Viacom to Acquire U.K.'s Channel 5 for $760 Million
LONDON – After Discovery Communications and British pay TV giant BSkyB recently dropped out of the auction, Viacom on Thursday unveiled a deal to acquire U.K. broadcaster Channel 5, home of the local version of Big Brother, for $760 million (450 million pounds).
The deal is the biggest that Viacom, led by CEO Philippe Dauman, has made since the split from CBS Corp. and makes it the first U.S. company ever to own a British free-to-air broadcaster.
The deal will add to its international revenue and expand the U.K. presence of its Viacom International Media Networks arm. It will also push Viacom back into the free-to-air broadcasting field in a big way, with analysts suggesting the company could use some of its Nickelodeon kids, reality TV and other content to strengthen programming at the network. Viacom had left broadcasting behind in its separation from CBS Corp. at the start of 2006, with the exception of a couple of ventures in foreign markets.
The entertainment conglomerate, which operates such cable networks as MTV, Nickelodeon and Comedy Central, as well as the Paramount Pictures film studio, won an auction, which had drawn third-round bids by a deadline last month, followed by a period of final negotiations with Discovery and then Viacom, controlled by chairman Sumner Redstone.
Dauman on an earnings conference call on Thursday said the deal would be accretive to operating earnings in its first year. "We think we can take Channel 5 … to the next level," he said, adding that more spending on original shows will be a key focus, which should boost ratings and monetization as the channel will own more of its content. Dauman said that shows created for the broadcaster could also move to Viacom's U.S. networks.
He also lauded cross-promotion opportunities that could boost ratings for Channel 5 and Viacom's existing U.K. networks, such as Nickelodeon. Viacom's consumer products business could also benefit from promotion on Channel 5, he said.
Dauman said Channel 5 has about $600 million in annual revenue, with most of it from advertising.
Entrepreneur and current Channel 5 owner Richard Desmond had acquired the broadcaster a few years ago for a much lower price. His Northern & Shell had paid $171 million in 2010 for the broadcaster. But the owner had been looking for as much as $1.1 billion, well above the Discovery and BSkyB offer that was understood to have been worth about $585 million.
Discovery and BSkyB, in which Rupert Murdoch's 21st Century Fox holds a 39 percent stake, balked at suggestions that they sweeten the price tag. Discovery already has a strong international presence, especially in Europe where it has in the past two years also acquired SBS in Scandinavia and is set to raise its holding in Eurosport International to a majority stake. The company has emphasized the importance of financial discipline in deals.
Channel 5 has increased its ratings with such shows as the British version of Big Brother and such U.S. acquisitions as CSI, The Mentalist and the Dallas reboot. Observers have said increased use of originals could boost the channel further.
The price tag paid by Viacom was believed to be nine times last year's pre-tax earnings for Channel 5.
BSkyB is also expected to benefit from the Viacom deal, though as it has an existing partnership in Britain with the conglomerate. The companies operate Nickelodeon here as a joint venture, and BSkyB also owns a 25 percent stake in Comedy Central here. The pay TV giant handles advertising sales for both.
"We have a deep relationship with Viacom in the U.K.," said BSkyB CEO Jeremy Darroch on Thursday during an earnings conference call. If and when an acquisition of Channel 5 does get announced, he said "we'll be happy to help them," but signaled that an agreement on extending the current relationship has not yet been reached.
"The transaction brings Viacom one of British television’s biggest brands, and the only commercial public service broadcaster to consistently grow viewership share in recent years," Viacom said in its announcement. "Channel 5's diverse programming slate is viewed by more than 80 percent of the U.K. population each month, benefits from the programming grid prominence associated with its public service broadcaster status and will complement Viacom’s popular pay TV networks, which connect with focused and valuable audiences."
"The acquisition of Channel 5 accelerates Viacom's strategy in the U.K., one of the world’s most important and valuable media markets," said Dauman in a statement. "Channel 5's momentum is indisputable, with impactful programming, increasing popularity and a growing digital platform. Channel 5's management and employees have done an outstanding job building their brand and we are pleased to welcome them to our team. Viacom's global resources, technology and expertise will help Channel 5 develop even more compelling programming and provide content to consumers in exciting new ways. In addition, we will introduce our popular content to new U.K. audiences and create a comprehensive offering for our commercial partners on-air and online."