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Variety.Com: VM have Sky 'rattled'

Great article at Variety.Com (http://www.variety.com/article/VR111...goryid=18&cs=1) on the UK Digital Media War:

Quote:

LONDON -- If actions speak louder than words, then Europe's leading paybox, British Sky Broadcasting, looks mighty rattled right now.

Ruffling its feathers is the bow of Virgin Media, the re-branded U.K. cable combothat was NTL, whose biggest stockholder is maverick British entrepreneur and Virgin Atlantic owner Richard Branson.

In the past 10 days BSkyB, controlled by News Corp., has made a number of moves all aimed at undermining Virgin Media. On Feb. 8, the day Branson's baby emerged accompanied by customary Virgin hype, BSkyB, in a classic spoiling tactic, said it intends to bow a pay TV terrestrial service this summer.

Not exactly shy or retiring, the bearded Branson spent launch day in London's West End in full view of the public working in a specially erected glass office accompanied by the inevitable glamorous assistant.

As the hoopla surrounding Virgin Media's launch began to fade, BSkyB decided to up the ante still further.

Sky ads urged Virgin Media subscribers to contact the cable company and demand it pay "a fair price" for carrying its channels, including flagship entertainment web, Sky One.

The competitors are negotiating new carriage terms for distributing Sky channels on Virgin Media.

This follows a deal, concluded last month, that saw BSkyB topper James Murdoch reportedly squeeze up to $47.5 million a year from Virgin's content arm for carrying its channels such as Living TV on BSkyB.

Finally, Sky announced it would be rebranding its movie channels under genre titles, the latest in a long line of revamps.

"They seem to be more wound about us than we are about them," Virgin Media CEO Steve Burch says. "Sky is used to dominating. Their view is to try and crush us."

Virgin hopes that U.K. regulators will rule against BSkyB's 17.9% stake in British commercial terrestrial web ITV, bought last year to derail the cable combine's designs on ITV.

There are good reasons why BSkyB, which has 8.3 million subscribers compared with Virgin's 5 million, is concerned about the new competish.

Virgin says it will be pouring $19 million into customer service, a needed investment after NTL had so disaffected cable users that users set up their own support group.

"The fact that Sky is responding like this is a sign that Virgin Media will make a big impact on all of its competitors," says Theresa Wise, convergence partner at consultancy Accenture. "Virgin is a fantastic brand, with a brilliant reputation for customer service. They have a management team that understands cable (Burch spent 17 years at Comcast) and understands the peculiarities of U.K. cable, which is a lot more competitive than in the U.S."

Also, technologically Virgin has the upper hand -- for now.

Yet as skeptics point out, NTL was among the first to offer U.K. subscribers broadband -- but failed to take advantage of this and dent Sky's supremacy.

As the two titans go head to head promoting bundled packages offering TV, telephony and broadband, the decisive factor in addition to price may be their different content propositions.

"If Virgin can develop a program acquisitions strategy that breaks the stranglehold of Sky on premium product, cable can claw back," says Mathew Horsman, director of consultancy Mediatique.

"But if you don't get the essentials of your business right, you will not brand your way out of trouble."

Virgin Media content topper Malcolm Wall concedes that, "In terms of linear TV, there's not a lot of difference between us and Sky," but adds that linear channels are on the decline. "With our good navigational tools and Virgin Central (the cabler's on demand component) we're offering subscribers something unique. We believe there is a strong appetite for a library-based VOD service."

Branson has succeeded in taking on the big guns of the British airline business. Going head-to-head with News Corp. in the media biz is arguably an even tougher task, but already he is unsettling BSkyB.

You can run, but you can't hide, Sky. :p: