Armed With Sky, Comcast Takes Aim at Europe

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Comcast CEO Brian Roberts

NBCUniversal can leverage its global distribution to boost returns from high-end original programming.

When one door closes, another opens — ushering in a flood of questions.

Comcast's July decision to drop out of a showdown with Walt Disney for 21st Century Fox in favor of focusing on Sky paid off Sept. 22, when it outbid Walt Disney-backed Fox to acquire the European pay TV giant.

As the dust settles, the victors — Disney chairman and CEO Bob Iger and Comcast chairman and CEO Brian Roberts — face a few key issues regarding their respective spoils.

+ Who will lead?

21st Century Fox president Peter Rice and Fox TV Group chair Dana Walden are expected to get senior roles and expanded purviews in Disney-Fox's TV operations.

On the film side, 20th Century Fox Film co-chairman and CEO Stacey Snider won't be part of the merged company, but insiders tell THR that her No. 2, vice chairman Emma Watts, is expected to take on a key role.

Meanwhile, the leadership for the remaining Fox assets, known as "New Fox," is also taking shape, with the Lachlan Murdoch-led entity set to see Eric Shanks get elevated to CEO of Fox Sports from his current role of president, COO and executive producer, Fox Sports, among other personnel changes.

Meanwhile, Comcast is widely expected to keep Sky CEO Jeremy Darroch, along with COO and CFO Andrew Griffith in place, even though no formal announcement has been made.

But Roberts praised the leadership team in April. "Sky has a strong business, excellent customer loyalty, and a valued brand," he said. "It is led by a terrific management team who we look forward to working with to build and grow this business."

+ What will they make and where will it live?

Disney has made no secret about wanting to keep more of its (and Fox's) content for its upcoming streaming service, for which it has said it will spend part of the $15 billion it will get from selling Fox's 39 percent Sky stake on content production.

Some observers also expect Disney to pull its content off Sky when its and Fox's licensing deals expire. "As Disney expands its direct-to-consumer efforts globally, it'll be competing head-to-head in Europe," predicts BTIG analyst Richard Greenfield.

Comcast, which has 27.6 million subscribers, has so far not had as big an international presence as some of its peers beyond its networks, production firms and theme parks. Sky, which has 23 million subscribers, will be its "platform for our growth in Europe," Roberts said earlier this year. "As a European market leader, Sky would accelerate Comcast’s international strategy, increasing revenues from outside the U.S. to 25 percent of the total from around 9 percent currently," he added.

Experts expect the company to leverage its existing and Sky assets to create growth opportunities. For example, NBCUniversal could flex its global distribution muscle to help sell Sky's high-end original programming more widely and boost returns, analysts said.

And the company will likely further boost investment in original fare. "We expect Comcast and NBCU to expand Sky's current programming productions," Buckingham Research Group's Matthew Harrigan wrote in a Sept. 25 report.

In the U.S., Comcast has been one of the few companies that have bet on owning both content and distribution assets, something that telecom giant AT&T is looking to also do with its recent takeover of Time Warner. The Sky deal allows Comcast to put a similar strategy to work in Europe. Key to the U.S. strategy has been what Comcast and NBCUniversal call "Symphony," which is all about cross-promotion efforts that put company-wide support behind content, services and projects that management deems a priority. The Olympics, key film releases and full-season stacking of TV shows have been among the focus areas of Symphony. 

+ What will happen to Hulu?

With Disney's Fox takeover doubling its 30 percent stake, will Comcast sell its 30 percent share? Wall Street has been spending much time discussing the issue as of late. 

"Hulu’s fate (60 percent owned by Disney/Fox, 30 pefcent owned by Comcast) will be an interesting topic as we consider Disney’s direct-to-consumer launch and Comcast now owning Sky’s Now TV OTT platform," Cowen analyst Gregory Williams wrote in a recent report.

Harrigan says Hulu was valued at $2.6 billion per regulatory filings from this year, "but we would look for at least 30 percent-plus upside," meaning $3.4 billion or more in the case of any stake sale.

While some on Wall Street see the company selling its stake to raise some cash and focus on businesses that it controls, one source familiar with Comcast's thinking says it plans to stick around, given that NBCUniversal recently appointed three members to Hulu's board.

Greenfield says keeping the stake will allow the cable giant to “hamper Disney’s direct-to-consumer strategy,” keep an inside look at the business, continue to benefit from licensing NBCUniversal content to Hulu along with possibly being a thorn in its side.

Concluded the analyst: “Comcast remaining in Hulu and keeping three board seats that enable them to have a say in Hulu’s future will drive Disney absolutely crazy.” 

This story first appeared in the Oct. 3 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.