Customers lose out in media row

By Torin Douglas Media correspondent, BBC News

It was all smiles at Virgin Media's London launch last month

Pity the poor Virgin Media customer, caught in the middle of a war of words between Virgin and BSkyB.

The deadline has passed and three million homes no longer have access to Sky's basic channels, including Sky One - which shows high-value series such as 24, Lost and Nip/Tuck - and Sky News.

Both sides continue to blame the other.

Sky was first to issue a statement, shortly after midnight, saying: "Virgin Media has withdrawn Sky's basic channels from its television customers following the expiry of the agreement between the two companies."

"We're disappointed that we will now be denied access to cable TV homes," said a spokesman.

"We've made repeated efforts to reach an agreement but Virgin Media has rejected all of our proposals - including our latest offer of just 3p per customer per day."

The headline on Virgin's statement said the exact opposite: "Sky rejects all Virgin Media efforts to find a solution and withdraws its basic channels.

"Sky had demanded that the fees for these channels be nearly doubled, despite the fact that the popularity of their basic channels has declined by 20% in the last three years."

HAVE YOUR SAY Perhaps Mr Murdoch and Mr Branson could remember the 'little people' Bronagh Miskelly, London Send us your comments

Fees nearly doubled or an offer of 3p a day. Can both statements be right? Frankly, Virgin Media customers don't care.

They're the victims in an increasingly heated battle between two large and high-profile companies in a rapidly changing TV and telecommunications landscape.

Long-suffering

Though it is no longer presented that way, this is a battle between cable and satellite.

Virgin Media is the new name for what used to be the two big cable companies, NTL and Telewest.

Virgin Media customers have been hit by this latest dispute

It's easy to forget this because the company's glitzy new marketing campaign barely mentions cable - and with good reason.

Over the years, cable customers have suffered from poor service - summed up in the huge number of complaints to a website called "NTHell" - and poor value.

Cable companies were more concerned with digging up the ground than ensuring their customers received the potential benefits that cable's "big pipe into the home" could bring.

Sky's customer service, by contrast, was very good - and it provided many of the channels that cable customers wanted to watch.

It also played hard-ball in negotiations - about which the cable companies constantly complained - and emerged the clear winner.

Last year, in the final moves of the cable industry's consolidation, NTL took over Telewest and did a deal with Sir Richard Branson's Virgin mobile phone company.

The merged group was to be rebranded as Virgin Media, offering customers what it calls the "quadruple play" - telephone, broadband, television and mobile phones.

This was a bold move and gave cable its last chance to mount a serious challenge to BSkyB's dominance.

Almost ever since, the two groups have been embroiled in a highly public and escalating dispute.

'Reckless and cynical'

It began last November, before the merger took effect, when NTL (with Virgin) announced an ambition to take over the struggling ITV.

ITV rejected the proposal but, to everyone's surprise, Sky leapt in.

Media tycoon Rupert Murdoch is Sky's main shareholder

It bought a 17.9% stake in ITV for almost £1bn, scuppering any chance NTL and Virgin might have had of mounting a serious takeover.

Sir Richard Branson accused Sky's main shareholder Rupert Murdoch of a "reckless and cynical attempt to stifle competition" and called on the government to intervene.

The Office of Fair Trading and Ofcom both began investigations - but Sky insisted that the deal was well within the 20% it was permitted to hold.

It also said it did not want a seat on the board and that it was "inconceivable" it could have any influence over ITV's business.

Sky said it saw the stake simply as an investment, but seasoned Murdoch watchers said that was out of character.

Rupert Murdoch rarely holds an investment for long in a company he does not control.

Privately, some Sky executives have said they could not stand by and watch cable and ITV come together.

Since then the row has escalated.

Lost profits

Virgin accused Sky of bullying tactics in the negotiations over the price it wanted to charge Virgin to show its basic channels.

Sir Richard went public, announcing that Sky was unwilling to sell, which the satellite company flatly denied.

24 is one of the shows no longer available to Virgin customers

Sky accused Virgin of orchestrating a PR campaign against the interests of its customers, and in the days up to the deadline week there was claim and counter claim.

The deadline passed on Wednesday without agreement. If this remains the case, both sides will be damaged.

Virgin has lost some of its most popular programming and could lose many customers if they switch as a result.

Sky has lost three million customers for its Sky One, Sky Two, Sky Three and Sky News channels - which could cost it up to £60m a year in lost profits.

To add to the furore, this week Trade Secretary Alastair Darling asked Ofcom to look into the public interest implications of Sky's purchase of its stake in ITV - a move that many saw as a direct result of the Branson PR campaign.

This one will run and run.