Make or break for Branson?

The Virgin brand is experiencing some uncharacteristic ups and downs. On the one hand things are looking rosy in the planes and games fields but, on the other, the trains and broadband businesses are facing a murkier, uncertain future. David Benady and Catherine Turner report

Branson%20Virgin%20120Events at Virgin Group are zipping along faster than a high-speed Pendolino train. The Virgin brand’s rapidly transforming involvement in games, planes, trains and communications over the past fortnight is leaving observers agasp.

In the past week it has emerged that Virgin chairman Sir Richard Branson is considering a plan to buy Singapore Airlines’ 49% stake in Virgin Atlantic. He may even launch a stock market flotation of the airline once it is under his control. Travel analysts wonder whether this is part of some clever masterplan, or follows Singapore’s indication that it wants to sell its stake.

The news comes a fortnight after a bidder emerged to buy Virgin Media, which only launched in February. The company was formed last year from the merger of cable companies NTL and Telewest with Virgin Mobile. A complete exit of Virgin from the telephony, internet, television and mobile company is possible. And to top it all, Virgin Trains suffered a blow last week with the loss of the franchise for Cross Country rail, the UK’s most extensive train network.

On the positive side, though, Virgin could be boosted through Virgin Games’ 20% stake in Game Domain International. GDI is launching a rival to Second Life called A World of my Own and this week has announced plans to float in London and Frankfurt next year for €1bn (£680m).

Branson_SkySome observers wonder whether the latest news on divestments and investments by Branson signals a crisis for the Virgin brand. Others believe it is just another chapter in the unfolding saga of the world’s most mercurial marketing venture.

Once a fighter, always a fighter
Even so, an exit from Virgin Media could prove risky in brand terms. After all, it is not like Virgin to walk away from a fight. It was Branson who sparked all-out television warfare with BSkyB in March when he refused to pay a 50% hike in charges to show Sky channels, leaving Virgin’s 5 million cable television customers bereft of Sky One and some of their favourite shows. Branson portrayed this as Virgin standing up to a bully on behalf of hard-pressed cable customers.

But now Virgin Media is up for sale. It has received an offer proposal from private equity firm Carlyle Group valuing the business at $23bn (£11.4bn) including debt. It is understood a consortium led by Providence is also interested in bidding.

If Branson were to bail out of Virgin Media just weeks after getting into a fight with Sky, this could damage Virgin’s reputation as the scourge of dominant interests, according to Futurebrand development director Adrian Goldthorpe. He says Virgin is successful when it enters markets acting as David taking on a powerful Goliath on behalf of the little guy. “The danger is if he walks away publicly it will be a bitter pill to swallow for consumers,” adds Goldthorpe. “Walking away wholesale and Virgin Media being rebranded would definitely be a disaster. It would be an admission the brand had lost the stomach for a fight.”

However, Virgin Group’s director of brand development and corporate affairs, Will Whitehorn says until Virgin Media has published a report into the sale options, no decisions will be taken: “Virgin Media is being bought out by private equity. We have a 10% stake, but whether we sell the stake is another question. The indication is we would stay in rather than leave, or even increase our stake. There is no indication of axing the name. They [Carlyle] can’t do it under the terms of the brand licence for ten years anyway.”

A downward spiral?
Some observers portray recent events as a run of bad news that is symptomatic of a wider malaise afflicting Virgin. In short, they say, Virgin has lost its mojo. Apart from problems in trains and media, it has failed to shine online and the Virgin brand’s audience profile is ageing with every line that appears on Branson’s 57-year-old face. A rival paints Sir Richard as increasingly out of touch, “like a drunken uncle at a wedding”.

Another source says the marketing launch of Virgin Media was “totally fluffed”. Ads featuring Uma Thurman have been replaced with Ruby Wax executions (MW May 10). The sponsorship of Channel 4’s Big Brother was misjudged, some believe, as Virgin Media is aimed at mature families, rather than teenage BB fans. “Virgin normally enters the market with something new and challenging to offer,” says one observer. “Certainly the marketing made Virgin Media look average.”

Sky’s group communications and brand marketing director Matthew Anderson adds: “Management was obsessed with demonising Sky. The whole fight with Sky is completely misguided, it is about contriving a David and Goliath battle.”

But Whitehorn is confident that Virgin Media has been a success and he thinks that the overall Virgin brand is as strong as ever. “From a consumer perception, the launch has been a success,” he says. “Cable television subscription is growing for the first time in six or seven years. It appears to be popular from the market research we have conducted.”

Singapore_AirlinesOther observers believe recent events show Branson to be as canny as ever. One analyst speculates that Branson is looking to raise money from the sale of Virgin Media to fund expansion in airlines. On this reading, cashing in his media chips would give him money to buy out Singapore Airlines’ 49% share in Virgin Atlantic, enabling him to exploit the Open Skies agreement by expanding routes to the US from European cities. Coupled with the group’s 25% stake in Virgin America and its Virgin Blue operation in Australia, there are opportunities to build a Virgin powerhouse in the sky.

Travel analyst Gert Zonneveld at Panmure Gordon thinks an acquisition or tie-up between Virgin Atlantic and UK short-haul airline BMI would make good sense: “If he tagged on BMI, it would be attractive. It adds 10% of slots at Heathrow and they could use the short haul network of BMI to feed into the network and create an interesting and strong product. That’s going to cost a lot of money. If he’s looking at putting additional equity in the business to make an acquisition like that, and if he is in sole control, it is easier to make such decisions.”

Meanwhile, the GDI flotation is interesting as it could help lift Virgin’s online interests, where the brand is considered to lag behind rivals. Wayne Arnold, chief executive at digital agency Profero, says Virgin has a disjointed online strategy. “Virgin Atlantic’s strategy is about current customers but it doesn’t look to find more online,” he adds. “That’s something that is done miles better by the low cost airlines or BA. If ever a brand should be embracing online, it’s the airline.”

He concedes that Virgin Money has done well online, but Virgin Media has not. “Virgin has done little digitally,” says Arnold. “The danger comes in acting like your parents. There is a danger that a brand like Virgin is turning into its dad.”

Over the coming months, the strengths of the Virgin brand are likely to be tested as never before. Virgin Trains is awaiting the outcome of its bid to run the East Coast rail franchise along with Stagecoach and GNER. Panmure Gordon’s Zonneveld expects the consortium to win.

But the developments at Virgin Media will provide the stiffest test of the brand’s strength. If it looks as if Branson is backing down from a fight with Sky, Virgin’s reputation for fighting off bullies could be dented.

Even so, if this gives Branson cash and time to boost the group’s airline interests, the sky could still be the limit for the Virgin brand.

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