Virgin Media Launches Over-the-Top Service

Virgin Media Launches Over-the-Top Service.

UK pay TV operator Virgin Media has launched an online TV service in beta. Virgin Media Player will offer content on-demand from a range of partners including ITV, Living, Disney, National Geographic, Cartoon Network, MTV, Comedy Central and Nickelodeon. Virgin Media aims to bring more content to the service - which will include advertising - ahead of the full launch later this year. Access to the service will be restricted to Virgin Media customers with the beta version only available to subscribers taking the company's top tier TV package with broadband.

Virgin Media is also launching an iteration of the browser-based service for mobile phones offering mobile versions of TV shows. The Virgin Media mobile portal will include 4oD content and made-for-mobile channels for MTV, Nickelodeon and Comedy Central. The service allows those customers eligible for access to the PC-based Virgin Media Player beta which are also Virgin Mobile pay-monthly customers to access one hour of mobile content per day for no charge; for dual play Virgin Media customers serviced by another mobile network, access for one hour costs £1. Users can pay for extend their access; up to £1.75 for a further 60 minutes within a 24 hour period. The mobile portal will be accessed via a 3G connection at launch, though Virgin is working on enabling Wi-Fi access.

Both the PC and mobile services will be powered by On Demand Group (ODG), which already provides Virgin Media's TV VoD service. Pre-roll ad inventory will be sold by Virgin Media's in-house IDS team, with revenue shared between Virgin and content provider partners.

Virgin Media Player is not the first online service the pay TV operator has launched - in April 2010 it began offering movie streaming on a digital rental basis in partnership with FilmFlex. At present it appears transactional service Virgin Media Online Movies will remain distinct from the ODG-powered Virgin Media Player service.

Analysis
Virgin Media's PC-based service is the latest in a growing line of efforts by pay TV operators to extend their core business online by making on-demand content available online as value-add for subscribers. It is not yet clear precisely what content Virgin Media Player will offer but the pay TV operator has indicated that the catch-up content from the major broadcasters that drives online TV consumption is not going to feature. Its deal with ITV only extends to archive TV shows, which means the catch up content that drives online TV consumption will not be available. Virgin Media's pay TV service carries content from the broadcaster's catch-up service ITV Player, as well as BBC iPlayer and 4oD, but these deals will not extend to the PC-based service. According to Virgin, the service will focus on providing less recent shows from the other channels on its pay TV platform.

The content offering in the initial iteration of Virgin Media Player looks inferior when compared with that of UK incumbent BSkyB: Sky Player not only offers on-demand movies and sports content in addition to a range of US TV shows on a catch-up basis, it also enables subscribers to simulcast its flagship linear channels including Sky Sports. In addition, Sky has extended the reach of the service beyond the PC by making it available via connected living room devices such as the Xbox 360. This has helped Sky market its over-the-top (OTT) service not only as a multiroom proposition for existing customers but also as a standalone subscription - without the contract and dish installation required for its satellite TV packages - driving incremental growth in its customer base.

The mobile piece of Virgin's proposition is also less expansive than Sky's equivalent. The Sky Mobile TV app for the iPhone, iPod Touch and iPad offers simulcasting of several Sky channels, enabling users to access its premium live sports content, and is available to non-Sky customers as well as its existing subscriber base on a paid and bundled subscription basis (costing £6 a month on the iPhone and iPad Touch, and £35 on the iPad, but free for customers with Sky Sports 1 and 2 until end 2010). Sky's mobile services are not limited to Apple devices; it also offers various mobile TV packages with entertainment and music content - including MTV - accessible through a range of devices across most UK mobile operators with the exception of O2 and T-Mobile. While Sky has always considered mobile TV as a standalone business, Virgin simply uses it to complement its existing offerings and differentiate in the mobile market. As a 'virtual' network operator - using someone else's network - Virgin enjoys smaller margins than other operators and therefore hasn't got the same incentive to push mobile data consumption. On the contrary, high usage of its mobile TV service could become very costly to the company, which partly explains why Virgin is constraining access to the mobile version of its player to its customers.

Sports and news have undoubtedly been a major driver of mobile TV usage and Sky has been very active in that area from the start. However, the increasing popularity of touch-screen smartphones with advanced video playback capabilities has sparked demand for long-form video content on mobile, and especially catch-up services like BBC iPlayer. With 4oD, Virgin is the first operator in the UK to bring a catch-up service - other than the iPlayer - to mobile. Nevertheless, Screen Digest is not convinced that it will be enough to offset Virgin's current decline in mobile subscriptions - 5% year-on-year in Q2 2010 - as the proportion of smartphones across its mobile subscriber base is still relatively small and only one third of its customers - approximately 1.1m - are on monthly contracts.

Virgin will not be able to compete with Sky's online and mobile offers unless it expands the current proposition and enables access beyond PC and mobile handsets. The company has indicated it may incorporate the service into the new set-top box that it is developing with TiVo, a proposition that will also include an app platform similar to TiVo Premiere in the US which features third party online video services such as YouTube and Netflix. Not surprisingly, Virgin is keen to roll this out before end 2010, ahead of Project Canvas, the hybrid DTT/OTT platform - backed by the BBC, ITV, Channel 4, BT, TalkTalk and Arqiva - which is now expected to launch in mid-2011. Canvas will integrate the FTA broadcasters' catch-up services alongside a Freeview EPG as well as provide an open platform for other OTT services. It has been heavily criticized by both Virgin Media and Sky for its potential to distort the pay TV market but arguably poses a greater threat to Virgin's business than it does to Sky's with the satellite operator's much stronger portfolio of rights. Virgin recently stepped up its opposition to Canvas, submitting a formal complaint to Ofcom urging it declare Canvas anti-competitive. However, Canvas might also offer Virgin Media an opportunity to gain some ground on the incumbent, either in the form of a carriage deal for an expanded version of the Virgin Media Player or a Virgin-branded Canvas service like those BT and TalkTalk intend to provide, which would allow it to offer TV services beyond the footprint of its cable network. According to the company's Q2 2010 results, Virgin had 3.7m TV subscribers at the end of the quarter (see below), some way behind Sky which has more than 9m customers.