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Virgin Media Inc. (VMED), a leading cable multi service operator (MSO) of the United Kingdom, is planning to offer video streaming as a service following its takeover by media conglomerate Liberty Global Inc. (LBTYA - Analyst Report). Currently, Virgin Media offers entertainment and communication services to the retail and enterprise customers.
Currently, higher adaptations of Internet service are restricting users from downloading large multimedia files and videos quickly. Streaming services resolve this issue as they display the images before the completion of the entire download. Internet users find it easier to view movies or live games via streaming, thus affecting the market share of cable MSOs.
In an attempt to take advantage of the current boom in the streaming service industry, Virgin Media wants to come up with its own streaming option. Virgin Media wants to add as much content as they can on the streaming platform to popularize the service among its customers. Offering this service will put the company in direct competition with low-cost streaming companies like Netflix Inc. (NFLX - Analyst Report), Amazon.com (AMZN - Analyst Report) and Hulu.
Last month, Liberty Global agreed to acquire Virgin Media for a total consideration of around $16 billion. The deal, once completed, will produce cost synergies of $180 million for Liberty Global, apart from helping the company to establish a strong foothold in the BSkyB dominated U.K. cable market.
BSkyB has 10.7 million subscribers, compared with Virgin Media's 4.9 million. Successful integration of Virgin Media with Liberty Global will create a dominant force in the highly lucrative U.K. pay-TV market and will allow it to compete better with streaming companies. We believe this is a strategic move by Virgin Media to retain its customers, who are switching to streaming companies to negate their high cable bills.
On the downside, however, providing streaming service from its own portfolio could dampen the future prospect of Virgin Media’s own cable business. As customers will be able to watch their favorite shows via streaming, they could eventually switch to a lower monthly cable plan, thus impacting the company’s topline.
Currently, Virgin Media carries a Zacks Rank #4 (Sell).
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