Cheap tricks 

1 March 2007 tbs.pm/165

Sky urges Virgin customers to switch

BSkyB’s latest move in this unfolding saga of Virgin Media-baiting may not win it many friends, either amongst Virgin Media customers (who may either by hostile towards Sky or cannot have satellite TV for a variety of reasons) or amongst anyone trying to make sense of the tangled mess that has resulted from this very messy and tempramental conflict.

At 12am this morning, Virgin Media customers everywhere were faced with blank screens for the non-premium Sky subscription channels as the final negogiations between it and BSkyB proved to be futile. Clearly BSkyB were not going to compromise on their demand for a significant increase in the fee charged for the carriage of the basic Sky channels.

Without knowing the full facts we can never be certain, but basically speaking BSkyB seems to have done an internal ‘risk assessment calculation’ on the potential future growth of Virgin Media and what theoretical damage it could do to BSkyB’s subscription packages, then raised its fees charged to Virgin Media in order to compensate for these predicted losses.

Given the fact that BSkyB refused to lower its demanded fees to anywhere near what Virgin wanted, it’s clear that BSkyB ultimately thought that removing the basic Sky channels from Virgin Media was a financially viable option from the beginning. (The premium movie and sport channels are not involved because they are charged on a per-household basis.)

The alternative scenario, namely existing Sky subscribers cancelling in preference to a more attractive Virgin Media deal, would have posed a big threat to Sky’s profits, hence a significantly increased rate charged by Sky to try and compensate and/or offset this risk since Virgin’s subscription charges would no longer be ultra competitive in relation to Sky’s.

As for Virgin Media’s position, in theory it could have asked their existing customers whether they were prepared to pay the extra money demanded for the Sky basic channels instead of trying to force a ‘reasonable’ deal out of Sky, but that wouldn’t have been Richard Branson’s style. Plus it would have been undesirable from both strategy and marketing perspectives.

And as for BSkyB’s position, it doesn’t seem to care too much about its advertisers, but given its sheer dominance of the market it (unlike most of its rivals) can afford to make such a bold move. Sky strategy is all about the long term as well as crushing any potential rivals before they can significantly damage its market share.

What will now be interesting is the precise effect the removal of the channels will have on Virgin Media. It may make attracting new customers that bit more difficult, and some new customers will be annoyed at having been locked into 12 month contracts just before this particular dispute became apparent.

But as for the number of customers jumping ship from Virgin to Sky, that will depend on just how many of their subscribers have the ability to cancel along with whether or not they really want to continue watching the likes of 24, Lost, Battlestar Galactica plus mainly old Simpsons episodes on autorepeat interspersed with cheaply made reality TV trash.

Inevitably the barely-existent regulation of television in the UK seems to be drawn along the lines of “let things happen, ask questions later”. This half-hearted and supposedly “free market” approach inevitably ends up distorting the market towards the largest players with both the distribution and the content.

However every anti-competitive move made by Sky at this present time only serves to increase the potential punishment that Sky may receive at a future date, and in turn makes any lack of action from politicians even harder to justify from a “without prejudice” standpoint. That alone may prove to be BSkyB’s partial undoing.

A Transdiffusion Presentation

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David Hastings Contact More by me