Liberty Global Acquires Virgin Media
As Liberty Global swoops to buy U.K. cable company Virgin Media for $23.3 billion (£15B), the move has implications for DVR-maker TiVo.
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Virgin Media's pact with TiVo in 2009 to design a next generation TV service — which rolled-out late 2011 — is credited with helping the operator deliver a significant uptick to its fortunes.

In the latest figures, which coincide with today's announcement of Liberty Global's buyout, TiVo-equipped subscribers account for over 1.6 million, or 35 percent, of Virgin Media's 4.89 million customer base. Although the agreement is reportedly in place until 2016 and Virgin CEO Neil Berkett has talked about working with TiVo on a long-term road map to take DVR services, storage, and OTT streaming into the cloud, Liberty Global will surely look to replace the TiVo with its own media gateway product, Horizon.

Horizon (which includes video gateways manufactured by Samsung, the Snowflake GUI from NDS, video-on-demand powered by SeaChange, and Nagra encryption) debuted with UPC Nederland last September and went live with Switzerland's UPC Cablecom last month. Germany's Unitymedia Kabel is next up, planned for the first quarter of this year.

TiVo has also deployed with Ono in Spain and this quarter will go live at Com Hem in Sweden, which numbers 1.74 million households via high-speed broadband and fixed-telephony.

The guiding principal in user interface (UI) design is to make the complex simple. In a Streaming Media Europe interview last week, Virgin director of consumer platforms Ian Mecklenburgh said, "We've not sold TiVo on horsepower or called it a gateway. The strength is as a simple, managed UI."

Mecklenburgh revealed Virgin research showing that since TiVo's introduction, 60 percent of customers perceive that they have more content available.

"The TiVo UI works because people find it easier to surf and it exposes more content to them," Mecklenburgh said.

Given that, Liberty Global would be unlikely to rip TiVo boxes out of Virgin subscriber homes any time soon, although TiVo stock fell two percent on news of the buyout.

There will be speculation as to Liberty Global's content strategy in the U.K. market, given that it is going up against pay TV giant BSkyB (with 10.7 million subscribers) and telco BT Vision, which invests heavily in exclusive rights to premium sports content.

Under Berkett since 2009, Virgin Media has successfully rolled out high speed broadband. Today over half of its broadband customers take speeds of 30Mbps or above. (Berkett is stepping down following the buyout.) Virgin has steered clear of competing for content with BSkyB by acting as a content aggregator. Indeed, it divested its own TV channels, including Living, Challenge, and Bravo, to Sky in 2010 for £160M ($250M). At the same time, Virgin also took carriage of Sky's basic HD channels: Sky Sports HD 1, Sky Sports HD 2, and Sky Movies HD.

Speaking to The Financial Times, Mike Fries, president and CEO of Liberty Global, said, "I do not see us doing anything in this market that's meaningfully different from what Virgin's been doing with respect to premium content."

Liberty Global is more likely to accelerate investment in faster broadband networks. In a statement, Fries said, "Virgin Media's market-leading innovation and product expertise, particularly in mobile and B2B, will accelerate our own development of these business segments."

With Virgin Media, Liberty Global can now call itself the world's "leading broadband communications company," with 25 million customers and operations in 14 countries. Its focus, however, is increasingly in Europe where it is by far the dominant cable player. Chairman John Malone is reportedly relocating its global headquarters from Delaware to London, and may list it on the London stock exchange.

"After the deal, roughly 80 percent of Liberty Global's revenue will come from just five countries — the U.K., Germany, Belgium, Switzerland, and the Netherlands," Fries said. "Like all of our strategic acquisitions we expect this combination to yield meaningful operating and capex synergies of approximately $180 million per year upon full integration."

To The Financial Times, Fries added: "The U.K. market has exhibited a much more rational competitive posture in the last 18 or 24 months than it did at any time prior to that." Investment in infrastructure by Virgin, BSkyB, and BT, he said, was creating a more favourable pricing environment and increasing average revenue per customer.

Revenues at Virgin Media increased by 3 percent to £2.8 billion this financial year, with 1.8 percent of that growth coming from new customers and the remainder from an increase in average revenue per user. Some 774,600 customers take the quad bundle of Virgin services: TV, broadband, landline, and mobile.

Liberty Global reports its 2012 results on February 13, but in preliminary figures it stated that it had achieved revenues of $10.3 billion, including sales of $2.73 billion in the fourth quarter, a growth of 6.5 percent.

Richard Branson's Virgin Group held a 3 percent stake in Virgin Media following the merger of Virgin Mobile with NTL and Telewest in 2006, and retains a 30-year, £10 million per year brand licensing agreement, though the new owners are expected to rebrand.

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