Sunday, March 02, 2008

Caveat Emptor

Virgin Media is a mess of a business. It has a theoretical monopoly as the only cable provider (well, there are a couple of tiny others) in the UK, but has always contrived to loose money.

In the early days of the UK cable industry, when streets had to be dug up, you would expect this, but the company that was created between the merger of Telewest and NTL has continued to stack up the losses. Once upon a time Lord Thomson famously called television a 'licence to print money', now it seems that the converse is true.

It also seems that anything Richard Branson touches these days makes money for himself whilst loosing money for other stakeholders.

Now, just a year after trying to buy ITV, the company has appointed Goldman Sachs to look at selling its Flextech TV production arm. The news that they're thinking of keeping and even expanding their teleshopping arm also has lessons for any budding internet TV mogul - ecommerce has always been very successful both on TV and even more so online.

Now, I personally pay Virgin Media well over a thousand pounds a year and it amazes me that they can't make money based on that, even with annual interest payments of over £100m. A colleague is part of the HD trial they are currently running and he praises this development, but customers of their broadband service can only expect around a quarter of the bandwidth they are paying for at peak times, so there's little or no advantage over ADSL.

There seem to be a number of reasons for Virgin Media's problems - competition, the cost of acquiring customers, churn and the fact that their dated technology means that their digital stack is full. I have been amazed that, for all their championing of broadband, they have not invested in this delivery medium to increase their channel footprint.

Still, a sale of their content arm will reduce those interest payments, but it will leave a carriage company in an era when anyone can become a carrier.

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