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

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

Ending a simmering commercial dispute, Vivendi’s Canal+ has agreed to distribute its packages to France Télécom’s Orange TV satellite customers, allowing Orange to relaunch its DTH platform (targeting 4 million customers off the DSL TV footprint) after its dismal ‘do-it-alone’ first six months

Canal+ recruitments will benefit from the resumption of active marketing for its packages over Orange TV platforms, after a poor year for subscriber growth

Canal+ catch-up TV will now be available to all Orange Canal+ DSL TV subscribers, as it is to those on Free, where it is very popular, plus Orange satellite subscribers, thus giving Orange back the leadership position on IPTV in France

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