Virgin Media 2011 Annual Report Download - page 27

particularly Sir Richard Branson who is closely associated with the brand, or in relation to another Virgin name
licensee could have a material adverse effect on our business. Similarly, any negative publicity generated by or
associated with the Virgin Group or any other licensee of the “Virgin” name and logo (particularly in the U.K.
where we do business) could have a material adverse effect on our reputation, business and results of operations.
Our inability to obtain popular programming or to obtain it at a reasonable cost could potentially have a
material adverse effect on the number of customers or reduce margins.
We enter into agreements for the provision of television programs and channels distributed via our
entertainment service with program providers, such as public and commercial broadcasters, or providers of pay
or on demand television. We have historically obtained a significant amount of our premium programming and
some of our basic programming and pay per view sporting events from BSkyB. BSkyB is also one of our main
competitors in the television services business. BSkyB is a leading supplier of programming to pay television
platforms in the U.K. and is the exclusive supplier of some programming, including its Sky Sports channels and
Sky Movies channels, which are the most popular premium subscription sports and film channels available in the
U.K.
In 2010, Ofcom imposed new license conditions on BSkyB that provide for a WMO obligation on Sky that
regulate (or set a fair, reasonable and non-discriminatory requirement for) the price and terms of supply of certain
of BSkyB’s Sports Channels. While BSkyB and others have appealed the imposition of these license conditions,
we and others have appealed that the intervention did not go far enough and we are seeking to overturn it. See
“Our Business—Regulatory Matters—Regulation of Television Services.”
We now buy BSkyB wholesale premium content on the basis of carriage agreements entered into on June 4,
2010, which provide for the wholesale distribution of BSkyB’s basic channels and its premium sports and movies
channels on our cable TV service. This agreement expires on June 30, 2013, after which we will have to
negotiate a new agreement for the supply of BSkyB premium sports and movie channels. However, for SD we
are still exposed to BSkyB changing the ratecard terms of supply on 60 days’ notice, and to wholesale price
changes for Sky Sports 1 and 2 which can occur under Ofcom’s price regulation mechanism following changes to
BSkyB’s own retail prices. We are also exposed to BSkyB offering HD versions of its channels exclusively to its
digital satellite customers and not to us. Moreover, the launch of Sky Atlantic exclusively to its own retail
customers on the satellite platform is an example of the ongoing risk of Sky migrating attractive basic content to
new channels that it is not contractually obliged to supply to us and then withholding supply or setting
uneconomic terms for supply.
Other significant programming suppliers include the BBC, ITV, Channel 4, UKTV, Five, Viacom Inc.,
ESPN, Discovery Communications Inc. and Turner, a division of Time Warner Inc. Our dependence on these
suppliers for television programming could have a material adverse effect on our ability to provide attractive
programming at a reasonable cost. Any loss of programs could negatively affect the quality and variety of the
programming delivered to our customers. In addition, there is the risk that suppliers will become exclusive
providers to other platforms, including BSkyB, which reduces our ability to offer the same or similar content to
our customers. All of these factors could have a material adverse effect on our business and increase customer
churn.
Virgin Mobile relies on Everything Everywhere’s network to carry its communications traffic.
Our services to mobile customers rely on our agreement with Everything Everywhere for voice, non-voice
and other telecommunications services and for ancillary services such as pre-pay account management. If the
agreement with Everything Everywhere is terminated, or if Everything Everywhere fails to provide the services
required under the agreement, or if Everything Everywhere fails to deploy and maintain its network, and we are
unable to find a replacement network operator on a timely and commercial basis (if at all), we could be prevented
from carrying on our mobile business. If we find a replacement network operator, we may only be able to carry
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