Virgin Media 2009 Annual Report Download - page 49

Pricing. Competition in the U.K. business telecommunications market continues to be based on
value for money, the key components of which are quality, reliability and price. Particularly, in the
current challenging economic conditions, price is becoming an increasingly important factor. Certain of
BT’s product pricing is regulated by the U.K. Office of Communications; however, in respect of non
regulated product pricing, the market is increasingly price sensitive.
Operational Effectiveness. Because of the extensive use of optical fiber in our access networks, we
are also able to provide high-speed ethernet services directly to business customers and provide
nationwide area networking to these customers via our core networks. Business customers require
timely installation services and our ability to meet required timescales and commence providing services
may impact our revenues. We regularly rely on third-party suppliers to connect business customers and
we have a variety of alternative methods to connect our national telecommunications network to the
premises of business customers that are located outside of our cabled areas.
Content Segment
Factors particularly affecting our Content segment include competition, the number of buyers for
our television channels across limited distribution platforms, our access to content, seasonality and
advertising revenue.
Competition. Our television channels compete with other broadcasters for advertising revenues,
subscription revenues and programming rights. IDS, our advertising sales department, competes with
advertising sales operations representing other television broadcasters. The level of this competition is
increasing as the advertising sales market consolidates and is higher in a poor macroeconomic climate.
Limited Number of Buyers and Distribution Platforms. All of our channels are carried on our cable
platform and on the satellite platform owned by BSkyB. A few of our channels are also carried on the
free-to-air digital terrestrial television platform known as Freeview. Therefore, the principal third-party
buyer of programming services from our television channels is BSkyB. Other than BSkyB, there are no
significant buyers of our programming services.
Access to Content. Most of the television content on the Virgin Media TV channels is purchased,
mainly from the U.S., and because there is a limited supply of content available and an increasing
number of digital channels in the U.K., Virgin Media TV has experienced and may continue to
experience an increase in the cost of its imported programming. Exchange rate movements have also
resulted in increased programming costs and may continue to do so.
Seasonality. Our Content segment incurs increased costs in the fourth quarter of each year due to
the need to provide enhanced programming over the important Christmas holiday period.
Advertising Revenue. The majority of revenue for Virgin Media TV is from advertisers.
Consequently, Virgin Media TV’s revenue is directly affected by changes in the total spend on
television advertising in the U.K., including changes related to a sustained economic downturn, the
viewing levels for its channels and the proportion of the U.K. advertising market represented by IDS.
Critical Accounting Policies
Our consolidated financial statements and related financial information are based on the
application of U.S. generally accepted accounting principles, or GAAP. GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations of accounting principles that have an
impact on the assets, liabilities, revenue and expense amounts reported, as well as disclosures about
contingencies, risk and financial condition. The following critical accounting policies have the potential
to have a significant impact on our financial statements. An impact could occur because of the
significance of the financial statement item to which these policies relate, or because these policies
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