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Straight Talk Consumer and Entertainment Services

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Last week, Comcast finally beat Disney to acquire Sky Europe.

Like many other traditional subscription TV service providers, Comcast faced the dilemma of what to do about the rise of native online video platforms which have radically shifted the balance of power in the global media landscape. Its latest response is to chase scale and territorial diversification through its Sky acquisition, with which it has almost doubled its subscriber base to more than 50 million, making it the largest transnational pay-TV group in the world by subscriptions and revenues. The combined Comcast–Sky entity will benefit in the following ways:

  • Ovum expects that in the next 12–18 months Comcast will prioritize identifying best practice in operational and technical execution and applying it across the Comcast–Sky group. Sky Q and Comcast's X1 STB, Sky's Now TV, Sky's AdSmart addressable advertising, and both Comcast and Sky's voice UI will now have a much larger audience and territorial footprint in which to operate.

  • Comcast–Sky will gradually benefit from making cross-territory content deals for its large subscriber base instead of separate deals for Comcast in the US, Sky in the UK, and Sky Italia, which should drive down content acquisition costs on a per-subscriber basis. There is a significant overlap in the tastes of transatlantic audiences, given the shared entertainment viewing culture of the US and Europe and the shared language of the US, UK, and Ireland. Sports rights, however, are unlikely to be treated in this way, partially because rights owners still appear to prefer single-market deals, but also because there is much less overlap in the televised sports prized by American and British audiences.

  • The Comcast–Sky entity will stave off content producers' hopes of greater success in their D2C aspirations. Disney will launch its own online service and will almost certainly use the $15bn cash it has gained from selling its stake in Sky to undermine Comcast–Sky. Showtime and HBO are also actively looking to expand their D2C presence globally, and Apple is expected to launch its own online platform.

What Comcast–Sky does next will be key in deciding Sky Europe's future. The two standout things it could do are:

  • Increasing original production investment. There are synergies to be had between Comcast and Sky in terms of content production: both serve Anglophone audiences with significant overlaps in what viewers like to watch. Comcast–Sky has content budgets matched only by the supersized entities emerging from the Disney–Fox and AT&T–Time Warner (AT&W) transactions.

  • Expanding Comcast–Sky's geographical footprint. Sky is present as a DTH operator in five European markets and has an online presence through its pay-OTT platform, or "skinny bundle," Now TV, in the UK, Ireland, and Italy, as well as OTT outlets Sky España and Sky Show in Switzerland (the latter is operated by Sky Deutschland). Sky's online expertise may be relied upon to expand further across Europe and perhaps further afield – even though Comcast has traditionally shied away from selling skinny bundles on a standalone basis in the US market. Online expansion will be key for Comcast–Sky, as native SVOD and D2C operators are increasingly looking at the global landscape as one single market.

Figure 1: How megamergers affect content spend

How megamergers affect content spend

Source: Ovum

 

The pursuit of international media dominance has resulted in megamergers that would have been unthinkable a few years back, given historical rivalries and antipathies. With the growth in online video players dominating the growth in OTT subscriptions and AVOD, the Comcast–Sky story is just the latest example – following Discovery–Scripps, AT&T–Time Warner, and Disney–Fox – of the traditional TV industry consolidating to compete more effectively with the native digital platforms. The problem is that these megamergers will intensify competition between the new entities themselves, as well as against the nimble SVODs and online linear companies, whether they are already operating globally (e.g. Netflix and Amazon), expected to launch soon, or going global soon (e.g. Disney, Apple, HBO, Showtime, and Starz). The stakes have never been higher.

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