Figures published last week showed that Virgin Media’s TV customer base is starting to dwindle in the face of strong, low cost competition from BT, TalkTalk, Netflix and Sky’s Now TV.
The cable firm lost 10,700 customers in the quarter ending September, a 15,000 fall on the previous quarter. By comparison Sky added 43,000 new TV customers across its two UK brands and BT gained 106,000 subscribers to its TV platform in the same period.
TalkTalk today announced 25,000 for the same quarter, lower than in previous periods but the firm has been rowing back from the high pressure sales tactics which have, anecdotally, left some customers unable to get off the phone until they agree to take a box.
So why is Virgin Media falling behind when everyone else growing?
Theoretically the firm has space for growth – of the 12.7m homes able to receive Virgin Media’s services only 3.7m take a TV package. That’s almost a million fewer homes than buy broadband from it.
The firm is very proud of its ultra-fast broadband network which offers speeds of up to 200Mbps – more than twice that achievable by ISPs using BT’s network – and in order to help achieve a high spend per customer it’s made that top speed the default on TV packages which offer the most popular entertainment channels including Sky 1 and Sky Living.
Browse the firm’s sales pages and you’ll find yourself being asked to pay £68.99 per month including line rental to watch The Flash and The Blacklist.
By comparison TalkTalk offers unlimited non-fibre broadband, a mobile SIM with 100 minutes per month, unlimited anytime landline calls and a TV channel pack which includes six Sky entertainment channels for £37.70 per month.
Even you add a ‘channel boost’ which includes GOLD, Fox and Universal your monthly subscription will still be just £47.70 – almost a third less than Virgin Media’s.
If you care about HD channels and very fast broadband speeds then TalkTalk’s packages probably aren’t for you – if you add a fibre broadband to the above package the difference between TalkTalk’s offer and Virgin’s drops to just £16, although you do get the free SIM for which Virgin would charge you another £5 per month.
But the problem for Virgin Media is that lots of people don’t care enough about broadband speeds and picture quality to pay a premium for them.
Not all of TalkTalk’s 1.4m customers will be in areas where Virgin Media’s services are available but many will and they opted for a lower monthly spend over bells and whistles.
BT doesn’t have access to Sky’s entertainment channels but unlike both TalkTalk and Virgin Media has invested billions in original content, most notably sports but also entertainment with its AMC deal, in order to attract customers.
That strategy is paying off – last quarter’s 106,000 additions was driven by the ISP’s £900m investment in European football and with 1.3m TV subscribers BT is within touching distance of overtaking TalkTalk (1.4m) as the UK’s third biggest pay TV provider.
Again, some of BT’s customers will be people who could get Virgin Media but opted for a cheaper deal (BT’s lowest package with pay-TV channels will cost you £37.99 including BT Sports) or have been won over by the appeal of its HD red button streams or Ultra High Definition channel which are exclusive to BT TV.
Sky also holds back some of its best content from Virgin Media and TalkTalk, most importantly Sky Atlantic which is of course home to Game of Thrones. Unlike TalkTalk, Virgin Media is priced as a premium product but the absence of genuinely ‘must see’ shows undermines its positioning in the market.
And Sky has also managed to dent the appeal of rivals by launching the NOW TV service which offers low-cost, contract-free access to its entertainment, sports and movie channels, each of which are available through separate monthly ‘passes’ which users can dip in and out of at will.
Sky realised that once you’ve signed up everyone who is willing to pay for your core service you need something to offer everyone else and having pretty much exhausted the premium end of the market it moved to the other end of the spectrum where it’s doing well in converting Freeview homes into pay-lite.
Virgin Media’s status as a mere content reseller rather than an originator and channel owner means it doesn’t have the rights deals in place to ape Sky’s NOW TV strategy even if it wanted.
It could of course try buying the rights to stream channels but the key content is owned by Sky and BT who have no reason to help Virgin Media grow and would likely seek a healthy premium in any deal.
The company already bitches about the price it pays rivals for their channels and even pushing up the price of its XL channel pack when BT Sport Europe was added is only expected to “offset a substantial portion of the higher BT Sport costs” it’s paying to BT.
Launching a NOW TV-like service at a competitive price would be a challenge and most of the revenue would likely walk straight out of Virgin Media’s door and into the pockets of its biggest competitors.
Even TiVo, the much-heralded ‘next generation’ box on which Virgin Media pinned the hopes of its TV growth has turned into a damp squib.
When it launched in 2010 Virgin heralded TiVo as the best way to watch TV but many customers now complain about a slow, laggy user interface and early promises of “hundreds of apps” have failed to be delivered on.
Today the firm’s website only bothers to boast about four – YouTube, Spotify, Netflix and BBC iPlayer.
Catch-up is available on all pay-TV platforms as well as retail YouView boxes and Freeview’s new internet-connected service and the much trumpeted third tuner which allows more channels to be recorded than on YouView or Sky boxes has been matched by Humax’s new Freeview box.
What was supposed to be a premium offering is now just run of the mill and easily replicable.
Virgin is extending its network but the failure to sign-up so many of the homes already within its reach means it can only ever hope to win over a fraction of those who become eligible in the coming months.
While it’s relatively easy for Sky to persuade a Freeview home or a BT TV subscriber to add NOW TV to their telly line-up and boost their viewing options for just £7 a month, Virgin Media’s packages just aren’t designed to compete in this segment of the market.
And its chances of persuading vast numbers of pay-refuseniks or pay-lite homes to commit to premium priced packages is slight, especially when it lacks some of the content customers expect for the asking price.
Unless they want their TV numbers to continue sliding, Virgin Media bosses urgently need a way of addressing the dual squeezes on cost and content which the business now faces.