Taming the digital giants
At first glance, J sainsbury and Britain’s terrestrial broadcasters might not look to have much in common. But they share a disruptive competitor in Amazon.
in much the same way the grocer is striving to deal with the digital challenge through its purchase of Argos and proposed merger with Asda, it is now becoming clear that the UK’s terrestrial and satellite broadcasters find themselves in the same boat.
sky’s largest shareholder, rupert Murdoch, already has plotted an escape route as two big beasts – Walt Disney and Comcast – seek control. BBC as a public corporation can only look on with fear.
itV chief executive Carolyn McCall argued in the past that, as subscription-based services delivered through the internet, Amazon and Netflix are not really rivals. But with Amazon currently searching for a ‘head of free to air tV and advertising’ it plainly is preparing to put its tanks on itV’s lawn.
As the proprietors of bookshops, record stores, electronic retailers, pharmacies and grocers will testify, this cannot be a happy moment for the broadcasters.
forget for the moment the huge production budgets which Amazon and Netflix are throwing at their Hollywood production arms. A suite of Amazon channels supported by advertising will threaten an important income stream of traditional broadcasters.
it aims to sign up a series of deals with broadcasters across Europe, giving it access to advertising which has not so far moved online. What we also know is that it possesses frighteningly smart technology to more precisely match commercials to the audiences.
the UK does not have a regulatory regime currently capable of meeting this challenge. Unlike the main UK broadcasters, the regulatory requirements for streamed and internet services are unclear.
What we know from other markets attacked by disrupters is that the tech giants have raced ahead of watchdogs, rendering them irrelevant. indeed, they are so powerful and so good at spreading operations around the world that they also enjoy privileged tax status.
Ofcom needs to confront the Amazon and Netflix incursion. the risk is that they could destroy much of UK broadcasting by using regulatory arbitrage.
Just look at the closed and shuttered stores on the nation’s high streets.
Asda angst
MEANWHilE, the sainsbury’s response to the challenge from new forces in shopping has been radical.
the most recent market data shows it is being squeezed by tesco’s resurgence, the rise of the discounters and the disrupters such as Ocado. in spite of difficulties, sainsbury’s did manage a slight 0.2pc rise in same-store sales in the 16 weeks to June.
Chief executive Mike Coupe is looking to the Asda deal as a means of persuading suppliers to offer better deals. Among its goals is to have enough volumes to offer more own-brand products, following the example of no-frills rivals Aldi and lidl.
the firm was a little miffed at the suggestion that the Asda deal, currently with the Competition & Markets Authority (CMA), is a distraction, and claimed there was a team of just 15 people working on the transaction. investors are plainly confident that the deal can be done and will be a boon. shares are up 32pc this year, lifting them right out of the doldrums.
But there needs to be caution. the CMA will not give the merger a clean bill of health and may demand the disposal of up to 100 shops. Nor should anyone imagine that knitting together the it systems and culture of two very different chains is going to be easy. investors might be more comfortable if there were 115 or 1,015 people working on a smooth integration.
sainsbury’s deserves full marks for ambition. it has brought Argos into its stores and added the tu range of clothing to the catalogue. But the Asda merger is a task on a whole different scale.
Bad move
sir Martin sorrell showed enormous chutzpah when his new company, s4 Capital, launched a £265m bid for Dutch digital production firm Media Monks.
His previous employer, WPP, was outraged at the launch of his new enterprise and made it plain that if sorrell sought to wrestle away previously discussed deals he would no longer be considered a ‘good leaver’. it could now be a trifle tricky for sorrell to get his mitts on the golden goodbye of £20m.