Virgin Media has admitted that it cannot compete with BSkyB in premium pay-TV and is instead planning to attract customers with updated broadband services.
Acting chief executive Neil Berkett, widely tipped to retain the top job, hopes to take advantage of the faster speeds possible over the cable network to differentiate the business from rivals such as Sky and Carphone Warehouse.
He wants to move the focus away from TV and onto more mass-market households who do not need Sky's sports and movie channels but do want more than basic Freeview digital TV. Virgin Media reckons these households can be tempted with services such as video on demand that require fast broadband.
"Despite our technical advantage we are still not really standing out from the crowd," admitted Mr Berkett. "I really do want to re-focus our energies onto the broadband platform."
Virgin Media saw about 40,000 subscribers defect when Sky pulled its basic channels from the service in the spring but since then people have left blaming poor service. The company has finally consolidated all its legacy billing systems, which should fix some of these issues.
Mr Berkett believes rivals such as TalkTalk from Carphone Warehouse have turned basic broadband access into a commodity and "there is a rebalancing to be done" in the industry.
Virgin Media is testing broadband speeds of up to 50 megabits per second - or twice the fastest speed possible over the BT lines that the rest of the industry relies upon. But as yet there are few services which need such fast speeds, which is why Virgin will be launching some of its own next year, such as high-definition video on demand, household applications including home surveillance and possibly on-line video gaming.
The company has already launched video on demand, which has been used by almost half its over 3 million digital TV customers, and is working with the BBC to make its iPlayer video-on-demand platform accessible directly through the Virgin Media cable platform making BBC shows easy and fast to download.
Virgin Media has hired an executive search firm to replace chief executive Steve Burch but the plain-speaking and pragmatic New Zealand-born Mr Berkett is increasingly seen as the obvious candidate for the job. Mr Berkett is in no doubt that the most important task facing Virgin Media is to stop its customers defecting to rival providers.
Ofcom is investigating the pay-TV market, after submissions from Virgin, BT and the digital pay-TV operators Setanta and Top-Up TV, with a view to a possible Competition Commission inquiry. While the regulator decides what to do about the might of Sky, Virgin Media is hoping to attract those dipping their toes into digital TV through the Freeview service.
"Think of Freeview as a nursery and you have millions of kindergarten kids who once they have got the taste for multi-channel TV may upgrade an element of the service."
