Kate Bulkley, Media Analyst.

Why Sky is Worth $30 billion to Comcast

By Kate Bulkley

Broadcast News

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For Broadcast October 03, 2018

Acquisition gives US cable giant more ammunition in battle with tech players, says Kate Bulkley

As the dust settles around the new owner of Sky, how will Comcast use the satellite broadcaster to position itself in the bigger fight ahead?

It’s clear that Comcast needed a new growth engine outside of the US, but Sky is also important in the cable company’s race to remain relevant in the increasingly competitive media landscape, especially against the deep pockets and big ambitions of the major tech platforms.

Comcast is no minnow, but it has taken an expensive bet. Some analysts think it went too far – “grossly overpaid”, cried Craig Moffett of US analyst MoffettNathanson after the £30bn deal was announced.

Some investors agreed: Comcast’s stock took a nose dive the Monday after the weekend auction, falling 8% and pulling the stock to below $35 (£26.80) a share.

But the rise of streaming services like Netflix and Amazon has inexorably changed the business model. To compete on content creation and distribution in the new SVoD world, the likes of Disney, AT&T and Comcast are scaling up and doubling down. In this case, Comcast weighed its options and decided it was worth it.

Plus, Comcast has a hugely cash-generative US broadband business to pay off the debt it has taken on to buy Sky. That business isn’t going to fall off a cliff tomorrow, despite the very real effect that cord-cutting is having on Comcast’s core pay-TV business in the US.

People in the industry with long memories will remember that this isn’t Comcast’s first UK rodeo. Back in the 1990s, it owned Cambridge Cable, one of the UK’s first cable TV franchises.

The trifecta of TV, phone and broadband down the same cable pipe was tested there, and Comcast has been more than a cable and broadband business for more than a decade – in 2009, it bought NBC Universal, a transformative deal that added broadcast and cable networks, TV and film content creation, global distribution and theme parks.

US regulatory authorities blocked Comcast’s aspirations to acquire more US assets, so an international pivot was needed. Why not fight the cord cutters by tapping into the cash flow from Sky’s businesses in the UK, Germany and Italy?

With 23 million customers across three European markets, Sky almost doubles Comcast’s subscriber footprint and there will be synergies between NBCU’s studio business, which already includes Downton Abbey producer Carnival Films, and Sky’s original content operations.

“As Netflix and Amazon continue to ramp up the content arms race, a combined NBCU and Sky Studios will have more firepower to fight back”

But if Sky is Comcast’s European twin, what’s the next big strategic move? Disney is set on OTT streaming services and no longer sells programming to Netflix. AT&T now owns HBO, Turner and Warner Bros and is keen to accelerate premium content creation.

Viacom is leveraging its youth brands such as MTV and Nickelodeon with social media platforms and working to create more cost-efficient content to match new distribution economics.

Comcast seems bent on the ‘beginning-to-end’ play: with Sky, it now has a big US and European pay-TV footprint, more TV production assets, more rights to high-profile sports such as Premier League football, and cutting-edge technology in growth businesses like targeted advertising. It’s a spread-bet strategy.

As TV channels become apps, fast and reliable pipes must deliver it all, and as Netflix and Amazon continue to ramp up the content arms race, a combined NBCU and Sky Studios will have more fi repower to fight back.

Customers are trying to navigate the growing sea of choice and advertisers wonder how to tap fragmented audiences better, so there’s a premium value to better packaging, search and ad targeting.

The scary bit is that even as traditional media giants like Comcast get bigger, they are still up against the balance sheets and R&D departments of major Silicon Valley companies.

Major consolidation is far from over and more roll-ups are on the cards. Whoever said cable companies are just boring pipe builders?

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