Digital deal puts media control back in the spotlight


Liberty Global's $23.3 billion purchase of Virgin Media should shine a few high-definition pixels on the issue of who controls media platforms and what it is they're planning to do with them.

Ask what the dominant force in Irish media is and many people will instinctively respond "RTÉ". Ask executives in RTÉ, though, and they will say Sky. Neither is wrong - it just depends on the metric you're looking at.

A valid one, albeit it doesn't take into account the weight of advertising power, considers the sums that consumers pay to media companies directly.

A "starter bundle" for Sky Television in Ireland costs €27 a month, while UPC's digital television packs start at €26.50, meaning that even the most basic customers generate €318-€324 a year for either provider.

Even this amount is double what the same customer will pay in the form of a television licence fee. But add in the extras - sports, movies, multi-room viewing, on-demand charges - and a typical bill is closer to €500 a year. This means Sky and UPC would only need around 370,000 customers paying €500 a year to exceed the €184 million that is paid by Irish households to RTÉ. Both have more.

Sky, which launches its new broadband and home phone packages today, has as many as 700,000 set-top boxes floating around the Irish market, figures from Nielsen suggest. They may not all be active subscribers, but in terms of pay-TV subscriptions, it's still comfortably ahead of UPC, which has around 400,000 television customers.

However, UPC, already well advanced in the triple-play business, has about 970,000 subscriptions at the last count.

Both companies have extraordinary power in the market, with Sky leading in "pure" television terms and UPC seemingly better placed to capture the convergence between the online and audio-visual entertainment markets. Both have significant ultimate control over what their customers see and don't see.

Thanks to the internet, there are other ways into people's homes. But the misnomer that consumers have been blessed with a free internet belies the fact that consumers do, of course, make direct payments of cash to access it - it's just that at present, these payments are less likely to go to content producers than they are to broadband providers, though again that may well mean UPC and, now, Sky.

Little wonder, then, that television companies such as the BBC (Freeview, YouView) and more latterly RTÉ (via Saorview) have made sure to be at the table when it comes to new digital platforms. Little wonder too that Rupert Murdoch, whose media empire owns 39 per cent of BSkyB, would dearly love that percentage to be 100 per cent.

As far as the European market goes, there are now two telecommunications giants spanning the continent. It's Liberty Global, the cable group controlled by US billionaire John Malone, versus BSkyB. Having spent the equivalent of €17 billion on Virgin, Malone has now created one of the world's largest broadband companies, subject to shareholder and regulatory approval.

As Liberty owns UPC, its Irish subscribers are now part of an enlarged entity - interestingly, the deal means BSkyB's main pay-TV rival in the British market (Virgin) now has the same owner as its main pay-TV rival in the Irish market.

So what next? The focus of the merged company "will be on the strongest and most strategic markets in Europe", says Virgin founder Richard Branson. After the deal, around 80 per cent of Liberty Global's revenue will come from five European countries - Britain, Germany, Belgium, Switzerland and the Netherlands. These countries are where the pay-TV market, so effectively created from nothing by Murdoch two decades ago, enjoys high household penetration.

"The combined company will be able to grow faster and deliver enhanced returns by capitalising on the exciting opportunities that the digital revolution presents," says departing Virgin Media chief executive Neil Berkett. This sounds very much like code for making shareholders a pile of money. But the competition between Liberty and BSkyB may be good for consumers too if it prompts both companies to speed up in the race to bring new technology into their customers' homes.

Liberty chief executive Mike Fries has dismissed the suggestion that the company will bother to compete with BSkyB in another way, by buying up sports rights and content producers. Given Liberty now has 25 million customers in 14 countries, it might not need to - on that kind of scale, controlling the platform can spin enough money as it is.

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