Virgin Media 2012 Annual Report Download - page 24

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We are furthermore exposed to risks associated with the potential financial instability of our suppliers, some of whom
may have been adversely affected by the global economic downturn. If our suppliers were to discontinue certain
products, were unable to provide equipment to meet our specifications or interrupt the provision of equipment or
services to us, whether as a result of bankruptcy or otherwise, our business and profitability could be materially adversely
affected.
The “Virgin” brand is not under our control and the activities of the Virgin Group and other licensees could
have a material adverse effect on the goodwill of customers towards us as a licensee.
The “Virgin” brand is integral to our corporate identity. We are reliant on the general goodwill of consumers towards
the Virgin brand. Consequently, adverse publicity in relation to the Virgin Group or its principals, particularly Sir Richard
Branson who is closely associated with the brand, or in relation to another 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 appealed the imposition of these license conditions and sought to overturn it, we
and others appealed that the intervention did not go far enough. See Item 1 of this Form 10-K, "Business-Regulatory
Matters-Regulation of Television Services”. In August 2012, the Competition Appeal Tribunal issued its judgment,
overturning Ofcom's decision. BT has asked for permission to appeal the Competition Appeal Tribunal's judgment and
at the time of writing, BT's application is still being considered.
We currently purchase 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. However, for SD we are still exposed to BSkyB changing the ratecard terms of
supply on 60 days' notice and we are also exposed to BSkyB offering HD versions of its channels exclusively to its
digital satellite customers and not to us. Some of these agreements expire on June 30, 2013, after which we will have
to negotiate new arrangements for the supply of BSkyB premium sports and movie channels. In relation to basics, the
launch of Sky Atlantic exclusively to its own retail customers on the satellite platform is an example of the ongoing risk
of BSkyB offering new channels that it is not contractually obliged to supply to us.
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.
Our consumer mobile service relies on EE's network to carry its communications traffic.
Our services to mobile customers rely on our agreement with EE for voice, non-voice and other telecommunications
services and for ancillary services such as pre-pay account management. If the agreement with EE is terminated, or
if EE fails to provide the services required under the agreement, or if EE 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 continuing our mobile business. If we find a replacement network operator, we may only be able to carry on our
mobile business on less favorable terms. Additionally, migration of all or some of our customer base to any such
replacement network operator would be dependent in part on EE and could entail potential technical or commercial
risk.
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