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We upgrade our recommendation on Liberty Global plc. (LBTYA - Analyst Report) to Neutral following its recent acquisition of Virgin Media. The acquisition has positioned the company as the largest pay-TV operator globally. Liberty Global currently has a Zacks Rank #3 (Hold).

Why the Upgrade?

On Jun 2013, Liberty Global completed the acquisition of British cable MSO Virgin Media. Together, Liberty Global and Virgin Media had approximately 24.5 million subscribers at the end of the second quarter of 2013. In the U.K., the merged entity poses serious competitive threat to British Sky Broadcasting Group plc. and BT Group plc. (BT - Snapshot Report).

Recently, Virgin Media decided to offer the video-subscription service of the online video streaming service provider, Netflix Inc. (NFLX - Analyst Report). With this, for the first time in the global pay-TV industry, web-based service will be integrated into cable system. Initially, Virgin Media will test run the Netflix service with its 40,000 subscribers who use the company’s next-generation set-top boxes developed by TiVo Inc. (TIVO - Analyst Report).

At the end of the second quarter of 2013, the company had over 1.7 million video subscribers who use TiVo developed set-top boxes. This new converged digital TV platform provides improved graphics, on-demand video content, catch-up TV service, and web-based applications including games and personal video recorder. The set-top box integrates the Internet and live TV on one screen through fiber-optic cable.

Liberty Global has launched a hybrid IP video gateway called “Horizon TV” in Netherlands and Switzerland. This innovative IP gateway will combine cable operators’ video services with web-based content through an integrated cable modem. This modem includes an open software developer platform and application store.

Further, customers can view TV programs on multiple screens such as PCs, iPhones and iPads. Horizon TV also features an in-build application store for YouTube, Wikipedia and Facebook. This service will be introduced in Germany and Ireland by the end of this year.

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