'Blood in the water': Sky deal analysis

26 Sep 2018  |  Raymond Snoddy 
'Blood in the water': Sky deal analysis

Ray Snoddy outlines the winners and losers following Comcast's epic £30.6bn bid for Sky - and looks ahead to possible future deals

Years ago Rupert Murdoch looked back with regret on his decision not to enter the US cable market. Rather like his decision to turn down a 5 per cent stake in Amazon for peanuts in its early days because he couldn’t see how it could ever make money, Murdoch thought cable companies were overvalued.

He just didn’t see that the valuations based on per subscriber revenue would, helped on by consolidation, continue to rocket - at least until current threats from chord-cutting.

It is a truism to say that Murdoch doesn’t like losing - who does - but to be beaten by Brian Roberts of Comcast, a cable rather than a newspaper-owning “media man” who always likes to mix with the political elite, must have been particularly galling.

The old world order turned on its head. Wasn’t Murdoch the one who was always happy to plead guilty to over-bidding to get the asset he wanted, in the certainty that it would be all right over time.

Now of course, as Einstein would say, for Murdoch time is speeding up and a black hole beckons and he is no longer a buccaneering sole trader able to bid what he likes.

Murdoch could be more cautious these days, but the more likely explanation for the £3 billion gap between the Fox and Comcast bid was a restraining tap on the shoulder from Disney. That of course assumes that Murdoch’s primary underlying motivation was to ensure that the overall Disney-Murdoch deal goes through already, albeit with the Sky limb lopped off.

There are an awful lot of winners from what has been called an expensive corporate poker game as the Saturday auction goes down in City history.

The banks, advisors, PR lobbyists and fixers can now divvy up £580m amongst themselves - a sugar coating to Jeremy Corbyn’s dramatic shareholding announcements at the Labour Party conference.

The top management at Sky will be able sit on a beach for the rest of their lives if they want to when they share out a £384 million bonus pot. Chief executive Jeremy Darroch, in line for a £38 million pay-out, can even buy the beach, or as many beaches as he wants to.

For Murdoch in defeat there is at least a kind of financial victory. The shares of Sky have shot up by 130 per cent since the battle for all of Sky was re-engaged two years ago - and of course Murdoch companies own a 39 per cent of the Sky group, which they said on Wednesday they would sell - meaning Murdoch is walking away from the broadcaster after almost 30 years.

By any standards the creation of today’s Sky group from News International's purchase of 80 per cent of the loss-making Satellite Television UK in 1983, is a remarkable achievement which can stand as a Murdoch legacy - whoever owns it now.

Inevitably in victory there is also at least a short-term share-price defeat for Comcast. Equally traditionally if the purchase is sound then over time the shares will edge up again.

In an inevitable consequence of winning that will be very familiar to Murdoch, Comcast shares have been hammered for overpaying and nearly $10 billion cut from the value of the company - for now.

The size of the overbid implies strongly that it was an honest “blind” auction rather than one of the nudge-nudge variety when the lucky winner somehow manages to contrive a $1 million win.

In truth Comcast was always likely to win the battle for Sky because Murdoch had other fish to fry and it has provided, at a stroke, a massive increase in the cable company’s footprint in Europe.

Was the two-year battle worth it?

At least the tortuous process produced what looks like a reasonable deal to protect Sky News going forward, both its editorial independence and financial stability.

There are, however, always losers in takeovers. Cost-cutting and restructuring are never far behind and will mainly affect the bloody infantry, those outside the magic 700-strong membership of the bonus scheme. Jobs will go.

Perhaps the biggest losers of all are likely to be Sky’s 23 million subscribers. It won’t happen overnight but you can be sure that the costs of the packages will creep up by more than they otherwise would have to start paying for the £30 billion auction.

BT and Virgin Media could take a predatory approach and use special deals to try to lure away Sky customers.

Perhaps, but it is more likely that the big three will be happy to let prices drift up to recoup some of the vast outlays on exclusive sports rights that have at least now calmed down to simmering point.

The big issue is the reason underlying the Disney-Murdoch manoeuvres and the Comcast grab for Europe.

They are after scale in the battle against the FAANGS - Facebook, Apple, Amazon, Netflix and Google - and at least in that regard there isn’t a moment to lose.

Source: Alex DeGroote

Even after the current round of consolidation in the media sector, Comcast and the enlarged Disney remain puny compared with the social media giants. The only new player that Disney and Comcast match in terms of size is Netflix whose ambitions, and achievements, in original content are all too well known.

Coming down the track fast are Facebook and Apple.

Apple alone has committed more than $1 billion in new programmes, much of it aimed at the youth market.

The sheer visibility of the Disney-Fox-Comcast battle - the blood in the water - is likely to attract other sharks to UK waters.

The obvious nice, plump, tasty target is ITV - although the lack of a serious approach over the years has become something of a running gag. But just because it has been long predicted and hasn’t happened does not mean it won’t.

We are entering unfamiliar territory, a US stock market boom combined with a low Brexit pound, which will get even lower as a No Deal looms.

An approaching predator from the US could easily galvanise ITV minority shareholder Liberty Global into action, triggering another round of entertaining corporate activity.

As for Roberts the winner, there ought to be a little bit of unfinished business to tidy up.

The Comcast chief executive should find the cabbie who told him on a visit to London that the Sky box was the best in town.

At the very least the London cabbie should have a free Sky subscription for life.

Interested in the TV advertising landscape and want to hear more? Attend the Future TV Advertising Forum in London on December 4th, 5th and 6th to with keynotes from Europe, US and Asia and over 750 attendees. www.futuretvads.com

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17 Jun 2019 

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