Sky is the Limit

On Saturday, in a one-day, three-round blind auction managed by Britain’s Takeover Panel, Comcast outbid Fox for a controlling interest (61 percent) in Sky, a pay-TV operator with nearly 23 million subscribers spread across six European countries.  In the third and final round of the auction, Comcast bid $39 billion dollars, approximately $3.6 billion more than Fox, the owner of the remaining 39 percent of the shares outstanding.  In the race for global media dominance, the auction outcome is optimal for both parties—a win-win.  Here’s how!

While Bob Iger, CEO of Disney, referred to Sky as Fox’s “crown jewel” and may have considered 100 percent ownership of the pay TV company a good outcome, Disney is better off not owning it.  Disney is a content play that is expanding slowly into distribution using over-the-top technology.  It knows nothing about being a pay TV operator, let alone being one in Europe.  Meanwhile, Comcast’s higher-than-expected bid made the value of Fox’s minority stake in Sky (soon to be Disney’s) more valuable as an asset it retains or possibly sells to Comcast.

For Comcast, the additional 23 million subscribers from Sky double its customer base and expands its geographical footprint to outside of the U.S.  The massive scale increases its leverage in negotiations with suppliers (e.g. for content) and reduces its exposure to the rampant cord-cutting cable operators are experiencing at home.  While the European market may have unique challenges, Comcast knows the pay-TV/broadband business very well.