Com­cast and Sky en­ter un­charted ter­ri­tory

The Sunday Telegraph - Money & Business - - Business - Christo­pher Williams

Lon­don house prices are on the slide. Home­own­ers of the far west of the cap­i­tal, par­tic­u­larly in leafy parts near Sky head­quar­ters such as Chiswick and Rich­mond, can there­fore thank Com­cast for the mas­sive stim­u­lus pack­age it has just agreed to fund. Some 13,000 Sky staff own shares and are in line for a part of the £30bn takeover bo­nanza. It is a fine ex­am­ple of the ben­e­fits of em­ployee own­er­ship, if not per­haps of the type en­vis­aged by Messrs Cor­byn and Mcdon­nell.

As the dust set­tles af­ter one of the most ex­tra­or­di­nary takeover bat­tles in liv­ing me­mory, the thoughts of Sky staff now turn to what Com­cast own­er­ship will mean for the com­pany. Some never need to work again, of course, and can fo­cus on spend­ing their cash. But the vast ma­jor­ity face life un­der the in­flu­ence of an en­ter­prise very dif­fer­ent to the Mur­doch em­pire.

Brian Roberts, Com­cast chair­man and head of the fam­ily that con­trols the com­pany, is now in diplo­matic mode. On a visit to Sky on Wed­nes­day he was full of warm words about his con­quest’s ca­pa­bil­i­ties and said it would re­main in­de­pen­dent.

There is good rea­son for scep­ti­cism in the longer term, how­ever, and not only be­cause Com­cast has al­ready said it will take out $300m (£230m) of an­nual costs.

Vet­er­ans of the US ca­ble in­dus­try know Com­cast as a highly cen­tralised op­er­a­tion in which Roberts and his se­nior team in Philadel­phia call the shots. Given Com­cast has paid an eye-pop­ping pre­mium of 125pc for Sky, it is hard to be­lieve it will be left to its own de­vices.

In any case, change is in­evitable amid the new chal­lenges faced by pay-tv op­er­a­tors as Net­flix and oth­ers spend bil­lions on ex­clu­sive pro­gram­ming. Com­cast and Sky will have to nav­i­gate this un­charted ter­ri­tory to­gether.

For in­stance, Dis­ney’s plans are cru­cial. It was de­feated in the bat­tle for con­trol of Sky, but still has a hand in its fu­ture. Dis­ney aims to fight Net­flix on the global stage with its own stream­ing ser­vice. In Europe that will prob­a­bly mean get­ting out of its long-stand­ing ex­clu­sive whole­sale deal with Sky for rights to its lat­est films, which was last re­signed in 2015.

For many Sky house­holds, the abil­ity to watch Frozen on de­mand for the umpteenth time is an es­sen­tial part of the pack­age.

What will it mean when those rights are only avail­able as part of a Dis­ney stream­ing ser­vice? Will Com­cast be able to do a deal to bun­dle it in a Sky sub­scrip­tion? Per­haps, but the mas­sive value it has at­trib­uted to Sky as a dis­tri­bu­tion plat­form will be tested. In its re­cent deal with Sky, Net­flix has judged that easy ac­cess to mil­lions more liv­ing rooms means it is worth shar­ing the re­la­tion­ship with the cus­tomer. Dis­ney’s cal­cu­lus will be more com­plex.

It still has tra­di­tional chan­nel busi­nesses, in­clud­ing those it is buy­ing from Fox, but build­ing a stream­ing ser­vice is num­ber one pri­or­ity, and it is start­ing from noth­ing, not the mil­lions Net­flix al­ready has across Europe. Sky’s re­la­tion­ship with HBO, the maker of

Game of Thrones, is an­other ques­tion for Roberts. The part­ner­ship has been at the cen­tre of Sky’s well-timed move into high-qual­ity drama and is not due for rene­go­ti­a­tion un­til 2020. By then HBO will be un­der the con­trol of Com­cast’s US broad­band ri­val AT&T. Do­mes­tic broad­band ac­counts for more than two thirds of Com­cast’s earn­ings. Sky and HBO will be mere pawns in the big­ger game.

There should be no doubt that Com­cast is a tele­coms com­pany first and a me­dia com­pany a dis­tant sec­ond. Roberts be­gan in the fam­ily busi­ness as a ca­ble in­staller. His ap­proach to Sky’s broad­band busi­ness, which has been very suc­cess­ful but al­ways sec­ond fid­dle to pay-tv, will be closely watched. Al­ready there is spec­u­la­tion that Sky could be­come an in­vestor in full-fi­bre broad­band in­fra­struc­ture. Open­reach, the newly in­de­pen­dent net­work sub­sidiary of BT, would like noth­ing more than to share the cost of up­grades with a rich part­ner such as Com­cast.

Open­reach also sees in Sky a player ca­pa­ble of stim­u­lat­ing de­mand for the higher speed and ca­pac­ity of­fered by full-fi­bre broad­band. Pump­ing ul­tra-high-def­i­ni­tion tele­vi­sion through new net­works could mean­while al­low Sky to grad­u­ally get out of satel­lite dis­tri­bu­tion. The re­la­tion­ship be­tween Open­reach and Com­cast will be one to watch.

If Sky goes deeper into tele­coms, its ap­proach to dis­tri­bu­tion of its own pro­gram­ming could change. Vir­gin Me­dia’s whole­sale deal for Sky Sports chan­nels is due for re­newal next year. If Com­cast de­cides to in­vest in full fi­bre, would it be happy to of­fer its main in­fra­struc­ture ri­val use of its most pow­er­ful sales tool?

Such ques­tions are highly spec­u­la­tive at this very early stage, but they are al­ready be­ing asked. Af­ter all, Sky no longer has an obli­ga­tion im­posed by the reg­u­la­tor to pro­vide sport chan­nels to Vir­gin Me­dia, and has just signed up BT as an al­ter­na­tive out­let.

What is cer­tain is that the de­par­ture of the Mur­dochs as dom­i­nant share­hold­ers sig­nals a ma­jor shift in cul­ture. They im­bued Sky with a chal­lenger men­tal­ity, a de­ci­sive­ness (for good and bad) and a deep re­sent­ment of reg­u­la­tion and in­cum­bents. That is not Com­cast’s style. In the US it is an in­cum­bent and owns re­gional mo­nop­o­lies. Whether Sky’s self-im­age sur­vives its new owner re­mains to be seen.

In truth, the com­pany is al­ready mov­ing away from the Mur­doch doc­trine in some ar­eas. It is a lead­ing cam­paigner for more reg­u­la­tion of tech giants, for ex­am­ple, as it seeks to de­fend its in­cum­bent po­si­tion in pay-tv. There’s some com­mon ground. Com­cast’s broad­band busi­ness has been fight­ing bat­tles with Sil­i­con Val­ley longer than most.

‘Change is in­evitable amid the chal­lenges faced by pay-tv op­er­a­tors’

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