VirginMedia’s Hangover from the Last Downturn
Yesterday VirginMedia announced it would cut 2200 jobs, 15% of its workforce, to take effect around the end of 2009.
On the radio, I heard this reported as being a result of the current downturn in the UK (in the third quarter the UK experienced negative growth). But VirginMedia’s reasoning is not the result of a change in consumer spending.
The problem VirginMedia face is that they have been carrying billions in debt generated during the rapid expansion of cable networks in the UK during the 90s.
Over the last few years, the level of market competition that VirginMedia has faced has limited VirginMedia’s ability to generate significant enough revenues to retrieve their position. The vaunted multi-play that has been at the core of VirginMedia’s strategy has resulted in a war on multiple fronts: in TV against Freeview and Sky; broadband versus Carphone Warehouse, BT, Orange, Sky, Tiscali; and home phone against Carphone, BT, and numerous others.
VirginMedia’s announcement was a hangover from last time’s problems, combined now with the greater difficulty in raising capital and sustaining existing debts caused by the credit crunch. Effects of changes in consumer spending will take longer to come through. There may be more pain to come.
Read related research on the economic downturn from us. More will follow soon.