Virgin Media: Does Quadruple Play Increase Churn?

IanFogg | August 08, 2007, 11:10 AM

Virgin Media's quadruple play of tv, broadband, home telephony and mobile has had tremendous industry expectations placed upon it, especially from US-based investors and companies. Unusually, Virgin Media also operates off-net -- outside the coverage of its cable network -- where it delivers DSL broadband and CPS telephony today, and plans IPTV in the future.

Today, Virgin Media announces its second set of results since the re-brand.

First takes:

Biggest success for the quarter is the V+ combined DVR and HDTV box. Subscribers increase from 114,200 to 166,800. Especially impressive given the rough quarter for broadband and TV additions.

Solid triple play progress: Now, 45.2 percent of customers take three services, up from 37.1 percent a year earlier. But cable churn increased to 1.8 percent in the quarter, from 1.6 percent in q1 2007.

Poor broadband additions: just 45,800 cable broadband additions in the quarter. Satellite TV and DSL rival Sky, added 259,000 broadband customers in the same period.

Virgin explains weak broadband numbers by citing problems in its TV product range. Could multiplay be increasing churn for bundled services? (something we analysed earlier this year, most specifically slide 4 titled, "The Vicious Competition Circle Will Drive Multi-play and Increase Overall Market Churn"). What Virgin says under the sub-heading 'Broadband' is: "On-net broadband net additions in the quarter were 45,800, down from 87,900 in the previous quarter. Growth in the quarter was negatively affected by increased churn relating to the loss of the Sky basic channels."

Good usage of VOD by Virgin Media customers. Important to note that free VOD is being used as a differentiator by Virgin, so this VOD usage will not translate directly into revenue unless Virgin can shift free VOD behaviours onto paid VOD. Regardless, 44 percent of customers using VOD, compared with 36 percent at the start of the year, demonstrates steady progress. Virgin's challenge is whether it can continue to use VOD as a distinctive part of its offer given Sky's aggressive move into DSL (and on the back of that eventually into IPTV and VOD) and the launch of free catch-up TV services from the BBC and Channel 4 which are available to any UK broadband household.

Re-confirmation of Virgin's plans to launch IPTV off-net. But no timescale. Given Virgin's mobile offer is national, it is important for Virgin to have a solid at home offer outside its traditional cable areas if the company is to leverage the quadruple play fully. Additionally, Virgin will hope that bolstering its off-net service may help customer retention when consumers move house to outside the cable footprint. Virgin's challenge here is that the UK TV market is becoming very congested: There are existing IPTV offers from BT and Tiscali, Orange has advanced plans, and Sky is a player here too. Plus the multichannel digital free to air service, Freeview, continues to perform very strongly.