Virgin Media seemingly tried to usher through some profitability in its negotiations with UKTV over programming, but the cost-cutting quest could have some wide-ranging repercussions.
It is certainly a delicate tight-rope to walk. The much-hyped convergence business model is one which is supposed to attract new revenues, though how much investment should be committed to making the alternative offerings attractive to the customer? Any additional streams to a telcos business model need to be striking and engaging to the user, but over-spending could complete negate any benefits, as BT’s former CEO Gavin Patterson found out.
A very public disagreement between Virgin Media and UKTV seems to be based around the telco trying to strike this balance. In attempting to only secure the free channels for its TV platform, Virgin Media essentially ended any agreement between the two to secure UKTV programming. And the impact has been notable.
UKTV claims to have received more than 50k Twitter mentions on the topic, many of them condemning Virgin Media’s decision to degrade the content experience, while there were several comments on a story we wrote on the saga, with readers suggesting this would be the end of their relationship with the telco. Research from Kantar TNS also suggests there will be a negative impact.
Although you have to bear in mind this research was commissioned by UKTV, it will be slightly biased, Kantar TNS reports 43% of the respondents are considering cancelling their Virgin Media subscription as a result of the lost channels. 64% felt UKTV channels were an important part of the Virgin Media TV package, with 41% claiming they watched the content more than once a week. 65% believe the replacement content is worse than what was being offered by UKTV.
Overall, this is a prime example of convergence done badly. Your correspondent can testify to the fact, as a former Virgin Media customer, the TV offering was nothing more than okay. Dave and Alibi are channels which do provide good content, and perhaps this is the issue with the Virgin Media platform on the whole. There simply isn’t the breadth of quality content which you can consume in comparison to other content platforms, such as Sky.
Convergence is a very good way to improve customer retention and also bring ARPU up, but when it is done badly the risk of damaging the overall brand and subscription numbers is high. With the accessibility and variety of content platforms on the market now, telcos can ill afford to produce a substandard offering. It risks more than reputational damage in that one vertical, the ripples can spread throughout the business.
That said, according to tech and telco analyst Paolo Pescatore, these spats are not uncommon:
“These carriage disputes occur more frequently than we realise. The content owner wants more money while the platform provider wants to pay less. Ultimately the consumers who pay for Virgin TV missing out. And this is not good for either party given how quickly this dispute has escalated and in public. Arguably, Virgin media has more to lose than UKTV.
“Undoubtedly we are going to see more of these issues. More so as content and media owners look to offer their own content on an exclusive basis through their own direct to consumer services, OTT.”
The negative consequences could be avoided by Virgin Media. If negotiations are reopened (UKTV confirmed lines are open, but the conversation is not happening at the time of writing) and the channels reinstated on the platform, it will probably be able to salvage the relationship with the customers. But should it decide it can get by without UKTV, there could be an impact on the spreadsheets.
Not all of the customers will follow through with threats to ditch Virgin Media, changing suppliers is made too much of a cumbersome and frustrating process by the telcos, but it will be interesting to see what the impact of badly done convergence is.