The news that Liberty Global has secured a deal to acquire Virgin Media for $23.3 billion (€17.4 billion) signals a change atop the global pay-TV hierarchy. The long-time number two cable operator and dominant European player will now overtake US giant Comcast and become the world’s largest cable MSO.
The UK represents the last major European cable market in which Liberty will most likely want to establish itself. The operator exited France in 2006, citing the tough regulatory environment, and does not appear interested in acquiring assets in Spain beyond its Chello Multicanal content business there, where the tough economic situation is likely to prove a barrier to significant pay-TV growth for some time.
The growth opportunities for Liberty in the UK are not entirely similar to those it is pursuing in its mainland European operations. Virgin Media is a mature business, one that does not have analog subscribers to upgrade to digital and one that cannot rely on new-customer growth in a plateauing pay-TV market. The path to growth here would be in increasing its broadband base, selling more bundled packages and upselling TV and broadband customers to high-end/high-speed services.
In entering the UK, Liberty will take on one of the most feared competitors in all of pay TV, BSkyB, with the renewal of an on-off rivalry between Liberty chairman John Malone and former business partner and News Corp. chief Rupert Murdoch providing an intriguing subplot.
Sky is no stranger to facing a new competitor – currently fending off a fledging challenge from Netflix, for instance –, but it will have some concerns about what Liberty could bring to the table. Although Virgin Media has embarked on a Tivo-focused premium-TV-service rollout, Liberty has arguably pay TV’s most compelling service offering at its disposal in Horizon, and the operator would surely seek to bring this to UK consumers once the business case for a product change could be justified.
Premium-content rights is an area in which Sky might be less concerned about facing a new player. Although Liberty has its Chellomedia channels business, establishing it in the UK would be tough, and expensive, with the cost of premium movie and, in particular, sports rights significantly limiting the return-on-investment potential. Virgin Media’s 2010 sale of its own channels business was symptomatic of the difficulty cable operators often experience when playing in content provision, and Liberty would be wise to stick to the aggregator role Virgin Media has established for itself.
But these dynamics will only begin to take shape sometime after the dust from the deal has settled. A quick acquisition of Virgin Media would most likely not see the brand disappear any time soon. Experience has shown that Liberty prefers to bide its time and ensure that it can put its own unique stamp on its acquired cable businesses before giving them the widely used UPC moniker, as was the case in the eventual rebranding of Switzerland’s Cablecom.
That an eventual name change would take place seems highly likely: UK cable has been subject to several brand changes over the years, none of which have hurt the incoming players’ prospects. Although there is some value in maintaining the highly recognizable Virgin Media brand for at least a short time, the emergence of another new identity could serve to reinvigorate the sector once again.
Ted Hall is a senior analyst with Informa Telecoms & Media. For more information, visit www.informatandm.com