Comcast and Sky enter uncharted territory
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’