Bid­ding War

Week­end auc­tion set­tles fate of Euro­pean pay-tv gi­ant Sky

Variety - - Contents - By CYN­THIA LIT­TLE­TON @Va­ri­ety_­cyn­thia

THE FIGHT FOR con­trol of Sky may be over. But the war be­tween Com­cast and Dis­ney to rule the stream­ing air­waves in Europe — and be­yond — has only just be­gun.

The two me­dia ti­tans have been en­gaged in cor­po­rate com­bat for nearly a year as they sparred over the spoils of Ru­pert Mur­doch’s 21st Cen­tury Fox film and TV em­pire. On Sept. 22, Com­cast pre­vailed in the con­test for Sky, which was de­cided in a highly un­usual blind auc­tion or­dered by a Bri­tish reg­u­la­tory panel be­cause the bid­ding be­tween Com­cast and Fox (with back­ing from Dis­ney) had been so in­tense — and so dead­locked.

Com­cast’s $40 bil­lion fi­nal bid was 17% higher than its pre­vi­ous of­fer for Sky in July and a whop­ping 38% greater than its first pro­posal in Fe­bru­ary — tes­ta­ment to the cable gi­ant’s de­ter­mi­na­tion to win the Euro­pean pay-tv provider af­ter Dis­ney got its hands on the 20th Cen­tury Fox stu­dio, FX Net­works, Na­tional Geo­graphic Part­ners, Star In­dia and other Fox as­sets. Sky, a sep­a­rate pub­licly traded en­tity, was in play as part of the process be­cause Fox owns 39% of Sky and had been try­ing since De­cem­ber 2016 to buy out the re­main­ing shares.

Dis­ney had hoped that Fox would wrap up that ac­qui­si­tion by the time Dis­ney’s $71.3 bil­lion pur­chase of the Fox as­sets was com­pleted (now ex­pected by early next year). But that was be­fore Com­cast bar­reled into the fray with un­so­licited coun­terof­fers for both Fox and Sky.

With Sky’s fate now likely de­cided — share­hold­ers still have till Oct. 11 to de­cide whether to ac­cept Com­cast’s of­fer — the next skir­mish in Com­cast ver­sus Dis­ney will be over the sale of all or part of the 39% stake in Sky that Dis­ney will in­herit. At a time of rapid change on the me­dia land­scape, nei­ther Dis­ney nor Com­cast has much in­cen­tive to re­main a mi­nor­ity owner of a com­pany con­trolled by a ri­val. But just as Com­cast will be ea­ger to wrest the re­main­ing piece of Sky away from Dis­ney, Dis­ney has its eye on Com­cast’s 30% stake in Hulu. With Sky out of the pic­ture, Hulu’s im­por­tance to Dis­ney as ar­chi­tec­ture for its stream­ing am­bi­tions has shot up.

Com­cast was a win­ner on Satur­day but took a beat­ing on Mon­day when Wall Street weighed in with re­ac­tions to the deal. The con­sen­sus among top an­a­lysts was that the con­glom­er­ate got caught up in the chase and over­paid for an as­set with an un­cer­tain fu­ture, like other tra­di­tional MVPDS. Com­cast shares fell 6% in trad­ing Sept. 24.

“Dis­ney looks like a win­ner by los­ing,” Mof­fet­tnathanson an­a­lyst Craig Mof­fett wrote in a re­search note. “As­sum­ing that Com­cast buys the 39% stake from Fox, the high price paid by Com­cast for Sky will im­prove the met­rics of the Dis­ney-fox trans­ac­tion.”

More than any other U.S. me­dia con­glom­er­ates, Com­cast and Dis­ney are en­gaged in di­rect war­fare in the TV, film and theme park busi­nesses. And it’s no se­cret that Dis­ney chief Bob Iger and Com­cast chair­man-ceo Brian Roberts have a his­tory of frosty re­la­tions.

Both com­pa­nies are in the throes of re- en­gi­neer­ing their con­tent op­er­a­tions to em­brace the new model of di­rect-to- con­sumer stream­ing that has made Net­flix such a global in­dus­try force in just a few years. The 21st Cen­tury Fox as­sets are a big prize that will greatly en­able Dis­ney to feed its planned suite of stream­ing ser­vices with new and vin­tage con­tent.

Sky was seen as a vi­tal piece of the puz­zle for both com­pa­nies be­cause of its 23 mil­lion sub­scribers in the U.K., Ire­land, Ger­many, Italy and Aus­tria. Sky is a highly prof­itable busi­ness — a cru­cial con­sid­er­a­tion at a time when the M&A spree is adding tens of bil­lions of dol­lars of debt to Com­cast and Dis­ney’s bal­ance sheets. It’s also an im­por­tant di­ver­si­fi­ca­tion play for Com­cast, as its busi­ness is still over­whelm­ingly do­mes­tic, with only 9% of its to­tal rev­enue com­ing from out­side the U.S. With Sky, the in­ter­na­tional com­po­nent of its to­tal rev­enue base will rise to about 25%.

Ne­go­ti­a­tions be­tween Com­cast and Dis­ney about a sale or swap of stakes in Sky and Hulu and po­ten­tially other as­sets should be fierce, given the of­fen­sives that both have un­leashed in the past year.

But per­haps the big­gest win­ner and most in­flu­en­tial fig­ure in all of this back-and­forth is nei­ther Iger nor Roberts but Mur­doch. He has no doubt en­joyed the spec­ta­cle of two me­dia gi­ants scrap­ping over 21st Cen­tury Fox and Sky in bid­ding wars that sig­nif­i­cantly drove up the fi­nal pur­chase price of both as­sets. As the me­dia in­dus­try trans­forms, the baron of Fox looks ever-more pre­scient for hav­ing in­vested much more than his peers in in­ter­na­tional mar­kets, par­tic­u­larly Europe, Latin Amer­ica and Asia.

Mur­doch will emerge from the bat­tle royal with bil­lions added to his per­sonal war chest, and he’ll be in the cat­bird seat as Dis­ney’s sin­gle largest in­di­vid­ual share­holder. “A mas­ter­stroke,” a se­nior Dis­ney ex­ec­u­tive said, ad­mir­ingly, of Mur­doch af­ter the auc­tion re­sults were dis­closed.

Sky High Com­cast’s $40 bil­lion ac­qui­si­tion of Sky may just be the start of a war with Dis­ney for con­tent across Europe.

Dis­ney looks like a win­ner by los­ing.” Craig Mof­fett, an­a­lyst

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