Virgin VOD, Analogue, Mobile and Slug Fest Stuff
I did a little more digging on the Virgin Media network
I believe the VOD (Video On Demand aka Virgin Central) service is being delivered from the hubs at mpeg-4 encoding of 1.5 meg. This to me implies that assuming the broadband 256-QAM multiplexing gives around 25 concurrent users in 6Hz of spectrum. VOD is a much bigger consumer of spectrum than Broadband, especially when you consider the peak hour is consistently around 8-10pm and people tend to watch a 30min-1hour programme. If you consider the full mythical spare 650MHz of Virgin Media cable spectrum than that just equates to 2,708 concurrent users in a hub. Once penetration shoots up, perhaps the Sky+ approach of vast local storage might be the correct approach in the long run. However, once the penetration gets up to levels that would saturate the bandwidth then perhaps V+ will also be mass-deployed in the home and Virgin Media will have a similar home caching solution as the ones that BSkyB are studying.
In the recently filed 10-K, Virgin also divulged a couple of facts about their analogue to digital conversion plan. It seems that they are focused on London with 230k homes converted in 2005, 239k homes in 2006 and they forecast 80k in 2007. A couple of hat tippers also revealed that the networks in Milton Keynes and Southampton were also still analogue only. I also believe that the majority of networks are still a mix of analogue and digital rather than digital only with the already legendary 650Mhz of spectrum spare. If any knows of any 100% digital networks, you know my email.
Another gem in the 10-K was the branding deal with Virgin is 0.25% of revenues subject to a minimum of £8.7m p.a on a 30-year deal with a poison pill (oops sorry early termination fee) On 2006 turnover of £3.6bn that would equate to around £9m. This doesn’t seem too extortionate to me. Virgin Media also has a deal for capacity and commissions with Virgin Megastores. In 2006, they paid £1.8m which given Virgin Mobile only came on the books on July 4th annualized runs to £3.6m. Virgin Mobile is in 75 megastores who provide space and staff so averaging out at £48k pa for City Centre presence also doesn’t seem too bad to me especially given the commissions that Carphone demand.
Also, the total cost of the Virgin Mobile deal was £952.2m which was paid with £418.2m in cash, £518.8m in shares and the balance of £15.2m covered the transaction fees. It is also worth considering that £200m of long term debt came with Virgin Mobile as well net current liabilities. Unfortunately most of the purchase price went to intangible assets on the balance sheet. The depreciation and amortization charge accounted to £41.7m in the 2006 which meant a total mobile OCF of £30.2m turned into a net loss of £11.5m. It is going to be incredibly hard for a MVNO to generate around £83m of profits per annum to cover the amortization element of the purchase price. What is interesting here is that Virgin Media only put around £300m as an “amortizable” expense, they also added £970m of intangibles as an asset of indefinite length. A billion pounds of indefinite value for Virgin Mobile – I don’t think so. I suspect that Virgin Media have acquired a bit of a dog here and a drain on overall profitability for years to come. However, there is really good news on the mobile front and it is clear that Virgin Media write off customer acquisition cost immediately for both prepaid and postpaid and therefore they don’t have hidden capitalized costs on the balance sheet for mobile.
Virgin Media is definitely feeling the pain in current round of the Slug Fest:
After all that, all that is left is to say good night and leave a classic James Murdoch quote:
I believe the VOD (Video On Demand aka Virgin Central) service is being delivered from the hubs at mpeg-4 encoding of 1.5 meg. This to me implies that assuming the broadband 256-QAM multiplexing gives around 25 concurrent users in 6Hz of spectrum. VOD is a much bigger consumer of spectrum than Broadband, especially when you consider the peak hour is consistently around 8-10pm and people tend to watch a 30min-1hour programme. If you consider the full mythical spare 650MHz of Virgin Media cable spectrum than that just equates to 2,708 concurrent users in a hub. Once penetration shoots up, perhaps the Sky+ approach of vast local storage might be the correct approach in the long run. However, once the penetration gets up to levels that would saturate the bandwidth then perhaps V+ will also be mass-deployed in the home and Virgin Media will have a similar home caching solution as the ones that BSkyB are studying.
In the recently filed 10-K, Virgin also divulged a couple of facts about their analogue to digital conversion plan. It seems that they are focused on London with 230k homes converted in 2005, 239k homes in 2006 and they forecast 80k in 2007. A couple of hat tippers also revealed that the networks in Milton Keynes and Southampton were also still analogue only. I also believe that the majority of networks are still a mix of analogue and digital rather than digital only with the already legendary 650Mhz of spectrum spare. If any knows of any 100% digital networks, you know my email.
Another gem in the 10-K was the branding deal with Virgin is 0.25% of revenues subject to a minimum of £8.7m p.a on a 30-year deal with a poison pill (oops sorry early termination fee) On 2006 turnover of £3.6bn that would equate to around £9m. This doesn’t seem too extortionate to me. Virgin Media also has a deal for capacity and commissions with Virgin Megastores. In 2006, they paid £1.8m which given Virgin Mobile only came on the books on July 4th annualized runs to £3.6m. Virgin Mobile is in 75 megastores who provide space and staff so averaging out at £48k pa for City Centre presence also doesn’t seem too bad to me especially given the commissions that Carphone demand.
Also, the total cost of the Virgin Mobile deal was £952.2m which was paid with £418.2m in cash, £518.8m in shares and the balance of £15.2m covered the transaction fees. It is also worth considering that £200m of long term debt came with Virgin Mobile as well net current liabilities. Unfortunately most of the purchase price went to intangible assets on the balance sheet. The depreciation and amortization charge accounted to £41.7m in the 2006 which meant a total mobile OCF of £30.2m turned into a net loss of £11.5m. It is going to be incredibly hard for a MVNO to generate around £83m of profits per annum to cover the amortization element of the purchase price. What is interesting here is that Virgin Media only put around £300m as an “amortizable” expense, they also added £970m of intangibles as an asset of indefinite length. A billion pounds of indefinite value for Virgin Mobile – I don’t think so. I suspect that Virgin Media have acquired a bit of a dog here and a drain on overall profitability for years to come. However, there is really good news on the mobile front and it is clear that Virgin Media write off customer acquisition cost immediately for both prepaid and postpaid and therefore they don’t have hidden capitalized costs on the balance sheet for mobile.
Virgin Media is definitely feeling the pain in current round of the Slug Fest:
- The Business has a mega-article reporting that a YouGov Brand survey shows the Virgin Media losing all the gains made from relaunch;
- The Guardian (top rated Murdoch hater rag, but best “Media” coverage) is reporting a return to NT Hell levels of customer (non)care and more or less saying all anyone has to do is to pick up the phone, whinge and they will get a £10pm discount or additional services for free.
- Tomorrows Economist however is reporting that the whole situation is a classic win-win for Branson.
After all that, all that is left is to say good night and leave a classic James Murdoch quote:
We are going to reschedule a whole weekend of programming just for them and I think that is going to resonate with viewers; at Virgin they reschedule so they can show their major shareholder in a glass box.
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