Analysis of TV Row between BSkyB and Virgin Media - Assignment Example

(a) Economic Analysis of TV Row between BSkyB and Virgin Media The talks between Virgin Media and BSkyB over the rights to show Sky One and other channels of BSkyB by Virgin Media could not reach a solution resulting in the viewers of Virgin Media not being able to access Sky Basics TV package. This package includes Sky Travel and Sky Sports News. The issue started because BSkyB wanted Virgin Media to pay higher charges for these channels. The economic analysis of this issue is as follows: The Issue: It is an issue relating to the 'Dominant Strategy' being played by Sky for the repositioning of its Basic channels. Virgin Media, the Cable Company in which Sir Richard Branson's empire is a major shareholder accused Sky of using its dominant position in Pay-TV to stifle competition. According to Sky, the row between the companies started because of the Virgin's refusal to pay the asking price. Virgin says that Sky is trying to dominate the market by asking 'more than double' charges for its channels with a view to 'coerce' virgin customers to switch to new providers by denying access to basic channels. BSkyB's View Point: Sky maintains that the price it wants is 'reasonable' taking into account the benefits it provides to the Virgin customers. It also says that it has adopted a 'product differentiation' along with the 'price increase' by offering new 'high definition' service, where the quality of the broadcasting will be better. "It denies allegations by Virgin that it is demanding "more than double" the amount currently paid." (BBC News 2007) According to Richard and Mark (2007) "Sky added that its offer of 3p per Virgin Media customer per day is still on the table should the cable group wish to return. Sky added that it is still willing to supply its channels directly to cable households." Marketing Strategy of BSkyB: The strategy behind the move of Sky is to reposition its channel Sky one by revamping it to include live football and UK TV premieres of big US films giving Sky One a content which is being currently offered under Sky's premium sports and movie channels. Couple with this Sky is providing programmes in High Definition (HD), which it claims as a key selling point. With this differentiation and improvements in the products Sky demanded higher charges from Virgin. Virgin Media's View Point: Virgin Media implies that Sky is using its dominance in the market to its advantage. Steve Burch, the Chief Executive of Virgin says "we will not allow Virgin Media or our customers to be the victim of Sky's market power." Virgin says that it cannot afford to pay the charges being demanded by Sky since as per the costing calculations virgin would end up in paying Sky 1.23 per month per subscriber that is more than one third of the 90p cost outlined by Sky. Moreover Sky is also demanding a 'minimum guaranteed payment' that is twice the current annual payment being made by Virgin to Sky. "Virgin has closed the gap with Sky to some extent by signing deals with major content owners to offer programmes on demand - though these do not include US drama 24 and mainly cover older series" (Chris Tryhorn 2007) Strategy of Virgin Media: To combat the pressure from Sky Virgin had already signed deals with some content owners to provide programs on demand. Virgin Media would continue to charge the customers at the same level without any reduction for the loss of Sky channels. Virgin says it would compensate the viewers with 2700 hours of on-demand viewing. Effect on the Customers of Virgin: With the Sky basic channels going off the cable, the viewers would end up paying more for lesser channels, although Virgin says it will compensate the customers with more hours on-demand viewing. Around 3.3 million subscribers of Virgin would loose channels like Sky One, Sky Travel, Sky News and Sky Sports News. They will not get the value for the money they pay to Virgin. This would result in the subscribers switching over to other providers where they may get full value for their money. Effect of BSkyB and Virgin Media: While Sky would loose advertising revenues to the extent of 20 million, Virgin would have to face the loss of subscribers to other cable providers. Sky stands to loose the advertising revenue because by not giving rights of many of its channels to Virgin subscribers, the potential audience for Sky would become much smaller and will not be appealing to the advertisers and sponsors. The revenue loss for Sky is estimated at 45 million by Virgin while Sky is quoting 20 million as the figure. Measure to be taken by Virgin Media: The first remedy available for Virgin is what is known as 'Retailers Collusion' - since the row between both Sky and Virgin, if not resolved amicable would cost both of the companies huge revenue losses, it is better to some understanding. If not settled the dispute would cost a sizeable loss of subscribers base to Virgin and huge losses of advertising revenues to Sky. Hence the best solution would be to arrive at a reasonable settlement where both the players can take advantage of the market. The other remedy available for Virgin is to enter into contracts with other content providers to serve on-demand. The final remedy is the litigation by filing s suit in the court for issue of directions relating to reasonable commercial rates. Richard and Mark (2007) comments that "Virgin Media warned it will go to the high court if its dispute is not concluded within the next 30 days. It wants supply of the Sky channels "at a reasonable commercial rate" as well as "fair payment" for the provision of its own Flextech channels" (b) Impact of Providing TV Services in Non-Traditional Ways: After the provision of TV, fixed phone lines, mobile phones and the internet in a package called 'quadplay' by Virgin (formerly NTL) and See, Speak and Surf by Sky, the customers now get the advantage of delivery of TV programs over Broadband internet service. Traditionally the TV programmes were being provided through cable operators only where the channel providers like BSkyB had a monopolistic situation as the customers can view particular channels only through these providers. The provision of TV programmes through broadband internet service will definitely reduce the monopoly situation being enjoyed by the channel providers. This is due to the following additional features of the broadband TV services which can be considered as a boom to the viewers. 1. There is no limitation on the number of channels that a customer can view when the TV programmes are broadcast through internet. The unlimited choice makes this an attractive phenomenon, whereas, the channel providers have a limitation on the number of channels they may provide. 2. Broadcasting though internet provides the customers the facility of viewing their favorite programmes at their leisure by downloading the programmes and saving them for future viewing. In the case of channel providers the customers have to adjust their timings for other important commitments according to the times at which the favorite programmes are being telecast. 3. The quality of the programmes being telecast will show a lot of improvement since being broadcast through internet. Moreover this also gives the advantage of watching the television programmes at a convenient place by having a laptop computer. 4. The programmes on share market prices and programmes on other current issues can be updated instantly by using the internet which facility is not available when the programmes are telecast though channel providers. 5. With the provision of Television programmes through broadband services, the cost to the customers would be considerably reduced. There are chances that the costs may come down to a large extend than that is currently being paid to the channel providers. This would encourage healthy competition among the existing channel providers to broadcast programmes with quality contents and also will eliminate the monopolistic situation being enjoyed by some of the providers. 6. The provision of TV programmes through broadband internet services provides greater opportunities of interactive learning services from home. This is a distinct advantage for the customers by making learning opportunities more accessible. 7. With a larger number of viewers the advertisers and sponsors will have more money's worth for the media charges they will be paying to the internet TV operators. 8. When the IPTV is provided though the telephone lines and "if a phone call lands up while watching television, you could use the remote to first pause the programme using the IPTV platform and then answer the telephone call using the same remote" (Thomas K. Thomas 2007) Once the telephone call is through the subscriber can resume watching the Television programme where he left before the telephone call without missing any part of the programme. Thomas K. Thomas adds "IPTV technology allows subscribers to access television programme that are as old as a week, depending on the storage capacity installed by the operator". With the above advantages in view there has been increasing trends for channel providers as well as telecom operators in entering the internet TV segment. "The emergence of Internet TV has been hailed as a strong push by market forces towards the convergence of telecom, broadcasting and Internet networks." (People' Daily) The IPTV (Internet Protocol Television) uses a technology that basically enables the subscribers to watch television using telephone lines but with a number of vendors betting big on IPTV a lot of new features and applications are being added to the services. Word Count: 1606 References: 1. BBC News (2007) http://news.bbc.co.uk/1/hi/business/6390655.stm 2. Chris Tryhorn (2007) Sky Profits at Risk in Virgin Row Media Guardian Co UK February 26th 2007. 3. People' Daily Internet TV Brings Opportunity http://english.people.com.cn/200406/16/eng20040616_146533.html 4. Richard Wray and Mark Sweney (2007) Virgin Threatens Sky With Court The Guardian dated March 06 2007 5. Thomas K. Thomas (2007) TV Remote May Soon Double as Phone Business Line April 27th 2007 Read More