Media Perspective: Agencies fear Sky's Virgin row will drive away advertisers

Last week's spat between Associated Newspapers and News International over distribution of their free afternoon titles in London means that we now have two full-scale media battles in progress, both involving Rupert Murdoch companies.

While the Sky versus Virgin Media dispute has been raging for some time, it's taken a while for true hostilities between Associated and News International to begin. We cover this in more detail in the adjacent piece, so I won't touch on it in too much depth. Except to say that both companies seem to be facing the same distribution issues and that the relatively isolated cases of "dumping" of copies by vendors seems less serious than the wider issue of getting 900,000 issues a day into the hands of commuters. Judging by the distribution of both papers mid-afternoon in Hammersmith, they seemed more likely to get into the hands of school kids and drunks than ABC1 office workers.

That said, the commercial impact of the free newspaper ruck seems far less significant than the Sky/Virgin Media barney. This has escalated in the past week with Virgin Media instigating its promised court action following the removal of Sky channels from the Virgin Media platform. Sky is also facing pressure from the regulators over its 18 per cent stake in ITV, with the Office of Fair Trading recommending to the Government that its acquisition of the stake be referred to the Competition Commission.

It's not hard to see why Sky has been robust in demands with Virgin. It has issues with customer churn and overall customer growth. Its tough stance could help to reverse this, as dissatisfied Virgin customers, missing their fix of Lost and 24, join Sky. However, the signs are that they are not deserting Virgin in droves. Virgin is finding it hard to attract new customers, but churn is lower than expected due to some customers being tied into broadband and phone packages.

The biggest impact for Sky is likely to be loss of ad revenue, with five of its channels absent from the Virgin platform. As reported in Campaign earlier this year, agencies took a sympathetic "wait and see" stance with Sky Media over this loss of a key part of their audience. However, there are now signs that agency attitudes are hardening towards Sky.

While this is clearly of concern to Sky Media's management team of Nick Milligan and Paul Curtis, it's not so worrying, agencies suspect, for the chief executive, James Murdoch, and his management team. After all, ad revenue accounts for just 8.2 per cent of Sky's total revenues, with its focus on subscriptions and other revenue streams from customers. The short-term problems for advertisers will not worry Sky, assuming it can win its court case and stunt Virgin's growth in its early months.

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