyB and the scope for possible innovation in products and content.

- In a similar vein, Virgin's investment in high-speed broadband is encouraging as it will hasten the take-up of services such as video-on-demand which advertisers are keen to explore as new alternatives.

- However, advertisers may worry over the possible ramifications of a sale of Virgin's content arm and the accompanying effect of consolidation in the airtime sales market. Ids' future is uncertain, for instance, and the consolidation of UKTV into a BBC Worldwide/Channel 4 joint venture could lead to fewer sales points and an enlarged Channel 4 sales operation.

RIVAL BROADCASTERS

- US broadcasters such as Disney and NBC have been linked with a bid for Virgin's wholly owned channels, providing them with a possible route for expansion in the UK.

- The sale of Virgin's stake in UKTV would help Channel 4 if it is sold. However, this is by no means certain as it remains a useful revenue stream for Virgin.

- Rivals such as Sky Media and Viacom Brand Solutions had been keen to explore opportunities to merge with the sales house ids. However, this is likely to prove difficult if ids is sold as part of the wider content business to the highest bidder.

This article was first published on campaignlive.co.uk

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