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Murdoch outfoxed by Comcast Sky bid

Stuart Thomson looks at the likely fallout from Comcast’s audacious bid to take over Sky.

The biggest news in pay TV this week is clearly Comcast’s move to outfox Fox and acquire Sky for £22.1 billion (€25 billion).

Comcast’s move throws a fresh obstacle in the long and tortuous path followed by Rupert Murdoch in his attempt to consolidate Europe’s pay TV leader, with a £12.50 a share bid that is 16% higher than Fox’s own move to take the 61% in the company that it does not already own. It also throws a spanner in the works of Murdoch’s grand plan to divest the bulk of Fox to Disney.

Murdoch’s bid for Sky was already facing the regulatory challenge laid out by the Competition and Markets Authority, forcing it to propose remedies to overcome the objection that a Fox-controlled Sky would exert too much control over the UK media market. Now it is facing a war on two fronts.

Comcast’s move was not entirely unexpected. The Wall Street Journal had already carried a report that Comcast made a bid last year for 21st Century Fox that was significantly higher than Disney’s – successful – bid, and that it could come back to the table, either bidding again for Fox as a whole or making a move on Sky.

The Comcast-Fox bid was rejected on concerns that it would not pass muster with US regulators. A bid for Sky raises no such concerns, and it is unlikely that Comcast’s ownership of NBCUniversal would pose too many problems in Europe.

The attraction of Sky for Comcast is that it would give the cable and media giant a large-scale international operation – something it has hitherto lacked. The rise of Netflix and the emergence of Google, Facebook and Amazon as content players in their own right means that achieving global scale is now the Holy Grail of media. Sky is Europe’s largest pay TV operator with a presence in five markets – the UK, Ireland, Germany, Italy and – following the launch of its OTT TV service in the country – Spain.

While Sky has faced added competitive pressures in recent times, for example from BT in the UK for sports rights and, more recently, Spain’s Mediapro, which secured rights to Italian top-tier football, as well as from OTT TV players, it is still a giant cash-generating machine that has successfully adapted to shifting consumption patterns.

The absence of a bidding war for the most recent award of English Premier League rights also augurs well for the pay TV operator, signaling that inflation in national sports rights may be plateauing, at least for now.

Regarding OTT, Sky has already begun diversifying away from its legacy satellite infrastructure to build a platform that enables more interactivity. Last month the company unveiled plans to launch an all-IP version of the service, kicking off in Italy before porting this to its other markets. It also plans to further develop its Now TV OTT offering.

This week, Sky also struck a deal with Netflix, bringing the SVOD service to its platform for the first time and reversing its previous strategy of standing aloof.

Sky was certainly a key attraction for Disney in its US$66 billion (€54 billion) deal to take over most of Fox. The latter now faces a dilemma. Should it attempt to outbid Comcast and regain the initiative? What are the implications for the terms of its deal with Disney, which may have to be reset?

Alternatively, Murdoch could pass the buck to Disney, allowing the latter to make its own separate bid for Sky, should it be willing to go down that route. For Disney, the pay TV operator is not some international afterthought in a plan to acquire Fox’s US studio, pay TV channels and stake in Hulu. It is a star attraction. In Disney’s recent quarterly earnings call, Disney chief Bob Iger specifically highlighted the fact that the deal would “greatly diversify our businesses geographically” as one of the three underlying strategic pillars on which it sat.

There is no evidence then that Disney will abandon Sky to Comcast. The world awaits the next move from either it or Fox with baited breath.