Reasons behind Comcast’s $31 bn offer to buy Sky

Comcast has launched Xfinity xFiMartin Scott, principal analyst at Analysys Mason, says Comcast’s offer to buy Sky is part of a strategy by US telecoms and media giants to diversify as the North American market weakens.

Comcast has made a cash offer to buy the European broadcasting group Sky for GBP22.1 billion or USD31 billion, exceeding a previous bid from 21st Century Fox by GBP3.6 billion or USD5 billion.

Comcast needs a new source of growth as the North American pay-TV market has already peaked. Around 65 percent of Comcast’s Q4 earnings were tied to media, either through Xfinity’s video revenue or NBCUniversal.

Pay TV retail revenue hit $117.8 billion in North America in 2017, up $1.0 billion year-on-year, but now faces a 10 percent decline over the next five years. Pay-TV connections per household will dip from 77 percent in 2017 to 70 percent in 2022. Since the Western European market remains buoyant, making investment in Europe is appealing for the major US players.

AT&T has been active in M&A to scale and diversify – moving into Mexico in 2015 with the acquisition of Nextel, strengthening TV with DIRECTV in the same year and making a bid for Time Warner in late 2016.

Verizon has diversified more widely online, acquiring AOL, Yahoo and fleet management companies FleetMatics and Telogis.

21st Century Fox made attempt to acquire Sky for the last 14 months. But it is in the process of being acquired by the Walt Disney.

What Sky would bring to Comcast

Comcast’s revenues outside the US would grow from 9 percent of revenues to 25 percent based on 2017 earnings.

Sky has an established capability, and strong expertise in, segmenting the market and leveraging its pay-TV assets for the OTT market. Comcast could not develop its own OTT presence in the US further.

It would be able to add to Sky’s NOW TV subscription offerings in Western Europe in a short time. Comcast could offer NBCUniversal content such as SyFy as extra subscription options to further monetise its content in Europe.

Sky would bring Comcast tactical stakes in new technologies and services worldwide. Sky holds stakes in emerging market OTT player iflix as well as platform and device provider Roku.

Sky’s move to launch its Sky Q service as a dishless OTT service in Europe mirrors Comcasts work to evolve Xfinity TV and X1.

What Comcast would bring to Sky

Comcast can help fund Sky’s European expansion. The implementation of the European Commission’s Digital Single Market strategy in 2018 will pave the way for Sky to offer both its OTT NOW TV service and its Sky Q service to a larger target audience.

NBCUniversal’s content assets would bring down Sky’s cost of content and widen their portfolio. Comcast highlighted ‘content production and technology’ as a focus point for the acquisition.

Comcast would strengthen Sky’s position in telecoms. Comcast’s investment in telecoms, and aspirations for mobile in the US mirrors Sky’s mobile efforts in the UK. Comcast also achieved success in the smart home market in the US. Sky’s European operations may follow suite.