Virgin Media, Inc. (VMED) is a telecommunications firm that sells cable television, high speed internet, land line and mobile phone service in the United Kingdom. Virgin Media is the only cable provider currently operating in the UK, and it served 3.5 million customers in 2006 (about 27% of the UK's total pay-TV market). Virgin is the first British firm to use a bundling strategy, offering television, phone, and internet service in one discounted package. This strategy boosted revenues for cable firms in the United States, notably Comcast (CMCSA) and Time Warner Cable (TWC), but it has only recently gained traction in the UK. Virgin Media remains the only British firm that can offer a quadruple play of pay-TV, Broadband Technologies , Fixed-line telecommunication , and mobile phone service to its customers.
Despite these advantages, and average revenues of £1 billion in each quarter from June 2006 to June 2007, the company lost money in 2006 and has been losing customers. Financial losses are partially a result of high overhead costs from the company's recent acquisitions - the merger of ntl and Telewest in 2005, and the purchase of Virgin Mobile in 2006 that allowed the firm to expand into cellular phone service while securing the rights to the Virgin brand name for the next 30 years. A more significant factor, however, is the number of customers that Virgin Media has been losing to British Sky Broadcasting Group (BSY), a result of the fact that that BskyB has exclusive rights to some premium content, including many sports matches, that Virgin cannot broadcast.
BSkyB offers satellite TV service to 8.5 million customers, dwarfing Virgin Media's 3.5 million cable customers. The firm also has exclusive access to premium television content, including live sporting events and popular entertainment programming. Virgin Media must negotiate with BSkyB in order to broadcast these popular programs, and recently BSkyB has raised the prices it charges VMED while lowering what it will pay for the content that Virgin provides in return. Virgin Media has asked the British government to intervene on its behalf, and the result of this dispute will be a major factor in determining VMED's future profitability.
In June 2006, Virgin Media served 27% of the pay-TV customers in the UK. It also provided service to 17% of British homes with fixed telephony, 12% of Broadband internet consumers, and 6.4% of mobile phone users.
Virgin Media manages its business in three major divisions:
As of December 2006, 75% of Virgin's residential customers subscribed to more than one of its services, and 41% subscribed to a triple-play of land line phone, Internet, and cable TV.
Each of Virgin Media's four services is a revenue-generating unit (RGU), and the firm’s per customer RGUs improved from 2.06 in 2005 to 2.17 in 2006. Its main competitor BskyB recently began added Broadband to its offerings through the acquisition of Easynet in February 2006, and earns an even higher percentage of its revenues through pay-TV subscriptions.
|Virgin Media vs. British Sky Broadcasting||VMED||BSY|
|Total subscribers (thousands)||4,892||8,582|
|Net add (thousands)||-37||406|
Virgin Media is the only UK company offering integrated services in all four areas of telecommunications - and it faces a different set of competitors in each of these sectors.
Virgin Media and BSkyB control the market for pay-TV in the U.K. BSkyB operates via satellite and has a high overall share of the UK pay-TV market. Virgin Media has a lower share but remains the lone cable provider.
BSkyB also controls the rights to live TV events and premium programming content, and recently it jacked up the rates it charges Virgin Media to broadcast these shows. Virgin Media sued BSkyB for these broadcasting rights, and the U.K.'s Office of Fair Trading determined that BSkyB must provide Virgin with fair access to its content. This finding voided an existing agreement between the two firms, and although no new agreement is in place Virgin's customers can still pay for access to a sample of BSkyB's premium channels.
Another competitor to both Virgin and BSkyB is Freeview, which carries no monthly fee and requires only the purchase of a top box or a digital television. This service is provided by a consortium of BSkyB, National Grid Wireless and the BBC. Freeview offers a limited range of television channels, including the traditional analog channels but not the most popular pay television channels, such as Sky Sports, Sky Movies and MTV.
Virgin Media provides Broadband internet access through direct connection, via its own cable network, and indirectly through BT GROUP (BT)'s local access network. BT is the market leader in terms of customers, network infrastructure, and revenues. Other firms also offer indirect service through BT's network, and another source of competition comes from Local Loop Unbundlers (LLUs), such as Easynet (recently acquired by BSkyB). These providers use their own network equipment but plug into BT's local infrastructure to reach individual users. Virgin and its competitors all provide Broadband internet connections at a much higher speed than conventional dial-up.
Telephone (Fixed Line):
As in Broadband, BT holds an established market position and has a significant advantage in network access. Virgin has its own network but also provides indirect access to customers through BT's local network.
There is also a recent trend among consumers who are abandoning a land-line phone service and relying exclusively on their cellular phones. This is putting downward pressure on land line prices. Virgin expects that any decrease in demand for its fixed line telephone services will be at least partially offset by increased demand for its wholesale services to mobile operators.
UK Network Operators
Mobile Virtual Network Operators
Virgin Mobile is a mobile virtual network operator on T-Mobile’s UK network (Deutsche Telekom). Virgin Mobile has about 4.5 million subscribers, a 6.4% share of the UK mobile market. The company expects these numbers to increase, as it can now offer bundle packages to Virgin Media's existing 5 million cable customer base.