Virgin Media 2006 Annual Report Download - page 66

Virgin Media TV has recently signed a new two year carriage contract with BSkyB for the carriage of its channels which runs
from January 1, 2007. As a result subscription revenue is expected to be approximately £30 million lower in 2007 than in 2006. A cost
reduction plan is in place to address some of this shortfall, but nevertheless 2007 Content segment OCF is expected to be significantly
affected.
Years ended December 31, 2005 and 2004
Revenue
For the year ended December 31, 2005, consolidated revenue decreased by 2.6% to £1,947.6 million from £2,000.3 million for
2004. Our revenue by customer type for the years ended December 31, 2005 and 2004 was as follows (in millions):
Year ended
December 31,
2005 2004 Increase (decrease)
Revenues:
Consumer £ 1,520.0 £ 1,507.3 0.8%
Business 427.6 493.0 (13.3)%
Total revenues £ 1,947.6 £ 2,000.3 (2.6)%
Consumer: For the year ended December 31, 2005, revenue from residential customers increased by 0.8% to £1,520.0 million
from £1,507.3 million for 2004. This increase was driven largely by growth in the number of broadband internet subscribers as well as
the inclusion of additional revenue of £48.5 million from our subsidiary Virgin Net Limited following its acquisition in
November 2004. These increases were offset by lower telephony usage revenue as a result of a decline in the volume of minutes
generated per customer and competitive pressure on pricing and higher promotional discounts as well as lower TV revenue due to
lower ATV subscribers and lower premium channel revenue.
Business: For the year ended December 31, 2005, revenue from business customers decreased by 13.3% to £427.6 million from
£493.0 million during the same period in 2004. This decrease reflected the loss of £44.1 million of wholesale revenue from Virgin Net
Limited, which ceased to be a third party business customer as a consequence of its acquisition by us in November 2004, together with
the conclusion of two wholesale customer contracts. Lower telephony access and usage revenues were offset by growth in install, data
product and project revenue.
Expenses
Operating Costs. For the year ended December 31, 2005, operating costs, including network expenses, decreased by 2.3% to
£808.3 million from £827.7 million during the same period in 2004. Operating costs as a percentage of revenue increased slightly to
41.5% for the year ended December 31, 2005, from 41.4% for the same period in 2004 primarily because of a reduction in telephony
interconnect costs driven by lower usage on low margin call types and lower television content costs offset by the impact of more
installs in pre−wired homes where the cost to install was expensed and an increase in costs associated with network repair and
maintenance.
Selling, general and administrative expenses. For the year ended December 31, 2005, selling, general and administrative
expenses decreased by 3.8% to £483.0 million from £502.2 million for the same period in 2004. Selling, general and administrative
expenses as a percentage of revenue decreased to 24.8% for the year ended December 31, 2005, from 25.1% for the same period in
2004. Lower employee costs following the involuntary employee terminations at the end of 2004, maintenance costs savings through
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Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007