Virgin Media Bets on Speed Over Content as Malone Vote Nears
As British Sky Broadcasting Group Plc (BSY) and BT Group Plc (BT/A) duke it out over sports content and rights in one of Europe’s most competitive pay-TV markets, Virgin Media Inc. is counting on a different edge: speed.
The seven-year-old U.K. cable company that’s being acquired by John Malone’s Liberty Global Inc. (LBTYA) is selling broadband connections at 120 megabits per second -- fast enough to download a high-quality movie in less than 90 seconds -- to trump more content-focused offers by its rivals.
At the end of last year, 54 percent of British households subscribed to pay TV, compared with more than 90 percent in the U.S., giving Virgin Media, BT and BSkyB room for growth. Broadband is increasingly key as mobile devices like tablets and smartphones eat up data through streamed videos and high-definition services.
Virgin Media shareholders are scheduled to vote tomorrow on the company’s takeover by Liberty Global. The $16 billion cash-and-stock transaction valued Virgin Media at $47.87 per share when it was announced Feb. 5, or a premium of 24 percent before the company said it was considering a deal. Virgin Media rose 0.3 percent to $49.79 at the close in New York as Liberty Global gained 0.4 percent to $74.
Liberty Global shareholders voting today in Littleton, Colorado, approved the purchase. Tom Mockridge, who led Murdoch’s U.K. news unit during phone-hacking allegations, was appointed to head Virgin Media, replacing Neil Berkett once the deal is complete. Berkett was named chairman of Guardian Media Group Plc today, taking over for the retiring Amelia Fawcett.
As broadband and pay-TV competition heats up, the U.K. companies have lined up celebrity pitchmen. BSkyB, about 40 percent controlled by billionaire Rupert Murdoch, had former “Friends” star Jennifer Aniston switching to its broadband service in one ad, while Virgin Group Ltd. founder Richard Branson teams with British Broadcasting Corp.’s time-travel series “Doctor Who” star David Tennant to marvel over Virgin Media’s set-top box TiVo. Samantha Bond, who has appeared on “Downton Abbey” and played Miss Moneypenny in James Bond films, appears for BT.
Virgin Media’s 120 megabits per second make it Britain’s fastest and “superfast broadband” subscribers account for 58 percent of its customers.
BT reported 6.7 million broadband clients in the first quarter, to Virgin Media’s 4.5 million and BSkyB’s 4.4 million, according to data compiled by Rob Gallagher, head of broadband and TV research at Informa Telecoms & Media. Fourth was TalkTalk Telecom Group Plc (TALK) with 4.1 million users.
“The demand for data is just growing and people are using all sorts of devices, and the thing they have in common all depends on having a good connection,” said Paul Richmond, executive director of corporate affairs at Virgin Media.
Global Internet traffic could grow threefold between 2012 and 2017 and reach more than 1 trillion gigabytes a year, Cisco Systems Inc. said May 29. It forecast 3.6 billion Internet users by 2017, almost half the world’s projected population.
The rivalry intensified last month when BT unveiled three sports channels that will be free to broadband customers, a year after it acquired rights to 38 British Premier League soccer games. Sky had held the rights exclusively for years.
“The move into sports rights is a big bet for BT,” said Graham McWilliam, director of corporate affairs at BSkyB. “As BT has admitted, it’s about defending its home communications business in response to losing customers to competitors.”
BT has spent about 1 billion pounds ($1.5 billion) on programming since last March, BT’s TV chief Marc Watson said in an interview. Sky spends about 2 billion pounds a year on buying and producing content. Virgin Media spends very little in this area and instead prefers the role as a platform for other’s content, which includes Sky channels.
“Some people out there have belittled us for our approach and said it’s about broadband,” Watson said. “The economics are in broadband, it’s true, but content gives customers a reason to buy broadband.”
Liberty Global doesn’t see Virgin Media as a “turnaround” story and wants to “build scale” rather than change, Chief Executive Officer Mike Fries said last month. It doesn’t plan to compete over sports rights or production, and it’s in talks to add streaming services like Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN)’s Lovefilm to the platform, as more TV viewers sign up to the paid services, which are mostly archives of TV and film.
“The content disadvantage Virgin has is they don’t even really make a lot of money now by reselling content from others,” said Stuart Gordon, a media analyst at Berenberg Bank in London. “But they are competing very happily as being the fiber option in the U.K.”
How much the U.K. landscape will change may come down to BT’s aggressive venture into sports and broadband, he said.
“I see everyone potentially at risk with BT,” Gordon said. “If BT Sport is phenomenal and successful it will start taking everyone’s customers.”
To contact the reporter on this story: Kristen Schweizer in London at firstname.lastname@example.org.