Virgin Media 2007 Annual Report Download - page 36

Revenue from our Content segment is highly dependent on subscriber fees and the television advertising
market.
Our Content segment owns pay channels through Virgin Media TV and our joint ventures with the
BBC and derives its revenue from subscriber fees and advertising revenue. BSkyB, our main
competitor, is our largest customer for our programming and in early 2007 used its dominant position
in pay television to substantially reduce the fees it pays for our Virgin Media TV channels. As we are
dependent upon carriage of our programming in order to attract advertising revenue, BSkyB has
considerable power to renegotiate the fees that we charge for our programs. In addition, the TV
advertising market has faced steady declines over the last few years. Our failure to generate sufficient
subscriber fees or advertising revenue will cause our Content segment revenue and cash flow to decline.
Regulation of the markets in which we provide our services has been changing rapidly; unpredictable changes
in U.K. and EU regulations affecting the conduct of our business, including price regulations, may have an
adverse impact on our ability to set prices, enter new markets or control our costs.
Our principal business activities have historically been regulated and supervised by various
governmental bodies in the U.K. and by the regulatory initiatives of the European Commission.
Regulatory changes have recently occurred, and may in the future occur, at the U.K. or EU level with
respect to licensing requirements, price regulation, environmental regulation, accounting practices,
interconnection arrangements, mobile termination rates, roaming regulation, number portability, carrier
pre-selection, the ability to provide digital services, ownership of media companies, programming, local
loop unbundling, data protection, the provision of open access by U.K. cable operators to other
telecommunications operators, the adoption of uniform digital technology standards or the bundling of
services. Regulatory changes relating to our activities and those of our competitors, such as changes
relating to third party access to cable networks, the costs of interconnection with other networks or the
prices of competing products and services, could adversely affect our ability to set prices, enter new
markets or control costs.
In addition, our business and the industry in which we operate are also at times being reviewed or
investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion
of private litigation claims and damages. Any such action could harm our reputation and result in
increased costs to the business.
We are subject to tax in more than one tax jurisdiction and our structure poses various tax risks.
We are subject to taxation in the U.S. and the U.K. Our effective tax rate and tax liability will be
affected by a number of factors in addition to our operating results, including the amount of taxable
income in particular jurisdictions, the tax rates in those jurisdictions, tax treaties between jurisdictions,
the manner in which and extent to which we transfer funds to and repatriate funds from our
subsidiaries, accounting standards and changes in accounting standards, and future changes in the law.
Because we operate in more than one tax jurisdiction and may therefore incur losses in one jurisdiction
that cannot be offset against income earned in a different jurisdiction, we may pay income taxes in one
jurisdiction for a particular period even though on an overall basis we incur a net loss for that period.
We have a U.S. holding company structure in which substantially all of our operations are
conducted in U.K. subsidiaries that are owned by one or more members of a U.S. holding company
group. As a result, although we do not expect to have current U.K. tax liabilities on our operating
earnings for at least the medium term, our operations may give rise to U.S. tax on ‘‘Subpart F’’ income
generated by our U.K. subsidiaries, or on repatriations of cash from our U.K. operating subsidiaries to
the U.S. holding company group. While we believe that we have substantial U.S. tax basis in some of
our U.K. subsidiaries which may be available to avoid or reduce U.S. tax on repatriation of cash from
our U.K. subsidiaries, there can be no assurance that the Internal Revenue Service, or IRS, will not
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