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Comcast and Fox are in a heated to battle to snatch up Sky — here's why they both see the UK satellite company as ...

July 19,2018 04:14

Fox and Comcast are locked in a bidding war for the European broadcaster Sky. The two offers are part of a larger fight between Comcast and Disney to acquire assets from Fox. Sky is a European pay-TV business that serves 23 million customers, mostly ...

The US entertainment giant Comcast increased its bid for the European broadcaster Sky last week, stymieing Rupert Murdoch's takeover attempt for the company.
Comcast's newest offer came in at £14.75 a share, valuing Sky at £26 billion ($34 billion), up from its previous offer of £22 billion. Earlier in the day, 21st Century Fox bid £14 a share for Sky.
So why are Comcast and Fox locked into a bidding war for Sky?
Actually, it's not just Fox and Comcast
The two offers for Sky are part of a larger fight between Comcast and Disney to acquire assets from Fox. Fox already owns 39% of Sky and is bidding for the remaining 61%.
All of those assets will go to Disney if it successfully acquires Fox.
"Disney is very serious about wanting Sky," Mary Ann Halford, a former Fox International executive vice president, told Business Insider. "This wouldn't have happened without Disney and Fox executives talking and discussing," added Halford, who is now a senior adviser at the strategy consulting firm OC&C Strategy Consultants.
But Comcast is also very serious about wanting Sky. In fact, it may drop its plans to go after Fox and solely focus on winning a majority stake in Sky, according to CNBC.
So what exactly is Sky?
Sky is a European pay-TV business that serves 23 million customers, mostly direct-broadcast-satellite subscribers, in the UK, Ireland, Germany, Austria, Italy, Spain, and Switzerland.
For perspective, Comcast, the largest US cable-service provider, serves 22 million video customers and 26 million internet customers.
I thought satellite was dying and customers are cutting the cord on cable?
While cord cutting is a real concern to businesses that offer cable- and satellite-TV services, there is still a market for these products.
"It will go that route eventually, but it'll be a very long tail," Greg Williams, an analyst at Cowen, told Business Insider. "There are still a lot of folks that still like the traditional linear experience, especially the older cohorts."
Williams said cord cutting lowered the cable subscriber base by 3% to 4% each year, with satellite closer to 6% to 8% a year.
"Satellite is an inferior product to wireline linear television for a couple reasons," he said. "The main one is you don't have the bundle."
Satellite companies typically provide linear TV without an accompanying broadband experience, meaning there's no ability to offer service packages.
This is where Sky has an advantage over traditional satellite companies. The UK telecom company Openreach connects nearly all homes in the UK to a national broadband network.
"Sky does sort of have a double play because in the UK ... through Openreach," Williams said. "The UK allows Sky to get really good broadband for cheap. The government allows it for really good rates, wholesale prices, so they get the copper connection or even the fiber connection under UK regulation."
The double-play factor, in addition to "inferior competition" in the UK, places Sky in strong standing in Europe, according to Williams.
Netflix CEO Reed Hastings.
Ernesto S. Ruscio/Getty Images for NetflixWhat about competing with OTT?
TV delivered over the internet, known as over-the-top service, is where the market is heading, and all the major media companies realize this. So a play for Sky doesn't mean Comcast or Disney is attempting to revive a dying business model. They want to use subscribers and create an OTT foothold of their own.
And Sky, which already has an OTT service called Now TV, would give either company a large customer base to convert over to OTT subscribers.
"They know that [Sky's] 23 million base is slowly depleting, but they can migrate those customers onto [the Now TV] platform or some other OTT platform in the future," Williams said of Comcast.
Having an international footprint is especially attractive to Comcast, which trails Fox and Disney in non-US markets.
"They punch underweight" internationally, Halford said.
With Sky, Comcast would have "this huge international base now that Comcast has been dying to have for quite some time," Williams said.
And while OTT consumption is growing around the globe, some experts say cord cutting in Europe isn't as extreme as it appears in the US.
What else does Sky own?
"Comcast is the preeminent pay-TV provider in the US," Halford said. "In Europe, the preeminent provider is Sky."
Sky provides a strong content portfolio to whichever company eventually acquires it. It has exclusive rights through 2020 to run HBO shows— like Game of Thrones and Westworld — across Europe. In 2017, Sky announced a coproduction deal with HBO to create "high-end drama." It also has a 70% stake in the UK production company Love Productions, which makes The Great British Bake Off, one of the most watched programs in the UK.
In addition to the original content it produces, it has the majority of Premier League football TV rights and exclusive rights to the German Bundesliga. Those exclusive, or majority, sports-viewing rights are attractive to Fox, Comcast, and Disney.
And it may be a long summer of increased bidding before we know which company wins out.

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