Comcast's Sky bid: Strategic jab at Fox or grab for global pay-TV business?

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Rupert Murdoch in London with sons James, right, who is chairman of the board at Sky, and Lachlan, in March 2016.

Comcast Corp.’s $40 billion bid for Europe’s Sky satellite-TV business is a steaming mess of pros and cons.

The deal could make Comcast the world’s second-largest pay-TV operator, behind state-owned China Telecom Corp. Ltd.

Sky would give Comcast a global platform for distributing NBCUniversal entertainment and for negotiating global sports rights deals for the NFL or soccer’s Premier League, analysts say. And Sky’s European streaming service could even become an alternative to Netflix, which boasts 117 million members in 190 countries.

But Comcast could also be mired with Sky’s sluggish satellite-TV business and it might find Europeans unwilling to shell out big bucks for entertainment, analysts fear.

“It’s not without risk,” said Ian Olgeirson, lead pay-TV analyst for Kagan research, part of S&P Global Market Intelligence. “There are “clouds hanging over some of this.”

Despite a record of successful acquisitions over decades, Comcast stock is down more than 10 percent since it announced its intention to bargain for Sky and about 20 percent off its 52-week high, part of a broad retreat in legacy media stocks threatened by social media platforms and streamers.

Comcast shares fell 53 cents to $35.30 on Monday, on a sharply down day for Wall Street.

Comcast’s stock price faced similar downdrafts with deals for AT&T’s broadband business more than 15 years ago and NBCUniversal, both of which were successful. Comcast believes that it can sell more pay-TV subscriptions to Europeans and distribute NBCUniversal through Sky. It also notes that Sky is more than a satellite operator, and offers broadband, mobile and a content arm through Sky News.

Comcast Corp. CEO Brian Roberts announced on Feb. 27 that the company was informing regulators that it would make a bid for U.K.-based Sky, valued around $40 billion in cash and debt. The deal seeks to disrupt a previous offer for Sky by 21st Century Fox Corp., the news and entertainment company controlled by media mogul Rupert Murdoch.

Fox already owns 39 percent of Sky and has sought for years to gain full control, though U.K. regulators have opposed the Fox bid because of concerns over Murdoch media concentration.

Adding a personal element to the takeover battle for Sky, Murdoch’s son, James, is chairman of the board at Sky. Chase Carey, a longtime confidante of Rupert Murdoch’s and Fox vice chairman, also is on the Sky board.

Rupert Murdoch reached a deal to sell about $52.4 billion in Fox assets, including Sky, to the Walt Disney Co. in December, rebuffing a higher bid by Comcast.

Comcast must still offer a formal bid for Sky. Then U.K. and European regulators would have to approve it, and the Sky board has to OK it. If closed, Comcast/Sky would serve 42.4 million TV customers in the United States, U.K., Ireland, Italy, Austria and Germany, according to Kagan.

By contrast, China Telecom, the globe’s largest pay-TV operator, has 73.3 million TV subscribers, Kagan says.

Comcast said on Monday that it has not taken any action since its announcement on Feb. 27, nor has it heard from European regulators.

Industry observers speculate that Comcast’s bid for Sky may be part of a broader effort to pry Fox assets out of Disney’s hands. Both Comcast and Disney are seeking to expand their global businesses as they have faced direct-to-consumer streaming competitors in the United States.

In an 80-minute presentation on Friday, telecom analyst Craig Moffett said that speculation abounds that “this is sort of a chess move [by Comcast] and they are not really going after Sky, they are doing it to corner Disney into selling Hulu [or] that they are simply playing for time until the ruling in the AT&T/Time Warner case to buy Fox.”

Hulu is a streaming service whose ownership is divided among Comcast, Disney, Time Warner and Fox.

But Moffett said he believes that people should take Comcast’s bid at “face value. And if Comcast wants to buy Sky, why does it want Sky?”

The TV ecosystem is moving into a period of “captive studios” whose entertainment will be exclusively distributed to consumers such as Netflix originals, Moffett said. Disney also has said it will develop direct-to-consumer entertainment services that it could push through Sky and its own streaming services in the United States.

In his presentation, Moffett noted that Netflix made this pivot to original productions distributed through its streaming service and Comcast seems to be positioning itself to make a similar pivot. “To be a player in that future, studios will be underwriting enormous risk.  And the only way to defray that risk is to have enormous distribution scale,” Moffett said in an email Monday.

 

Top Global Pay-TV Companies if Comcast buys Sky:

(in millions of TV subscribers)

China Telecom Corp. Ltd., 73.3
Comcast/Sky, 42.4
China Unicom, 26.3
AT&T/DirecTV, 24.3
Shandong Broadcast & TV, 19.8

Source: Kagan/S&P Global Market Intelligence