Sky Creates Euro Giant; What Next For Rupert Murdoch?

Leading pay TV operator Sky, previously known as BSkyB, has finally completed its acquisition of Sky Italia and majority interest in Sky Deutschland to create a European TV giant in a deal worth nearly $11 billion.

The announcement may lead the way, indirectly, for major shareholder Rupert Murdoch to make a renewed bid for Time Warner, should he decide to divest his 39% stake in Sky to fund such a deal.

Whatever happens, we are clearly witnessing the re-shaping of the European media landscape.

The new Sky entity will be, by some margin, Europe’s premier pay TV platform, with 20 million customers across five countries: Italy, Germany, Austria, the UK and Ireland.

The move, in the pipelines for months, was finally confirmed by BSkyB chief exec Jeremy Darroch, who will become Sky’s group chief executive., overseeing the multi-territory organisation as well as retaining leadership responsibilities for the UK and Ireland.

“The three Sky businesses will be even better together. We have the opportunity to create a business that can lead and shape our industry in the future. Customers will benefit as we launch exciting new services, bring them even more great TV, and accelerate innovation across all of the markets in which we operate,” commented Darroch in a statement. “By joining together, we will share our strengths and expertise while retaining a strong identity in each country where we operate. The opportunity ahead is substantial and we believe the new Sky will be good for customers, content creators and shareholders alike.”

All eyes will now be on what Rupert Murdoch and what he decides to do with his 39% ownership stake.

Thwarted once in his initial bid to acquire Time Warner, the visionary mogul could well fund a new approach by selling off his stake in Sky, worth between $4-5 billion.

Having spent decades building a global distribution platform across multiple media, the often-ahead-of-the-curve Mr Murdoch is believed to want to pivot 21st Century Fox’s focus to lie more squarely on content rather than distribution.

That strategic decision comes in the face of competition from the likes of new entrants such as Netflix and Amazon as well as the fierce challenges posed by telephony companies entering the market seeking to offer audiences quadruple play services: fusing TV, mobile, broadband and wireless services.

The emergence of digital technology and ever faster broadband services also leaves major long-term question marks about the long-term future and viability of satellite pay TV in general.

In the UK, telco BT has challenged Sky’s dominant position in live sports broadcasting and the acquisition by Liberty Global of Virgin Media also bears the prospect of a new, deep-pocketed pan-European platform.

Across Europe, the incumbent media landscape is being shaken up by consolidation and aggressive moves from telcos.

Telefonica, which has been thrust bullishly by CEO Cesar Alierta into the content business, in July completed its 100% acquisition of Canal Plus Espana, Spain’s biggest pay TV platform, from Mediaset Espana and Prisa.

In a separate move, the aggressive Spanish telco was able to gazump Telecom Italia, in which Telefonica is also a significant shareholder, in the battle for Brazilian telco GVT with an offer worth close to $10 billion, around half of which will be cash.

Why is that relevant to pay TV?

Because GVT owner Vivendi was offered synergies by Telefonica with its newly-acquired pay TV operations in Spain, as well as a stake in Telecom Italia.

Vivendi owns Canal +, France’s dominant pay TV platform and Studio Canal, arguably Europe’s premier film studio with operations in the UK, France and Germany.

Who might buy 21st Century Fox’s Sky stake, if it ever becomes available, remains to be seen.

In the new media age, whoever controls the content will be king.

That is why giving up Europe’s leading pay TV platform to create, through a merged Fox-Time Warner, the world’s biggest single content company may be a prospect that Rupert Murdoch can’t walk away from.

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