Virgin Media is considering the sale of its television channels business. That includes a 50% share in the UKTV joint venture with the BBC which has the right of first refusal. Ironically, the television business makes little direct commercial contribution to the cable company, which is increasingly focussing its attention on broadband.
Reporting results for the last quarter of 2008, Virgin Media reported an operating loss of £50 million on total revenues of over a billion pounds. This was attributed to the write down of nearly £55 million on the value of its Sit-up television shopping business which recently lost one of its channels on Freeview.
Media reports suggests that the company is considering selling its Virgin Media Television business, which includes Virgin 1, Living, Bravo, Challenge and Trouble, and the Sit-up channels Bid TV, Price-Drop TV and Speed Auction TV. Virgin Media is also an equal shareholder with BBC Worldwide in the UKTV channels joint venture. Those thematic channels are gradually being rebranded with names like Dave, Eden or Yesterday.
Virgin Media TV contributed revenues of £40 million while Sit-up provided around £85 million. Generally, the television channels business has done little to contribute to the bottom line. With content costs of £107 million, the Virgin Media television channels made an operating loss of £1.7 million in the last quarter.
The UKTV joint venture is reported separately, but the share of net income for the quarter was £3.4 million and around £19 million over the year. The Virgin Media investment in UKTV is carried on its balance sheet at £354 million, which includes outstanding loans of £138 million.
The emphasis for Virgin Media is increasingly on broadband as its principle product, rather than providing its own programming.
The cable company saw a net increase of 57,100 broadband customers to reach 3.68 million. However, the increase in new broadband customers appears to be slowing, despite massive marketing.
Although the company consistently touts the speed of its ‘fibre optic’ network, the majority of its customers are currently on 2Mbps packages. Having recently launched a 50Mbps premium product, albeit at a premium price, Virgin Media is planning to offer upgrade the majority of its customers a free upgrade from 2Mbps to 10Mbps later this year.
Neil Berkett, the chief executive of Virgin Media told analysts “Our strategic priorities are to lead the next generation broadband market in speed and in quality and therefore value-added service to lead and redefine the mid-market TV experience through video-on-demand and to leverage our mobile proposition.”
Virgin Media declined to comment on the possible sale of interests in television channels before a meeting of the board to discuss the matter. The issue of the UKTV joint venture with the BBC is complicated by the possibility of a tie-up between BBC Worldwide and Channel 4.
In the current climate the television channels are unlikely to attract top valuations. The development of digital television provided a proliferation of channels as broadcasters expanded their portfolios with an extended mix of mediocre brands.
There are now simply too many channels chasing an ever more fragmented audience and decreasing television advertising revenues. The five main channels represent around 55% of all viewing, with several hundred other channels competing for the rest. None of the Virgin Media TV channels reaches more than a 1% share of the audience.