Virgin Media Posts Eighth Loss From BSkyB Competition

Virgin Media Inc. (VMED), the U.K.'s second-biggest pay-television company, reported an eighth-straight loss after subscribers switched to British Sky Broadcasting Group Plc.

The second-quarter net loss narrowed to 119 million pounds ($240.9 million), or 37 pence a share, from 195.8 million pounds, or 68 pence, a year earlier, Hook, England-based Virgin Media said today. Sales rose 13 percent to 995 million pounds.

Virgin Media said today that it lost 70,300 subscribers in the quarter, with about 40,000 of those leaving because of a dispute between the company and BSkyB, the U.K.'s biggest pay-TV operator. Sales increased after the company bought rival Telewest Global Inc. and Richard Branson's Virgin Mobile Holdings Plc to compete against Rupert Murdoch's BSkyB.

``Virgin Media is struggling; this is not a good set of numbers,'' said David Thomson, an analyst at Bryan Garnier & Co. in London. ``It's going to continue to be difficult for them to compete with Sky.''

The number of customers that left Virgin Media was worse than predicted by analysts, who estimated a loss of 57,500 subscribers.

Earnings before interest, taxes, depreciation and amortization rose 7.5 percent to 315.3 million pounds. Analysts expected Ebitda of 307.2 million pounds and sales of 1.01 billion pounds, the medians of four estimates in a Bloomberg survey.

Sale Process

Shares of Virgin Media have dropped since reaching a high for the year of $29.39 on July 5. The stock, which trades on the Nasdaq Stock Market in the U.S., rose 99 cents, or 4.2 percent, to $24.47 at 4 p.m. in New York.

Virgin Media said yesterday it delayed the sale of the company to give buyers time to make proposals ``in a more stable debt market.''

The company, which changed its name to Virgin Media from NTL Inc. this year, put itself up for sale last month and said its bankers at Goldman Sachs Group Inc. would evaluate a buyout offer the company had received. Washington-based private equity firm Carlyle Group approached Virgin Media about a takeover bid, according to people familiar with the discussions.

John Malone's Liberty Global Inc. (LBTYA), whose UPC unit provides broadband and TV service in Europe, is also interested in Virgin Media, Bert Holtkamp, a spokesman in Europe for Englewood, Colorado-based Liberty Global, said last month.

``Potential strategic and financial counterparties have continued to confirm a strong ongoing interest in a transaction,'' Virgin Media said yesterday.

Chief Operating Officer Neil Berkett declined to elaborate on the sale process today on a conference call.

Competitive Pressure

The company added 2,200 net new TV customers in the quarter compared with its June forecast that it probably wouldn't add any new customers in the period. At the time, the company said it had better-than-expected performance in April.

The loss of subscribers from the BSkyB (BSY) dispute was less than forecast, Berkett said on a conference call with reporters.

Virgin Media said it added 45,800 net new broadband customers in the quarter, compared with a median estimate for the addition of 60,500 broadband clients, according to the survey.

The company lost a net 56,900 telephone customers in the quarter and added 52,800 new mobile customers, Virgin Media said.

``The turnaround the company expected hasn't occurred, largely because of Sky,'' Thomas Eagan, an analyst at Oppenheimer & Co. in New York, said before the results. ``The company has to show that the acquisitions have value.''

BSkyB added 259,000 broadband customers in the period that ended in June, reaching 716,000 and beating its target of 700,000. BSkyB added 90,000 net new TV customers in the quarter.

BSkyB Dispute

Branson's Virgin Group, which owns about 6.5 percent of Virgin Media, is in two disputes with BSkyB, including a lawsuit.

BSkyB bought 18 percent of U.K. broadcaster ITV Plc last year, blocking a bid by Virgin Media. Branson, Virgin Media's third-biggest investor, said BSkyB's move and the company's influence in the media was ``verging on dangerous'' and Murdoch was a ``threat to democracy.''

In April, Virgin Media sued BSkyB after the two failed to agree on terms to distribute BSkyB channels on Virgin Media's service. Both blamed the other for the channels being removed from Virgin Media's system.

Virgin Media Chief Executive Officer Stephen Burch told analysts on a conference call that the company's basic offering is ``superior'' to BSkyB's after Virgin Media agreed to offer six Setanta Sports channels with its basic package. The two will also begin a sports news channel.

Adding Customers

The loss from the withdrawal of BSkyB channels was ``contained'' to the second quarter, Berkett said. ``We're now quite comfortable that that impact from Sky's withdrawal of channels from our platform is behind us,'' he said.

Berkett said that it ``doesn't appear'' that BSkyB channels will return to Virgin Media's system. The company will add customers in the second half of the year, Berkett said.

Last month, BSkyB Chief Executive Officer James Murdoch said BSkyB was waiting for Virgin Media to make a counter-offer to carry the channels but ``right now there doesn't seem to be an immediate prospect for the resumption of carriage.''

Litigation ``is not the answer,'' Murdoch said.

Virgin Media Chairman Jim Mooney said on the analyst conference call that if BSkyB proposed a ``reasonable offer,'' Virgin Media would consider resuming talks.

To contact the reporter on this story: Alex Armitage in London at aarmitage@bloomberg.net

To contact the editor responsible for this story: Lars Klemming at lklemming@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.