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Another CEO leaves Virgin

Stephen Birch the third chairman to leave abruptly

LONDON — Whoever takes over as the new chief executive of beleaguered British cable combo Virgin Media faces a truly awesome challenge.

A little over 18 months ago, when Steve Burch — a U.S. cable veteran — was hired to take charge of what was then NTL, company chairman Jim Mooney described him as a hands-on exec who could bring “gold-standard practices” to Blighty’s moribund cable industry.

Virgin Media was launched in February following NTL’s merger with Telewest and the purchase of Virgin Mobile.

Unfortunately Burch, who quit Virgin Media Aug. 21 citing “family and personal reasons,” found out the hard way that making a success of U.K. cable was a lot tougher than his U.S. experience at Comcast had led him to believe.

Burch is the third CEO of the former NTL to leave suddenly — and he may not be the last.

“The U.K. market is at a different stage of evolution to either the U.S. or the rest of Europe,” says Janet Goldsmith, joint managing director of consultancy Mediatique. “Sky is so powerful that anybody coming in to take them on has to be very sure of what they’re doing and have deep pockets.”

Mooney and Burch had counted on the strong brand image of Virgin, the iconic U.K. company founded by maverick Brit entrepreneur Richard Branson, to give BSkyB a run for its money.

The idea was to tempt Brits with a so-called “quad-play” proposition, offering pay TV, broadband, mobile and fixed telephony in one package.

But despite getting off to a good start by successfully integrating NTL and Telewest, and improving customer service, things began to unspool for Burch within weeks of the Virgin Media launch.

“It’s been one thing after another after another,” says an industry veteran. “Instead of getting their heads down, Virgin Media has been mismanaged.

“The situation isn’t beyond repair, but they wasted the opportunity that the relaunch gave them.”

Rumors about Burch’s position had been rife for months, as reports of tensions with U.S.-based Mooney surfaced (Virgin’s stock is traded on the Nasdaq).

An early problem was a highly public row with BSkyB when talks broke down over carriage fees for a package of Sky channels. This cost Virgin Media 40,000 subscribers in the second quarter.

Earlier, BSkyB had destroyed NTL’s attempt to buy ITV, Blighty’s biggest private terrestrial broadcaster, by taking a 17.9% stake in the company.

But the Rupert Murdoch-backed satcaster wasn’t Burch’s only problem. U.K. mobile phone retailer Carphone Warehouse had entered the U.K. broadband market offering a free service for customers prepared to sign up for long-term deals.

Says Claire Enders of Enders Analysis: “The arrival of Carphone and Sky would have been a challenge to any manager, particularly a manager coming in from the U.S.”

Figures published earlier in August made depressing reading for Burch and Mooney as Virgin Media lost market share in every area.

And only 125,000 of its 4.7 million subscribers (BSkyB has 8.5 million) had agreed to take the much-hyped high margin “quad-play” package.

Adds Enders: “There have been six successive quarters of decline. It should improve in

the fall, but we don’t know what Sky and Carphone Warehouse will unleash in terms of marketing.” On the other hand, Enders says: “Virgin

Media is not in crisis or in a rapid downward spiral, because it is very hard to switch out of cable.”

To complicate matters, the company, valued at $23 billion, is officially for sale, but the auction that had attracted considerable interest from U.S. private equity groups, including Carlyle, has stalled due to the global credit crunch.

A spokeswoman insists the sale will go ahead, but no one knows when.

“That sale will happen, but I wouldn’t like to put a date on it,” Goldsmith says.

Meanwhile chief operating officer Neil Berkett, a well-liked Antipodean, has taken over as acting CEO.

Headhunters have been hired to find a permanent successor to Burch, according to Virgin Media, but it remains to be seen who is brave enough to take on the job.

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