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Analysis: Sky Win Boosts Comcast as Global Streaming Wars Heat Up

Auction outcome sets up new haggling between Comcast and Disney over asset swaps

As the fight for Sky came down to a corporate version of sudden death, Comcast came to win.

After being outbid and outmaneuvered by Disney in the hunt for the larger collection of 21st Century Fox assets, Comcast was determined not to go home completely empty-handed from the biggest media M&A battle of the last quarter-century. The Sky pay-TV service, with 23 million subscribers in the U.K., Ireland, Germany, Austria and Italy, is an important platform for Comcast as the largest media giants look to build their own global streaming platforms to compete with Netflix, whose direct-to-consumer model allows for worldwide amortization of programming expenditures.

Saturday’s auction of Sky – in which Comcast delivered a $39 billion knockout in the final round – also promises to set up yet another face-off between Comcast and Disney. Disney is poised to acquire Fox’s existing 39% stake in Sky through its $71.3 billion buyout of key 21st Century Fox assets.

Comcast and Disney have been locked in a high-stakes chess game for nearly a year. Comcast’s aggressive 11th-hour bid for Fox assets, even after the initial deal with Disney was sealed in December, drove up the purchase price for Disney significantly, from $52.4 billion to the final price of $71.3 billion. Comcast’s determination to wrest Sky away from Fox (which had been trying to buy out the remaining 61% of Sky) resulted in a bidding war that ended Saturday with Comcast agreeing to shell out nearly $6 billion more than what it offered in July.

Disney is now expected to use the leverage of its stake in Sky to acquire Comcast’s 30% share of Hulu. There’s been speculation that some of Fox’s regional sports channels could also be in play as Disney and Comcast discuss asset swaps. Disney is obligated to divest Fox’s 22 regional sports networks as part of its deal with the Justice Department to clear the 21st Century Fox transaction. Hulu in its entirety is valued at about $9 billion. Fox’s 39% interest in Sky is valued at about $15.5 billion, based on the price tag set Saturday by Comcast’s $39 billion bid.

Comcast sees Sky as a vital player in a sector it already knows well: providing video and broadband service to residential and business customers. But Sky could also serve as the European backbone of a streaming platform fed by NBCUniversal-produced content from the U.S., U.K. and other markets. Disney had coveted Sky for the same reason as it preps for the launch next year of a Disney-branded streaming platform with global ambitions.

Sky brings to Comcast additional sources of original content through its Sky-branded channels, as well as the expansive Sky News operation. Sky has increasingly been partnering with HBO and Showtime on original productions as its Sky Atlantic channel is the U.K. home for series exports, such as “Game of Thrones,” from the premium U.S. cablers. All of those will be a natural fit with existing NBCUniversal entertainment and news assets.

“For Comcast’s overall business, Sky is a much better match for where they are – and compared to where Fox-Disney want to be,” said Guy Bisson, research director for London-based Ampere Analysis. “It fits very nicely with the rest of their biz and gives them the international footprint they need.”

Comcast has been under increasing pressure to expand its international footprint. For all its muscle as the U.S.’s largest cable operator and broadband provider, the company’s revenue base remains largely domestic at a time when the biggest source of growth for media giants lies beyond America’s borders.

Since it absorbed NBCUniversal in 2011, Comcast has slowly but surely been increasing its investment in the U.K. film and TV marketplace with acquisitions such as Working Title Films and Carnival Films, producer of “Downton Abbey” and other high-end dramas. The company has about 1,300 employees in the U.K. and has spent about $1 billion on U.K.-produced content during the past three years, per Comcast.

The surprise move by Rupert Murdoch to put most of his 21st Century Fox assets on the block in the summer of 2017 set off a race between the two biggest U.S. media conglomerates, Comcast and Disney, for the jewels of Murdoch’s film and TV empire.

It also pointed up the pressure on traditional media players to better compete with streaming upstarts like Netflix by marshaling content platforms and production operations that span the globe, or at least the biggest territories. That’s a big shift from the national and regional focus of most of the U.S.-based major networks. Indeed, Fox has long been in the vanguard of extending its brands and reach internationally, because Murdoch’s orientation from the moment he arrived on the scene as a Hollywood player in the early 1980s was never strictly about the U.S. market.

Comcast’s pending takeover of Sky marks another milestone for the Murdoch empire. Murdoch formed what was then British Sky Broadcasting in late 1990 with a vision for vastly expanding Britain’s TV landscape through cutting-edge home satellite technology. He staunchly backed the service through its early lean years when it nearly bankrupted what was then News Corp. Losses and debts piling up from Sky even threatened the survival of Murdoch’s other big TV gambit, Fox Broadcasting Co., which was still in its first decade of operations in the U.S.

But as usual, Sky shareholders are profiting handsomely by Murdoch’s decision to trust his gut. The value of Sky has skyrocketed just in the two years since Fox started its latest run at buying out the rest of the company, with an offer in December 2016 that valued Sky at around $24 billion. A previous effort was torpedoed by the 2011 phone-hacking scandal that engulfed Murdoch’s British newspapers.

Comcast’s first counteroffer for Sky in February, amid the larger Disney-Comcast tussle over Fox, put a $31 billion price-tag on the pay-TV heavyweight. Fox countered with a bid that nudged the value up to $32.5 billion. Comcast countered again in July at $34 billion. Fox, with backing from Disney, responded with a pledge to make yet another counteroffer, which led to Saturday’s unusual auction process.

“Sky is a remarkable story and we are proud to have played such a significant role in building the incredible value reflected today in Comcast’s offer,” 21st Century Fox said in a statement following the auction. 

Stewart Clarke contributed to this report.

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