Virgin Media (NSDQ: VMED) will pay up to £38 million a year to show BSkyB’s channels as part of the deal to allow the networks access to each others’ channels from next week. In Virgin’s 3Q08 earnings out today the company revealed that the deal to bring Sky1, SkyNews and others back to Virgin subscribers after a bitter 21-month dispute will also be subject to a performance related payment of up to £6 million in year one, £8 million in year two and £7.9 million for the final seven months of the deal, which expires in June 2010. But some of those channels are already available for nothing on FreeView, the digital TV service that some analysts predict will contribute to hard times for pay-TV companies in the lean months ahead.

Revenues down, profits down: Virgin Media is feeling the pinch of the on-coming recession as a decline in customer spending contributed to a third quarter revenues of £991 million, down from £1 billion in Q307 and operating income of £49 million, down from £47 million in Q307. Average revenue per user was stable at £41.94 (£41.04 Q307). Revenue from Virgin Mobile (NYSE: VM) was £145.5 million, down from £158.7 million 12 months ago and mobile ARPU dropped £11.11 Q307 to £10.93. More details after the jump…

Release | Webcast 2pm GMT | Slides

—Customer decline: The company added just 8,300 customers in total compared to 13,000 in the same period last year, though average monthly churn reduced 0.2 percent year on year to 1.5 percent. Broadband customers grew by 68,700 compared to 115,800 in Q307, with 78 percent of all customers also taking Virgins’ broadband package and 54.7 percent having phone, broadband and TV deals.

—And customer growth: On the upside, net TV subscriptions were up 37,800, compared to 20,400 in Q307, and contract customers to Virgin Mobile saw 78,300 new take-ups – having grown by just 29,700 customers in the same period last year. Virgin will be hoping for improved Q4 earnings after launching its 50mb broadband service.

—In VOD we trust: VMED’s VOD player, which has around 3.5 million subscribers, built up record average monthly views of 45 million in Q3, a 95 percent year on year increase, helped in no small part by the carriage of the BBC’s iPlayer, which gave it 11.7 million views in September alone. Virgin is currently trialling pre-roll adverts in north London to gauge customer reaction to increased commercialisation of the service.

—Sit-Up setbacks: The earnings reveal that VMED has one of its content businesses Sit-Up TV, which runs the Bid TV and Price Drop TV channels, has been told one of its FreeView licenses will not be renewed in January. VMED would not say whether any of its channels would be axed, saying only it would review the situation in Q4.

—Debtors agreed 2012 deadline: VMED has successfully persuaded 90 per cent of its major lenders to agree to amendments to its debt repayment schedule, setting staged deadlines until June 2012. The details are set out in a separate release.

• Sky, Virgin End One Of Their Feuds; Channels Return Next Week
• Updated: Virgin Media Asks To Defer Debt Payments To 2012