Kate Bulkley, Media Analyst.

Sky Virgin deal no peace pact

By Kate Bulkley

Broadcast News

For Broadcast June 24, 2010

VMTV acquisition is about content versus platform strategy debate

The day BSkyB agreed to buy Virgin Media’s TV channel portfolio was a bad one for Red. The knitted red puppet that makes wry (but silent) comments between Virgin 1 shows will not survive the trip to Isleworth - he is simply the wrong colour.

Following Sky’s £160m deal for VMTV and eight-year carriage deals for various packages of channels, some have suggested there has been a burying of the hatchet between the two companies - but the deal is more about both positioning themselves for the future.

Last week, Sky announced it would take its Sky Sports News channel behind a pay wall, pulling it off Freeview this summer. Sky plans to increase investment in the channel and charge viewers for it.

The thinking at Sky is clear: why should it make the Freeview package of channels any stronger than necessary? This begs the question of what Sky will do with Virgin 1’s Freeview slot. Certainly it will think long and hard about offering for free any programming that is popular enough to be charged for.

In fact, when Virgin Media launched Virgin 1 as a free channel on Freeview, it was met with scepticism by some commentators (including me) about why a pay-TV company would give away its content.

The Virgin 1 launch was done with fanfare and a lot of “mixed business model” talk. I recall Dita Von Teese showing up and having a cuddle with Richard Branson, who announced that Virgin 1 was going to do to Sky what Virgin Airlines did to BA - that is, break the monopoly.

Virgin 1 would raise the level of the VM brand, it would showcase VMTV’s content and entice people into the pay universe. It would help VM stand out against Sky.

That strategy has had its day. Now the thinking at VM is that owning content is not as important as offering content and services in a compelling way.

Cindy Rose, VM’s digital entertainment managing director, told me last week it was “almost anachronistic to think you have to own the content to be the market leader in the digital entertainment space”.

VM has decided it is going to be a ‘smart pipe’ company, offering subscribers programmes and services through a sophisticated new set-top box using Tivo digital recording technology, which it plans to start offering later this year.

But the short-term gain of selling VMTV is better than the longer-term gain. Cash in hand and a stricter focus on the cable pipe’s capabilities are both good. But the new boxes need to be rolled out to nearly 4 million subscribers, and will they be cool enough to entice people away from Sky?

Meanwhile, Sky has decided that content as well as connectivity is the key to the future. So while it plans to turn on the broadband connection to its Sky Plus HD boxes later this year, as well as pioneering the UK’s first 3D channel, it is also investing heavily in content, via the likes of The History Channel, National Geographic, Nickelodeon and Sky Arts.

This seems like a good mix to me. News Corp obviously agrees.

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