Bloomberg News

Virgin Media to Embrace Online Rivals After Liberty Takeover

March 06, 2013

Virgin Media Inc. (VMED:US), the U.K. cable-TV provider being bought by Liberty Global Inc. (LBTYA:US), plans to make Web services such as Netflix a more integral part of its offering rather than fighting them, its chief executive officer said.

“Our approach is to get every content asset you possibly can on the platform,” CEO Neil Berkett said yesterday in an interview at the Cable Congress in London.

Liberty Global, the cable giant controlled by billionaire John Malone, is buying Virgin Media for $16 billion to expand in Europe’s biggest pay-TV market. Berkett is overseeing the merger while competing against larger rival British Sky Broadcasting Group Plc (BSY) as well as streaming services offered by Netflix Inc. (NFLX:US) and Amazon.com’s Lovefilm.

Cable operators have an advantage as their relationship with content providers is “highly complementary,” he said. Still, streaming services have the potential to dilute offerings by the cable companies that don’t work with them, he said.

“We’ve got a far greater chance as an industry by embracing over-the-top services,” Berkett said. “It’s unlikely that you’ll see a U-turn and digression in terms of our strategy” under Liberty Global.

TiVo Relationship

Liberty Global CEO Mike Fries said yesterday at the conference that he expected Virgin Media to continue to use the TiVo Inc. (TIVO:US) set-top box in the coming years, though was unsure what would happen beyond that. Liberty Global has been introducing the competing Horizon box in Europe, starting in the Netherlands.

TiVo CEO Tom Rogers said in an interview today his company has a “long time on the contract” with Virgin Media.

“It’s really expensive to make a technology change of the sort we represent once it’s weaved into the heart of the software,” he said at the Cable Congress today. “We will continue to work with Virgin and look forward to working with Liberty Global.”

About 1.3 million Virgin Media customers currently have the TiVo box, Berkett said yesterday, and the company is continuing to offer it.

TiVo is also in talks with a number of operators in Europe about adding its set-top box and software, Rogers said. There is room to grow with about 400 million subscribers in regions including western Europe and the U.S. that will decide whether to take on advanced TV services in future, he added.

TiVo Acquisitions

Rogers add that TiVo has $627 million in cash on its balance sheet and expects “a bunch more coming in” from litigation against Google Inc.’s Motorola Mobility and Cisco Systems Inc. over use of recording technology in the set-top boxes they make. Time Warner Cable Inc. is a defendant in both cases.

“We’re in a position where everything gets shopped to us because of the amount of cash we have, but have nothing right now that we’re about to buy,” Rogers said.

At Virgin Media, business customers have added to its attractiveness, with revenue from the segment growing at about 7 percent annually and accounting for 16 percent of the company’s sales last year, Berkett said.

Takeover Completed

Berkett plans to stay at Virgin Media until the takeover by Liberty Global is complete. Liberty Global hired an executive- search firm to find his replacement, Fries said at the London event. The company is considering external and internal candidates, he said.

Virgin Media shares rose 0.2 percent to 3,132 pence in London trading today.

Under Berkett, Virgin Media’s share price has tripled. He took the company to its first annual profit in 2011 by concentrating on fast Web and basic TV customers while stabilizing debt. Berkett, who also gave a keynote address to Europe’s top cable executives yesterday, said he may not return to an executive role after leaving Virgin Media.

“I haven’t thought much ahead about what I’d like to do,” he said. “Seven and a half years at Virgin Media is a big chunk out of anyone’s time and I’ve spent a big chunk of that as CEO.”

It’s doubtful Liberty Global will add a European stock- exchange listing in the short-to-medium term, Berkett said, without elaborating. The cable operator said last month it may consider one.

Germany, Spain

The takeover of Virgin Media has increased the attractiveness of Europe’s cable assets. Vodafone Group Plc (VOD) has intensified internal talks about a possible bid for Germany’s Kabel Deutschland Holding AG. (KD8) Grupo Corporativo ONO SA of Spain is prepared to sell shares in an initial public offering when the market for investors recovers, CEO Rosalia Portela said in an interview at the Cable Congress.

Liberty Global’s Fries said the company’s combination with Virgin Media has the support of Rupert Murdoch and his family, whose News Corp. (NWSA:US) controls BSkyB. Fries said he has spoken with Rupert Murdoch and his son, James, and that they are supportive of the transaction and understand the competitive nature of business.

A spokeswoman for News Corp. had no immediate comment.

Liberty Global isn’t planning to bid for sports rights against BSkyB, Fries said.

“Virgin Media is a great asset, a great brand and it has a confident management team,” the CEO said. “The U.K. market has gotten bad rap but we think it’s a good time to be in this market.”

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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Companies Mentioned

  • LBTYA
    (Liberty Global PLC)
    • $43.5 USD
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