One of the stories we found interesting this week is the way in which Virgin Media has dealt with the way in which its TV customer base has been weakened by the dispute it has with rival BSkyB over carriage of key popular Sky channels. The dispute arose over huge price hikes by Sky, and Virgin has had to find alternate sports viewing options.
Its strategy shows that for a Quadruple player there are multiple ways to approach business. Virgin Media jumped from its first positive quarter since the dispute last quarter, to 13,000 customer additions in this quarter. This compares with the loss of around 70,300 for this time last year.
In effect what the company has done is in the absence of TV content quite as compelling as in the past, it has gone after broadband lines and has ramped the number of new RGUs (revenue generating units or customer contracts) to 172,900 from 40,300 last second quarter.
The key thing is that 122,900 of these are just new broadband additions, which don’t take TV service at all. TV additions were just 20,400.
It’s pretty obvious really that when a quad play is threatened, especially in only one dimension such as TV, it can recast its pricing and bundles, to put the other three services to the fore. Effectively this applies pressure to Sky which is now no longer getting any money out of the Virgin kitty, and yet Virgin is not suffering.
Virgin has been offering existing subscribers two additional services for a tiny ARPU increase, just £2 ($4.4) additional revenues. So although Q3 revenue fell to £607.7 million ($1,2414 million) from just £619.3 million last quarter, net losses have narrowed significantly and could evaporate in this trend continues. If Sky now caves in, meets Virgin half way or is forced by regulators to moderate its pricing, this will release pent up demand for Virgin Media TV services and it can catch up any lost ground in the TV area.
When the dispute first came to the fore investors looked to the private equity community to buy out Virgin Media and make peace with Sky, but the sub-prime mortgage scandal in the US came to its rescue, making debt more difficult to come by and the private equity community temporarily unable to respond. Now Virgin’s own tactics are likely to have put that possibility on ice long term.