VMed’s Q1 results were again mixed, with declining group revenue and OCF margin but improving performance at Virgin Mobile and continuing strength in TV

The core cable business is facing a return to negative customer growth due to a combination of seasonality and stalling demand for broadband

But de facto price increases in broadband, TV and mobile should boost financial performance from the autumn; we expect this to be combined with reduced opex to generate significant cash flow growth from 2010

Another strong quarter of pay-TV subscriber growth, marked by record Sky+ HD sales, indicated continued resistance to recessionary pressures, supported by flat costs other than those associated with accelerated HD take-up

Results for the telecoms business again displayed strong volume growth in an increasingly difficult market. But original guidance for broadband subscribers, breakeven and standalone IRR looks challenging

Although the recession may yet take its toll on subscriber growth, the final outcome could work to Sky’s advantage due to the severe revenue losses being experienced by the free-to-air advertising sector. Constraints imposed by regulatory intervention remain a possibility, but unlikely to make a material difference over the next two to three years

Leading pay-TV operators Sky and Virgin Media (VMed) have shown little sign of recessionary damage in 2008 and the outlook for Q1 2009 remains positive. Difficulties are apparent at complementary pay-TV service provider Setanta

Ofcom’s pay-TV investigation enters its final stages in 2009. Ofcom faces a formidable challenge to devise a workable wholesale must-offer solution for premium film and sports content that fosters competition across all platforms

With prospects fading fast of a VMed sale of its UKTV and possibly VMTV assets to a BBCW/Channel 4 joint venture, Discovery looks an increasingly suitable candidate, as competition concerns could arise if Sky was the chosen partner

UK broadband subscriber growth continued to decline in Q4 2008 year-on-year. We expect declining growth throughout 2009, with the growth rate remaining positive, but in single figures

We expect VMed to use the upgrading of its 2 Mbit/s broadband base to 10 Mbit/s as the basis for a de facto price increase

The resulting increase in revenue could be substantial, although growth in subsequent years is likely to be reduced by lower gross additions

We continue to expect cash flow performance in 2009 to be resilient but unspectacular. However, the prospects for double digit growth in subsequent years to 2012 are beginning to look more promising

VMed’s Q4 results were mixed, with consumer cable revenue remaining stable but cable net adds dropping significantly and opex performance hit by rising energy costs

Group OCF was stable thanks to improvements at Virgin Mobile and Content

We expect performance to prove relatively resilient in 2009, though not to the extent of generating significant growth in underlying annual cash flow

The Premier League has succeeded in obtaining a 4.4% increase in live televised rights payments from £1,706 million to £1,782 million for the next three year contract commencing with the 2010/11 football season

The big surprise was that Sky bid more than last time round (by an estimated factor of circa 7.5% for its current four packages), while Setanta bid roughly 20% less for its two packages, thereby losing one to Sky

The highly contrasting bidding approaches appear to reflect completely different mindsets, with the not yet viable Setanta focused on the economic value of the PL rights, and Sky taken up with demonstrating long-term commitment to the PL

Strong Q2 results announced on Wednesday 28th January 2009 provided no evidence of negative impact so far due to the current recession

Sky+ HD looks set to provide a major growth opportunity, especially with the Sky+ HD box prices now dropping to £49. That and another record quarter for Sky+ take-up strengthens the view that Sky will meet its target of 10 million pay-TV subscribers by the end of 2010 with room to spare

Fixed line results again displayed relatively strong subscriber growth in an increasingly difficult market, but the operating loss excluding Easynet continued to deepen. Original standalone IRR guidance for fixed line looks unlikely to be met without further price increases

ITV has agreed to provide 7 day catch-up and archive content to Virgin Media’s TV customers. By closing the last major gap in its VOD offering, Virgin Media can better exploit VOD as a differentiator with Sky, thereby assisting customer retention

ITV also stands to gain from the circa £5-10 million per annum that it could receive for distribution of its catch-up content and the addition of 500 hours of top archive content to TV Choice, Virgin Media’s subscription VOD service. There appears no corresponding downside risk to ITV advertising revenues

The announcement highlights the future role of Kangaroo, the proposed BBC/ITV/Channel 4 joint venture, in supplying archive material to complete Virgin Media’s VOD line up, and the remedies the Competition Commission is considering to protect wholesale VOD customers

On Monday 15th December, Virgin Media (VMed) announced the launch of its 50 Mbit/s ‘XXL’ broadband service, implemented over the existing cable network using the DOCSIS3 standard. This note looks at the details of the offer and the implications for VMed, other ISPs and the residential telecoms market as a whole