A major question swirling around News Corp since last week’s announcement that the company will divide itself in two has been whether another run will be made at the 61% of British satcaster BSkyB that News Corp does not already hold. UK regulator Ofcom is currently weighing whether News Corp is fit to own a broadcast license at all in light of the phone-hacking scandal at its UK print business. And, although the org isn’t commenting publicly, I understand that News Corp’s intent to divide may be taken into consideration for the “fit and proper” test. All information and evidence that’s available will continue to be assessed as the process is ongoing, I’m hearing. There is no time frame for Ofcom’s decision, but contrary to some reports, no announcement is expected before the Olympics later this month.
Although News Corp chief Rupert Murdoch told Fox News last week, “We’ve moved on in our thinking….I’m much more bullish about America,” Panmure Gordon media analyst Alex De Groote tells me he thinks another attempt to acquire BSkyB will happen “two to three years down the line.” He calls the move to split News Corp “tactically quite shrewd” as it detaches the tainted UK print assets from the entertainment division. But, he says, “Even if phone hacking had never happened, shareholders would have legitimately pushed” to separate the businesses. De Groote calls it getting away from what’s known as “the conglomerate discount”, which reflects the difference between what a conglom’s holdings are worth and the real value the market places on the whole. He adds that “Everything is about survival in the long term. In the short term, it’s sacrifice the British newspapers and everybody who gets in the way. The long term is preserving the Murdoch family and the medium term is to get BSkyB.”
Ben Reneker, senior analyst at SNL Kagan, notes that while BSkyB is “perfectly positioned” in the UK’s pay-TV market with its lock on sports rights and domination in top movie and TV content, there are two schools of thought on its future. “In terms of doing everything right, it’s probably the best in the world,” he says. But, the flipside is that alternatives like Lovefilm or Netflix are also in the mix now. Subscriber additions have been declining, but revenue growth has been maintained leading to a paradox: The outlook can be bullish or it can be negative, but competition in an already hyper-competitive market is only going to accelerate. News Corp, Reneker says, “knows how to run that business and knows how to run it in this environment. If in a couple of years they believe in its competitiveness, absolutely, I don’t see why they would shy from exploring” another bid. “If you take the business value of knowing how to run it, they know how to run it and that’s a great motivator in making an effort to take control. I doubt they’ll ever stop looking at it,” he says.
If News Corp does go after BSkyB again, it would slot into the entertainment company of which Murdoch will be chairman. De Groote’s belief is that News Corp will not be found unfit by Ofcom and that the company will ultimately “do whatever they have to” in order to push through a takeover of BSkyB. He’s also predicting 7%-10% earnings growth for BSkyB for the next two to three years. An acquisition would likely cost more than the $12.5B News Corp was previously willing to pay.
Whichever way it goes, BSkyB is a hot-button issue given the emergence of a close relationship between the office of former BSkyB chief James Murdoch and the office of Conservative culture, media and sport secretary Jeremy Hunt. Hunt took on oversight of the ultimately aborted 2010-2011 bid process after Liberal Democrat business secretary Vince Cable said he had “declared war” on Rupert Murdoch. De Groote notes, “In simple terms, if Labour are in control of the government (pushing a new bid through) will be difficult. If it’s the Conservatives, it will be much easier.”