Flicks Not Mortar

As I was driving into London the other day, I was bemused to find the bearded shagger, Richard Branson, taking over the airwaves of my favourite radio show. Try as I might to avoid his grinning entrepreneurialism, it seems impossible. Branson’s efforts to promote himself and his Virgin-branded businesses knows no end. When Branson is not attempting to break world records, he is making near-subliminal cameos in movies like Bond prequel Casino Royale. This time he was promoting a new UK television channel, Virgin One, whilst fending off questions about the decision to sell his high street retail chain, Virgin Megastores. Virgin One, like V+ and other Virgin offerings, has a strangely familiar name. Which is not surprising as Virgin Media’s current strategy seems to be to copy their Murdoch-owned rivals, Sky. Branson talked up the ‘irreverent’ schedule of his new channel, which consists of a lot of cheap comedy shows imported from the US plus one UK-made documentary, dedicated to the edifying topic of the penis. His salesmanship could not disguise that this is a hurried attempt to fill the gap created when Virgin could not afford Sky’s demands for more money for their channel, Sky One. That badly hurt Virgin, leading many of their cable subscribers to churn to the Sky’s satellite service. Sky has more than double the number of subscribers of Virgin, and with BT entering the home television market, Virgin Media is under severe pressure to generate returns that justify the optimism shown in the refinancing and rebranding of the troubled UK cable sector.

Viewer numbers are vital to both Sky and Virgin, not just because of current advertising and subscription revenues, but for the future profitability of both businesses. As television converges with the internet, viewers will stop being passive spectators and will become interactive consumers. Whilst watching television they will be given the option to download the theme music to their favourite show, to find out who sells the clothes the actors are wearing, and to book a test drive in the Aston Martin car that James Bond drives. That is why Sky+ and V+ are important; link these hard drives to a set-top box and you guarantee that every viewer has the computing power necessary for fully interactive services, whilst retaining full control over the options presented. This is also behind Branson’s decision to sell Virgin Megastores to its management team. The first Virgin business, established in 1969, sold records by mail order. Soon after Branson opened a record shop on London’s Oxford Street. That shop generated the profits that funded the Virgin music label, and started the ceaseless chain of Virgin enterprises ever since. Records are a physical and tangible way to distribute music. When Branson started selling records he was able to undercut his rivals and hence gain an advantage. Now his on-line rivals can undercut him, by eliminating the need to handle, store and maintain physical stock, by avoiding the need to pay for premises on high streets and in shopping malls, and the salaries of staff working inside them. A clicks-and-mortar strategy is no good to Virgin because on-line sales are so much cheaper and so much more attractive to customers than old-fashioned shops. The decline of these shops is inevitable. The Virgin strategy is flicks-not-mortar. Flick through a wide range of television shows, user-generated content and interactive entertainment, click up a screen to purchase music, other downloads and even physical goods, and never leave the comfort of home (unless you are browsing on your mobile phone). Selling the Virgin Megastores may seem to end nearly 40 years of Branson the music retailer, but in reality is just the next chapter of Branson, the king of irreverent discounting.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.