Can BSkyB fulfil its European pay-TV dreams?
As BSkyB steps up plans to create ‘Sky Europe’, Raymond Snoddy asks if the deal will really happen – or if it will crash in flames because of the ‘Murdoch factor’.
Every time Rupert Murdoch tries to increase his power and influence the anti-Murdoch battalions bring out their banners, sometimes beyond the scope of reason.
The then News Corp’s attempt to take over the 61 per cent it did not already own of BSkyB failed miserably, even though the European Commission saw no reason to block the deal on competition grounds.
The satellite broadcaster was irredeemably tainted with the phone hacking scandal even though it had nothing whatsoever to do with it.
As Murdoch effectively controlled Sky anyway through his 39 per cent holding, there was little danger of media plurality being undermined in any meaningful way.
The opposition was visceral and political. We don’t want anything that would further increase the power of the avaricious octogenarian.
There was collateral damage along the way. It is widely believed that it was Chase Carey, the corporate engineering brain in 21st Century Fox, as the Murdoch film and television business is now called, who recommended the closure of the News of the World.
The aim was to try to preserve the prospects of the BSkyB takeover – something that ultimately turned out to be a step too far.
The Fox executive has, however, been instrumental in pulling the company out of the crisis by first recommending a $5 billion share buy-back to sustain News Corp’s share and then handling and possibly even suggesting the split of the company into two – the film and TV, and the newspaper entitles.
You can be sure that Carey will also be deeply involved in the cunning new expansionary plan for BSkyB to take over 21st Century Fox’s 57 per cent in Sky Deutschland and its 100 per cent ownership of Sky Italia.
The successful creation of Sky Europe, if this could be achieved without paying a premium to the current share price would, according to The Sunday Times, produce a windfall of around €8.5 billion (£7 billion) from the sale for 21st Century Fox.
The purchase would almost certainly be financed by a mixture of debt and the issuing of new shares, so that 21st Century Fox could be paid off. Sky would still hold 39 per cent of what would be an enlarged company.
You can see why BSkyB would want to expand from its single core market in the UK given that BT is unlikely to go away, and will only become an ever-more threatening rival as its expertise in pay television increases. And if BSkyB needs to expand where better than Europe and the acquisition of sister companies it is very familiar with.
In the meantime any new attempt by 21st century Fox to own all of Sky will continue to remain unrealistic as long as Rupert Murdoch is in control.
Murdoch was once asked why he was so unpopular in the UK when there was no such opprobrium against his name in the US.
After a moment’s thought he said it was the Wapping victory over the print unions and the bitterness that flowed as a result, mixed in with some of the more extreme activities of The Sun. Now he would also have to stir in the enduring and even more toxic effect of the phone-hacking scandal.
At first sight the Sky Europe deal might seem a little strange for 21st Century Fox – a form of withdrawal from continental Europe at a time when other American media players are clamouring to expand into Europe.
Apart from the windfall, they would still be able to participate in the action through the retained 39 per cent stake in the much bigger Sky Europe. The combined business, if it is ever created, would have 19 million subscribers and a market of 90 million homes to address.
Will the deal happen or will this one also crash in flames because of the Murdoch factor?
The regulatory omens are good. There is the existing BSkyB precedent, but it is the underlying reason behind such a Commission approach that is significant.
For good or ill – and probably it will cause mayhem – the European Union wants to see the creation of a Europe-wide market for both content rights and telecoms.
And the greatest advantage of the scale that Sky Europe would create would be the additional power bestowed in negotiations on film and sports rights.
Sky will also be able to argue in competition terms that this leverage will become increasingly necessary as a counter-balance to the rise of the new television players such as Netflix, Google and telecommunications operators such as BT.
The biggest threat to a deal is likely to come not from competition issues but squabbles over money.
Sky Italia is a relatively simple matter. It is 100 per cent owned and although it is seen as being well run there is little growth in subscriber numbers of around 4.75 million, nor will there be while the Italian economy remains in the doldrums.
Although Sky Deutschland has only 3.73 million subscribers and Germany has traditionally had low pay-TV penetration, the potential for growth is seen as much greater there.
In an ideal world BSkyB would like to buy out 21st Century Fox’s 57 per cent and then make the same offer to the minority shareholders who include hedge fund operators.
They have already made it clear that they will be looking for a large premium to go quietly and they are already saying that a “nil-premium” merger would greatly undervalue the company.
It is not clear whether or not they could actually block a deal though you can be certain the best lawyers are already being consulted.
The likelihood is that the negotiations will be drawn-out and messy, but that by the spring Sky Europe will be in place – taking BSkyB on to a new level.
Then, eventually, there could be Lachlan Murdoch’s first move as chief executive of both 21st Century Fox and News Corp – the takeover bid for Sky Europe.