Virgin Media And Sky: The Story So Far
We all know that Sir Richard Branson is no stranger to taking on challenges, but this time he could have flung one rock too many at Goliath’s head.
Last week, it finally happened. Virgin Media fulfilled its promise to file legal proceedings against Sky over the channel carriage dispute (see Virgin Media Files Legal Proceedings Against Sky), in a move that could change the broadcasting landscape dramatically.
The two sides have been arguing for months, with this latest move by Virgin Media intended to get Sky to lower the price it wants for hosting the satellite broadcaster’s basic channel package, which include Sky One, Sky Two, Sky Three, Sky Sports and Sky Sports News.
The dispute has escalated so far that the National Consumer Council has stepped into the fray and called on Ofcom to intervene, with the regulator having already launched an investigation into the pay-TV market (see Ofcom Launches Pay TV Investigation).
Although Branson has been successful before in taking on corporations which seemed to have a monopoly on a market – such as Virgin Atlantic’s well publicised ‘win’ over BA – the wiles of Rupert Murdoch, no doubt passed down through the gene pool to his son James, may be too much for the hirsute tycoon to handle.
Virgin Media was formed following the acquisition of Virgin Mobile by NTL:Telewest last year, but it did not take on the Virgin branding until February 2007 (see Virgin Media Launches Today).
Following the rebrand, the new company, bringing with it all the brand associations of the Virgin tag, entered into contract talks with Sky over the carriage of its Sky Basics TV package.
However, the talks collapsed and ended with Virgin Media customers being left unable to view the channels. The contract discussions were marred by acrimony, with accusations flying from both sides.
Virgin Media claimed that Sky was not interested in doing a deal, whilst Sky hit back saying that they had offered Virgin a fair price and that the new kid on the block had just “walked away from the table”.
On March 1 2007, 3.3 million Virgin Media subscribers lost their regular fix of 24, Lost and the incomparable Jeff Stelling (see Sky Anytime? Not For Virgin Media Cable Homes).
Of course, the newly formed Virgin Media is desperate to attract subscribers in a market that is dominated by Sky, and without these channels and the shows they air it is understandable that viewers will be tempted by the more complete package that Sky offers.
Sky has less than a month to respond to Virgin’s legal action, which it argues was initiated after Sky “demanded a price for its basic channels that was some 17 times greater than it was prepared to pay for the Virgin Media TV channels”.
It isn’t just Virgin Media customers who lose out whilst the dispute is unresolved though, as Sky says that it could lose up to £20 million in advertising revenues, with some commentators putting this figure at closer to £45 million.
This is a big loss in anyone’s book, although it has been suggested that Sky, once the channels leave Freeview at the end of the year (see New Sky Service To Lure Consumers From Free TV), could offer up the basic package as a paid-for bundle and make more money that it could have done from advertising.
For both sides this appears to be a game of brinkmanship that could have dire consequences. It seems that Virgin and Sky are engaged in some sort of Kamikaze dual which will see either a new king of Pay-TV proclaimed, or leave the old one even further entrenched.
Virgin Media is undoubtedly the biggest test that Sky has so far faced. The young upstart seems apparently intent on making its mark felt in the first few months of its life, establishing itself as a major player immediately.
Any signs of weakness shown by Sky will without a doubt be seized on by competitors, as the satellite broadcaster found when Setanta muscled in on its attempt to secure Premiership football rights (see Sky And Setanta Share Remaining Premiership Rights).
The first signs of trouble reared their ugly head last year, when Sky purchased a 17.9% stake in ITV, against a background of rumours that Virgin Media (then NTL:Telewest) was interested in bidding for the commercial broadcaster (see BSkyB Chief Exec Defends Company’s Swoop On ITV Shares).
Feathers duly ruffled, it was perhaps only a matter of time before there was some other reason for the pair to lock horns again. Branson’s business history is a cornucopia of attempts to destabilise the status quo with the Virgin insignia and any broadcaster in Sky’s position would be foolish to ignore someone with such a record.
Now that Virgin has started legal proceedings, it is hard to imagine Sky reacting kindly, and the satellite broadcaster has said that Virgin’s course of legal redress is an “obstacle” to the channels being put back on the Virgin network.
Bearing in mind what has already happened, with not much more than insults being traded for most of the time, it is almost inevitable that this next phase in the ongoing saga should end in acrimony, but at the moment it is hard to tell who will emerge as the victor.
Virgin hasn’t just spent the past couple of months working out a legal strategy though, as it has secured content deals with major producers so that viewers get to see many of the shows they have lost out on (see Virgin Media Nabs Lost For On-Demand Service) after the removal of the Sky channels.
As well as the content deals, Virgin has also been discussing with Setanta the possibility of creating its own sports news channel to rival Sky Sports News (see Virgin And Setanta Join Forces For Sky Sports News Rival).
When the dust does finally settle on the argument, it will be more than interesting to see who emerges triumphant. Should it be Virgin Media then there will have been a seismic shift in the televisual tectonic plates, and all will wait with baited breath to see Sky’s – and other companies’ – next moves. But should Sky win-out, we could have heard the last post as far as pay-TV competitors in the UK are concerned.
Virgin Media: www.virginmedia.com Sky: 08702 40 40 40 www.sky.com