Media Forum: Is Virgin's retreat worrying?

Should advertisers care about Virgin Media's future, Alasdair Reid asks.

That there is renewed speculation about the future of Virgin Media Television should surprise no-one. Because VMT is merely the latest incarnation of an elusive entity that has never succeeded in emerging from TV's twilight zone - and it would be somewhat fitting if there were yet another rich and strange episode to add to its history.

It started life in Croydon in the early 90s as the programming arm of United Artists Cable and as cable consolidated, it mutated into Flextech, becoming involved in (or falling heir to) an array of initiatives, projects and channels, many of which had a short shelf life.

There have been success stories too - the most important being the joint venture with BBC Worldwide that has given us UKTV, an entity that has been acquiring a new momentum in the past year or so, following the success of Dave.

But UKTV has not been the only (or indeed, primary) focus for the company's TV ambitions since the merger of ntl, Telewest and Virgin Mobile in February 2007 led to the creation of Virgin Media.

This was destined, we were assured, to evolve into something far grander than a mere infrastructure utility. Content was key - and the wholly owned Virgin channels such as Bravo, Living, Trouble and (especially) Virgin 1 were now destined to become real players in the multichannel environment.

It hasn't worked out that way. And as the general outlook at Virgin Media has begun to cloud (redundancies, introspective strategic reviews, doubts about the future of the BBC Worldwide partnership), speculation has gained ground that it is looking to bale out of the content business.

Should that prospect please advertisers? Perhaps not, Andy Zonfrillo, the investment director at Mindshare, muses. He admits that Virgin 1 may not have lived up to the promise (and, indeed, hype) of a year ago, but that doesn't necessarily reflect badly on Virgin Media's ability to manage. He explains: "In the current broadcast environment, creating a strong property in the multichannel environment is exceptionally difficult and I think Virgin 1 has hit that barrier. But there has been significant investment there and we should applaud that."

Zonfrillo also points out that a change in ownership would lead to a change in airtime sales arrangements for the channels in question. Sales, which are currently handled by IDS, might be consolidated into a rival sales house - which, arguably, could reduce competition in the market. Not good, he would suggest, for advertisers.

Matt Platts, a managing partner at Vizeum, can see that this is a possibility. But, he argues, market conditions will almost certainly lead to realignments next year anyway. He adds: "Overall, the Virgin Media business might not be in a good place currently, so you can see why it might be looking to raise some cash. The conclusion might be that content is not currently the most valuable part of the business."

Daren Rubins, the PHD managing director, says he can't comment directly on the broader programming or ownership issues - UKTV is a group client - but he agrees that the main concern would be the future of IDS. Merging IDS with a rival would, on the one hand, give it scale. On the other, it could dilute the distinctive IDS sell. "Both have merits, both offer risks," he says.

Pedro Avery, the managing director of Arena BLM, agrees, but he argues that it would be good for the market to see Virgin strong on all fronts. He says: "I can see why some people at Virgin might want to sell off parts of the business, especially in the current climate. And you could argue that, if the management there is not wholly committed to content, then it would be best for everyone if it sold up.

"But I would argue that, if Virgin believes in the future of its delivery offer (across four platforms: broadband, landline phone, digital television and mobile), then it has to realise that the future is not just about technology but about content too. That's where it can differentiate itself."

YES - Andy Zonfrillo, investment director, Mindshare

"If Virgin Media were to sell, it would follow that sales responsibilities would transfer from IDS to another sales company. I can't see any permutation that would be in the interests of advertisers."

MAYBE - Matt Platts, managing partner, Vizeum

"The Virgin properties are at the commodity end of the market, despite expectations raised by Virgin 1. The portfolio is reasonably well-managed, so I don't think it matters to advertisers that much."

MAYBE - Daren Rubins, managing director, PHD

"With regard to IDS, we have always believed in the power of brands, so any change in the sales arrangements would need to be executed in a way that continued to build on the propositions of the IDS stable."

YES - Pedro Avery, managing director, Arena BLM

"I'd argue the relative success of Living shows what it can do. And Dave shows it can build strong brands in multichannel TV. It's true that it has had its fingers burned a bit with Virgin 1, having paid over the odds for some of its programming - but it should be prepared to learn from that."

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