Fox's Billion-Dollar Plan to Build a Content and Distribution Powerhouse

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Rupert Murdoch

The $14.1 billion offer to buy full control of Sky could give Rupert Murdoch and sons a leg up on doing in Europe what they haven't been able to do in the United States.

21st Century Fox missed an opportunity to build scale when its attempted 2014 takeover of Time Warner failed. But much has changed in the time since then, especially when it comes to acquisition strategies.

Now Rupert Murdoch and sons James and Lachlan are betting Fox’s $14.1 billion offer to buy full control of pay TV giant Sky will give them a leg up on becoming a content and distribution powerhouse in Europe. They also hope to leverage Sky's direct-to-consumer expertise for possible new offers in other international markets.

Cord-cutting has taken off since 2014, and now the deal du jour is matching up media giants with companies that go direct to consumers with pay TV and mobile phone subscriptions. AT&T is hoping its DirecTV and mobile customers will benefit from such synergies if its $85.4 billion acquisition of Time Warner goes through, and cable giant Comcast already counts NBCUniversal as part of its properties.

In the case of Sky, Fox stands to benefit because Europe still is an immature pay TV market and also one when it comes to content providers and deliverers combining. And the Murdochs could have their eye on such other regions as Asia Pacific. Macquarie Capital analyst Tim Nollen even suggests Sky could use its over-the-top expertise to launch online video streaming in other parts of the world and “ultimately become the cornerstone for Fox to organize a global content and distribution strategy.”

Either way, analysts are buzzing that the Murdochs’ plan may force similar moves from such rivals as European telecom giants BT and Vodafone. U.K. television titan ITV, in which John Malone's Liberty Global owns a nearly 10 percent stake, is mentioned as a likely takeover target, possibly for Liberty Global itself.

In that sense, as long as the Sky deal is approved by British and European regulators, the Murdochs could become the leaders whom others will follow — or risk being left behind. Says Mott Capital Management founder and portfolio manager Michael Kramer: “To remain competitive, you need to control content and its distribution, and that’s what’s happening: They’re all consolidating.”

This story first appeared in the Jan. 6 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

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