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VM Mega Volt bundle: how do they make money

GreenLantern22

ULTIMATE Member
I was just looking at the VM Mega Volt bundle and I was trying to figure out the cost of each individual service but I just can't see how they can make money off it. The VM Mega Volt bundle comes with:
  1. 500MB broadband
  2. O2 SIM with unlimited data
  3. 230+ TV channels including Sky Cinema HD and Sky Sports HD
  4. Netflix Standard
  5. Anytime chatter phone
  6. All for £85/month
So if I first remove the O2 SIM which is charged at £25/m that leaves £60. A weekend only phone costs £7 so let's take off £ 10 to allow for the anytime calls leaving £ 50. Netflix Standard costs £10.99 but let's say VM gets it for £ 10 so now I have £ 40 left. The price of the 500MB in the bundle is hard to estimate but I will allow £ 20 leaving £ 20 for all the TV channels. Now Sky themselves will charge £ 20 for Sky Sports, £ 11 for Cinema and £ 8 for HD (£39) but let's say Virgin gets it for £ 30 which leaves me in -£10. See where I am going? I know that a top bundle will seriously discount all services but I just don't see where VM does their margin.

And this is worst deal than the one they used to have where it was £79 for 1Gb broadband and it included BT Sports (now TNT Sports) which is now charged separately at £18.
 
I was just looking at the VM Mega Volt bundle and I was trying to figure out the cost of each individual service but I just can't see how they can make money off it. The VM Mega Volt bundle comes with:
  1. 500MB broadband
  2. O2 SIM with unlimited data
  3. 230+ TV channels including Sky Cinema HD and Sky Sports HD
  4. Netflix Standard
  5. Anytime chatter phone
  6. All for £85/month
So if I first remove the O2 SIM which is charged at £25/m that leaves £60. A weekend only phone costs £7 so let's take off £ 10 to allow for the anytime calls leaving £ 50. Netflix Standard costs £10.99 but let's say VM gets it for £ 10 so now I have £ 40 left. The price of the 500MB in the bundle is hard to estimate but I will allow £ 20 leaving £ 20 for all the TV channels. Now Sky themselves will charge £ 20 for Sky Sports, £ 11 for Cinema and £ 8 for HD (£39) but let's say Virgin gets it for £ 30 which leaves me in -£10. See where I am going? I know that a top bundle will seriously discount all services but I just don't see where VM does their margin.

And this is worst deal than the one they used to have where it was £79 for 1Gb broadband and it included BT Sports (now TNT Sports) which is now charged separately at £18.
Well, there is a big hole in the thinking here.
You're assuming for some reason that the pricing you quoted is the cost they incur to deliver that service.

I would argue that the financial effort to deliver all those services is much, much, much lower.

Off the o2 sim and broadband pricing I would say that only 10% or less is what actually costs to deliver the service, so let's say 90% of that is profit. I'd imagine this goes for areas where they have infra already and it would be slightly worse in newly built areas, until they recoup the investment.

The pricing they would get from Sky would be dramatically lower than what you quoted, because bulk and economies of scale.
Same for Netflix, I'd be surprised if they pay anything at all here or if they do it's just a couple of quid. As far as Netflix is concerned bundling Standard is a near-promotional tactic from which to get HD users.
 
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Well, there is a big hole in the thinking here.
You're assuming for some reason that the pricing you quoted is the cost they incur to deliver that service.

I would argue that the financial effort to deliver all those services is much, much, much lower.

Off the o2 sim and broadband pricing I would say that only 10% or less is what actually costs to deliver the service, so let's say 90% of that is profit. I'd imagine this goes for areas where they have infra already and it would be slightly worse in newly built areas, until they recoup the investment.

The pricing they would get from Sky would be dramatically lower than what you quoted, because bulk and economies of scale.
Same for Netflix, I'd be surprised if they pay anything at all here or if they do it's just a couple of quid. As far as Netflix is concerned bundling Standard is a near-promotional tactic from which to get HD users.
Fair enough but clearly the cost of delivering a service do not include any profit. On the other side neither Sky nor Netflix would want to cannibalise their services by giving it away too cheaply to resellers or otherwise people would use that avenue to get them. There's got to be profit for both content owner and reseller.

Finally I think the key metric here is not the cost of services by the ARPU (average revenue per user). For these prices to make sense the ARPU of the higher bundles must be higher than lower bundles therefore encouraging service providers to heavily discount their services since they make it up on the higher ARPU.
 
Oooh I can help here. I’m a cost accountant - normally for goods rather than services but the basics still apply.

Revenue and costs need to be considered.

As has been noted, you’re considering the revenue that each service brings individually, but the whole point of bundling stuff together is to give the perception of value and that the customer is saving money.

Also for something like this when you have only one contract with a customer, you either sell them a bundle or a single service, so there’s never really an opportunity to sell them each service at its maximum price - you can’t have 5 contracts with VM for each of the below.

Costs
Costs are really challenging to analyse, but for this kind of business there are large fixed costs in managing a network (mainly depreciation from the capital investment). Therefore these costs have already been incurred and the key now is maximising take up and therefore reducing the average cost per user. Also given the costs are linked to things like depreciation, the incremental cost between a slow and a fast service are relatively small. Upselling someone to a faster service can bring a greater profit margin.

For the TV and Netflix services, these elements likely form the real external cost to VM as it’s something they need to pay for each month. That’s visible in the poor value that things like sky sports often offer via VM. There is no incentive to offer those at a discount as it doesn’t really help VM’s profit.

So in short the higher profit margin for VM comes from exactly these top priced bundles, even though they look to offer the greatest savings.
  1. 500MB broadband
  2. O2 SIM with unlimited data
  3. 230+ TV channels including Sky Cinema HD and Sky Sports HD
  4. Netflix Standard
  5. Anytime chatter phone
 
As has been noted, you’re considering the revenue that each service brings individually, but the whole point of bundling stuff together is to give the perception of value and that the customer is saving money.
For me to get all these services with VM separately would be impossible and too expensive as you say. And mixing and matching other service providers will be much more expensive. I constantly look at the bundle offerings of Sky and BT and try to match what I get with VM and VM is always cheaper. So you can call it perception but I call it reality.

Costs are really challenging to analyse, but for this kind of business there are large fixed costs in managing a network (mainly depreciation from the capital investment). Therefore these costs have already been incurred and the key now is maximising take up and therefore reducing the average cost per user. Also given the costs are linked to things like depreciation, the incremental cost between a slow and a fast service are relatively small. Upselling someone to a faster service can bring a greater profit margin.
Here you have some good points. Faster services don't cost that much. But crucially I think the large fixed costs in managing a network can be easily offset if you sell a customer multiple services which get delivered via the same said network, as is the case with VM.

So I got my answer now, it's a combination of ARPU, fixed network costs and little or no extra cost in going for higher tier services.
 
It doesn't cost Virgin anywhere near what they charge the customer for the services, The o2 sim, costs them pennies to deliver service wise. They will have a contract with Sky for probably a few thousand for the year and they divvy that up by all the customers using it, same with Netflix

I highly doubt Virgin will just go to Netflix.com and sign up as a customer, that would be a massive effort with no profit to be made

You can't really base all this off customer facing prices

It's economies of scale,
 
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VM have upped their Mega Volt broadband back to 1gig from 500Mb. I remember it used to be 1gig before 500Mb for some reason...maybe capacity issues?
 
VM have upped their Mega Volt broadband back to 1gig from 500Mb. I remember it used to be 1gig before 500Mb for some reason...maybe capacity issues?
I think they wanted to get more money from it. But it probably didn’t work out. So now they went back to tried and tested.
 
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