At midnight tonight, the carriage deal between Sky and Virgin Media (the new name for the recently merged UK cable TV companies NTL and Telewest) expires. If no new deal is signed, and no temporary extension agreed, Sky’s handful of basic channels (Sky One, Sky News, Sky Travel etc) will disappear from around 3.3 million cable TV homes in the UK.
I am one of these customers, although I also have a Sky dish and a top-tier subscription so the withdrawal of service is not the end of the world, as I’ll still have all the affected channels available via either of my two Sky receivers.
We only have the one cable TV box and a basic cable sub, and only then because it comes free with our phone line. However, it will be very irritating if the basic Sky channels are pulled, as part of the reason for having the box fitted was that it gave us easy access to Sky One in the bedroom.
Sky and Virgin are currently engaged in a stand-off. For Sky, failure to agree a deal will cost the company anything up to £60 million in lost advertising revenue, as rates will have to be lowered and refunds given on existing bookings to reflect the huge drop in audience for the affected channels.
For Virgin, which today announced a loss of £122 million for its fourth quarter, already losing cable TV customers at an alarming rate (37,000 in the last three months alone), faces the prospect of even more bailing in favour of satellite dishes and Freeview boxes (though Sky is in advanced talks about pulling Sky News, Sky Sports News and Sky Three from Freeview as well, in favour of using its multiplex portion for a limited pay-TV service instead). Customers bailing in search of a better, cheaper and more extensive TV service are also likely to take their broadband and landline telephone custom with them, increasing the financial impact for the loss-making Virgin Media.
As a further note, Virgin’s position has not been helped by the rebranding of the cable service, that has seen its web site, literature and on-screen information and presence revamped to be more appealing to those recovering from a lobotomy or a severe brain injury. Here’s a tip guys, not all your customers are as thick as your overseas, outsourced call centre staff.
So, returning to the business point – Both companies will lose out if no deal is done, with both set to miss out on revenue in the high tens of millions. Virgin will also face the knock-on effect of increased customer churn that will likely impact on other parts of its faltering business. Sky on the other hand will struggle to replace the loss of over three million viewers overnight, given that the UK broadcasting landscape does not offer another viable outlet for basic pay TV stations such as Sky One.
My prediction – I don’t expect a deal to be agreed in time to head-off tonight’s deadline. Instead, I expect to see a temporary extension of the existing carriage deal on the existing terms, probably for another month while both sides grow up and settle this. While they are technically rivals – the fact is that they either both lose or both win – there is no scenario that will produce one outright winner and loser.