U.S. cable industry veteran plans to take on Murdoch in key triple-play U.K. communications and entertainment market.
U.S. cable veteran John Malone may soon be a regular face in trans-Atlantic business class. But whether he'll be flying Virgin Atlantic depends on how well his proposal to buy its owner Richard Branson's flagship British communications company, Virgin Media, plays out.
Malone has set his sights on a $20 billion/£13 billion swoop on the organization, which provides landline phone, broadband and cable TV services to five million U.K. households and cellular services to another three million, and which also has a significant enterprise arm, Virgin Media Business. (For comparison, Malone's Liberty Global has 20 million customers and revenues of more than $10 billion.)
The price of Virgin Media stock soared almost 15% in early trading on Tuesday, pushing the firm's market capitalization up to $11.9 billion (£7.6 billion), on the strength of the rumor, which was later confirmed by Virgin in a short statement.
Industry observers are already talking about the move as marking potentially the single biggest event in the U.K. telecoms and media sector since the merger of the T-Mobile and Orange UK mobile network operators in 2010 to form EE.
If the deal goes ahead, it would put Malone "mano a mano" in the British broadband market with none other than Rupert Murdoch, which would likely lead to a take-no-prisoners fight for U.K. fixed broadband, fixed voice and pay-TV subscription revenues. (Malone and Murdoch have a complex business relationship, with the former at one time a significant investor in Murdoch's media empire.) Liberty Global would also face stiff competition from local national champion BT, too.
Adrian Drury, principal analyst at U.K. market watchers Ovum, believes Liberty Global's play for Virgin is driven by Malone's long-term vision for the value a foothold in the U.K. will have in terms of a bigger pan-European triple-play business "and the competitive need to fight News Corp at this scale." Liberty Global already has network services in three other key European markets: Germany, Switzerland and the Netherlands.
Drury points out that Malone will bring to the U.K. market extensive experience and "operational smarts" from running from cable operations in 13 markets. Malone can also deploy multi-territory leverage with major U.S. studios and sports federations, along with his recently launched Horizon next-generation pay-TV and multi-screen platform, now rolling out across its European operations.
But Murdoch is hardly likely to give up without a fight. Like Sauron in "The Lord of the Rings," Murdoch sunk a lot of his original power into his British operations, and he is thought to be very reluctant to loosen his grip on the country's airwaves (although his newspaper empire has had its fair share of problems in the past couple of years).
Drury said, "[Liberty Global] will be facing off against a jewel in the Murdoch empire. BSkyB, by any measurement, is one of the best-run pay-TV operations on the planet, with a strong technology platform strategy [and] some powerful content rights -- including exclusive rights to the entire HBO catalogue, control of the premiership [soccer] coverage wholesale market, and exclusivity on the output of all of the majors in the first subscription pay-TV window."
At the same time, the U.K. is also a must-win arena for two major on-demand players: Amazon's Lovefilm and Netflix.
Any sale is far from a done deal. There is, for a start, the issue of Virgin Media's debt -- currently standing at around $9 billion (£5.7 billion), which could curdle any plans.
Still, it could be an interesting few months ahead. Drury said, "If Malone closes the deal, this will be a very interesting competition to watch and real test for the Liberty vision of the future of cable TV and Internet services." BT and challenger brands like Talk Talk will have their triple-play strategies put severely to the test as these giants battle it out.
As for Branson, by the way, he may have little to say on this matter. His company is a highly diversified group, currently holding a mere 3% of shares in the media brand that shares its name. What he'd say to Malone if they find themselves in an executive airport bar is a matter of interesting speculation. It remains to be seen what Murdoch plans to do if the sale goes ahead, of course -- or what he'd have to say to the colorful cable tycoon in the same scenario.
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