Virgin’s territory 

4 June 2010 tbs.pm/1190

Virgin Media has finally completed a long-expected deal to sell its TV channels (Bravo, Bravo 2, Challenge, Challenge Jackpot, Living, Livingit, Virgin 1) to BSkyB for £160m, and in exchange Virgin Media gets good long term carriage deals for many of BSkyB’s most important channels – previously a major source of contention for both parties.

It’s possible to argue that Virgin Media potentially gets much more out of this deal than BSkyB does, although the latter presumably hopes that this will take the heat off any investigation into its media activities, especially Sky’s past track record of withholding key channels from its competitors. (Virgin Media’s stake in UKTV is unaffected by this deal.)

In the short term, we’ll either see the Virgin 1 channel rebranded, presumably to Sky4 (this sort of thing happened before in the case of Absolute Radio), or closed down altogether, although the temptation to move Virgin 1’s “good bits” to Sky1 or Sky2 is likely to be much too good to ignore even if Virgin 1 continues to survive under a different name.

This deal also represents a further retreat from the content creation business by Virgin Media; it had already dispensed with its Sit-up TV shopping channels, and Virgin’s involvement with UKTV only continues because of ongoing difficulties of getting anyone else (Channel 4 perhaps?) to take over its half of the UKTV partnership.

Then there’s the question of what will ultimately happen to Virgin 1’s Freeview slot. BSkyB tried to launch its Picnic terrestrial pay-TV service two years ago but failed to do so due to regulatory concerns as to their choice of MPEG4 compression, although the speed that the whole idea was shelved suggested that Picnic wasn’t a huge deal to Sky themselves.

Indeed Picnic was likely to have been developed primarily as a spoiler for what was Setanta’s Premiership football pay-TV service (Picnic would have offered Sky Sports 1), and the subsequent collapse of Setanta’s UK operations may make a Picnic relaunch less likely unless there’s a good reason for doing so.

More recently, if BSkyB had been desperate for additional terrestrial TV slots, they could have struck a deal with Arquiva which had three or so slots available fairly recently as a result of compression improvements, so Sky may be in no rush to use their newly-acquired digital terrestrial channel slot (even if commercially valuable) for other purposes.

BSkyB is usually ambivalent when it comes to the whole concept of free-to-air television; its current three Freeview channels (Sky3, Sky News, Sky Sports News) could even be regarded as ‘placeholders’ until a more profitable use can be assigned to them, since their promotional value for encouraging pay-TV subscriptions is said to be relatively minimal.

Combine this with the introduction of subscription-only paywalls for News Corp.’s newspaper websites (a high risk strategy yet to be proven), and it’s not hard to conclude that BSkyB may still replace its Freeview TV channels with a pay-TV service at some point if and when it is financially viable to do so.

Especially as Sky has publicly stated that Freeview is now a “common enemy” of both itself and Virgin Media, so a low-cost subscription service for those who can’t have or hate having a satellite dish or cable connection could be Sky’s only plausible strategy for dealing with this “enemy”.

So BSkyB’s Picnic could finally launch after all, but this may not happen overnight unless there’s a reasonable chance of success.