LONDON — The stakes are being raised in the U.K. pay TV market as some of the world’s biggest media congloms circle Flextech, content arm of cable operator Telewest and keeper of the keys to more than 20 digital channels.
A price well in excess of $1 billion is being mooted for what is Blighty’s second biggest portfolio of pay TV stations after those of Rupert Murdoch’s satcaster BSkyB.
“BSkyB, Viacom, ITV, Channel Four, Five, Discovery and numerous private equity companies are interested in buying Flextech because they recognize that this is the largest grouping of pay channels likely to become available in the U.K. for many years,” says Greg Dyke, former BBC director general, writing in the Independent newspaper.
Dyke is well placed to assess Flextech’s value.
This is because, in addition to Living TV, the jewel in the Flextech crown is UK TV, a joint venture with the BBC that runs 10 channels including popular oldies station, UK Gold.
“UK TV has exclusive access to the BBC library,” says Dyke. “So whoever buys Flextech becomes pretty powerful in the world of pay digital television.”
The sale has been triggered by the long-awaited merger of British cable operators NTL and Telewest, expected to be complete by the fall.
Acquisition-hungry RTL, the pan-European broadcaster with stakes in British terrestrial web Five, is one of the favorites to buy Flextech. But, according to a well-placed BBC insider and other sources, BSkyB is also in the ring, although regulators may thwart a Murdoch bid.
Says a senior BBC exec: “From where I sit the leading candidates to buy Flextech are RTL, Sky, ITV, although they’re a bit indecisive, Viacom and Discovery.”
The sale is complicated by two factors. Due to its 50% holding in UK TV, the BBC can veto any buyers. There is also the question of how much Flextech’s assets will be worth in an all-digital future when broadband-delivered services are likely to erode the economics of pay TV channels.
“People are very nervous about putting a price on Flextech because no one knows what it will be worth in the future,” reckons a former Flextech executive. “It may have reached the height of its value.”
In fact, the gap in estimates of Flextech’s worth, reported to be anything from $875 million to $1.75 billion, speaks volumes. But in a sellers’ market like the present one the sky’s the limit.
Strategically, buying Flextech ought to make good sense for RTL, which badly needs to develop a digital presence for Five, whose growth as a terrestrial player may be reaching maturity.
But the bulk of RTL’s expertise is in advertising-funded TV although, in common with ITV, Five could provide a good fit for Flextech because of cross-promotion opportunities.
Moreover, as Dyke has pointed out: “Experience in the U.S. has shown that media companies are most effective when they are in both free and pay television.”
There is another factor that suggests RTL will buy Flextech: Five’s CEO Jane Lighting used to run Flextech.
“RTL are keen, but they are a bit short of cash,” opined a senior British TV player.
Ultimately, whoever makes a bid for Flextech must have the BBC’s blessing.
Even if the merged NTL Telewest keeps Flextech, the BBC could still force a sale of half of UK TV, the most lucrative part of the business, which for the first time returned a dividend to BBC Worldwide last year.